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 September 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
 
(State of incorporation or organization)
  36-3873352
 
(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 þ 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, 31,156,846 shares, as of October 28, 2010
 
 

 


 

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Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
                         
    (Unaudited)           (Unaudited)
    September 30,   December 31,   September 30,
(In thousands, except share data)   2010   2009   2009
 
Assets
                       
Cash and due from banks
  $ 155,067     $ 135,133     $ 128,898  
Federal funds sold and securities purchased under resale agreements
    88,913       23,483       22,863  
Interest-bearing deposits with other banks ($47,780 restricted for securitization investors at September 30, 2010)
    1,224,584       1,025,663       1,168,362  
Available-for-sale securities, at fair value
    1,324,179       1,255,066       1,362,359  
Trading account securities
    4,935       33,774       29,204  
Brokerage customer receivables
    25,442       20,871       19,441  
Federal Home Loan Bank and Federal Reserve Bank stock
    80,445       73,749       71,889  
Loans held-for-sale, at fair value
    307,231       265,786       187,505  
Loans held-for-sale, at lower of cost or market
    13,209       9,929       5,750  
Loans, net of unearned income, excluding covered loans
    9,461,155       8,411,771       8,275,257  
Covered loans
    353,840              
 
Total loans
    9,814,995       8,411,771       8,275,257  
Less: Allowance for loan losses
    110,432       98,277       95,096  
 
Net Loans ($635,755 restricted for securitization investors at September 30, 2010)
    9,704,563       8,313,494       8,180,161  
Premises and equipment, net
    353,445       350,345       352,890  
FDIC indemnification asset
    161,640              
Accrued interest receivable and other assets
    365,496       416,678       315,806  
Goodwill
    278,025       278,025       276,525  
Other intangible assets
    13,194       13,624       14,368  
 
Total assets
  $ 14,100,368     $ 12,215,620     $ 12,136,021  
 
 
                       
Liabilities and Shareholders’ Equity
                       
Deposits:
                       
Non-interest bearing
  $ 1,042,730     $ 864,306     $ 841,668  
Interest bearing
    9,919,509       9,052,768       9,005,495  
 
Total deposits
    10,962,239       9,917,074       9,847,163  
Notes payable
    1,000       1,000       1,000  
Federal Home Loan Bank advances
    414,832       430,987       433,983  
Other borrowings
    241,522       247,437       252,071  
Secured borrowings — owed to securitization investors
    600,000              
Surbordinated notes
    55,000       60,000       65,000  
Junior subordinated debentures
    249,493       249,493       249,493  
Trade date securities payable
    2,045              
Accrued interest payable and other liabilities
    175,325       170,990       181,229  
 
Total liabilities
    12,701,456       11,076,981       11,029,939  
 
 
                       
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 September 30, 2010, December 31, 2009 and September 30, 2009
    49,379       49,379       49,379  
Series B — $1,000 liquidation value; 250,000 shares issued and outstanding at September 30, 2010, December 31, 2009 and September 30, 2009
    237,855       235,445       234,682  
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 31,145,332 shares at September 30, 2010, 27,079,308 shares at December 31, 2009, and 26,965,411 shares at September 30, 2009
    31,145       27,079       26,965  
Surplus
    682,318       589,939       580,988  
Treasury stock, at cost, 1,592 shares at September 30, 2010, 2,872,489 shares at December 31, 2009 and 2,862,343 shares at September 30, 2009
    (51 )     (122,733 )     (122,437 )
Retained earnings
    394,323       366,152       342,873  
Accumulated other comprehensive income (loss)
    3,943       (6,622 )     (6,368 )
 
Total shareholders’ equity
    1,398,912       1,138,639       1,106,082  
 
Total liabilities and shareholders’ equity
  $ 14,100,368     $ 12,215,620     $ 12,136,021  
 
See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except per share data)   2010   2009   2010   2009
Interest income
                               
Interest and fees on loans
  $ 137,902     $ 126,448     $ 403,244     $ 343,637  
Interest bearing deposits with banks
    1,339       778       3,828       2,205  
Federal funds sold and securities purchased under resale agreements
    35       106       118       233  
Securities
    7,438       13,677       29,668       42,977  
Trading account securities
    19       7       383       86  
Brokerage customer receivables
    180       132       484       372  
Federal Home Loan Bank and Federal Reserve Bank stock
    488       429       1,419       1,275  
         
Total interest income
    147,401       141,577       439,144       390,785  
         
Interest expense
                               
Interest on deposits
    31,088       42,806       95,926       132,261  
Interest on Federal Home Loan Bank advances
    4,042       4,536       12,482       13,492  
Interest on notes payable and other borrowings
    1,411       1,779       4,312       5,401  
Interest on secured borrowings — owed to securitization investors
    3,167             9,276        
Interest on subordinated notes
    265       333       762       1,341  
Interest on junior subordinated debentures
    4,448       4,460       13,227       13,348  
         
Total interest expense
    44,421       53,914       135,985       165,843  
         
Net interest income
    102,980       87,663       303,159       224,942  
Provision for credit losses
    25,528       91,193       95,870       129,329  
         
Net interest income after provision for credit losses
    77,452       (3,530 )     207,289       95,613  
         
Non-interest income
                               
Wealth management
    8,973       7,501       26,833       20,310  
Mortgage banking
    20,980       13,204       38,693       52,032  
Service charges on deposit accounts
    3,384       3,447       10,087       9,600  
Gain on sales of commercial premium finance receivables
          3,629             4,147  
Gains (losses) on available-for-sale securities, net
    9,235       (412 )     9,673       (910 )
Gain on bargain purchases
    6,593       113,062       43,981       113,062  
Trading gains (losses)
    712       6,236       5,147       23,254  
Other
    4,779       4,013       13,286       11,064  
         
Total non-interest income
    54,656       150,680       147,700       232,559  
         
Non-interest expense
                               
Salaries and employee benefits
    57,014       48,088       156,735       138,923  
Equipment
    4,203       4,069       12,144       12,022  
Occupancy, net
    6,254       5,884       18,517       17,682  
Data processing
    3,891       3,226       10,967       9,578  
Advertising and marketing
    1,650       1,488       4,434       4,003  
Professional fees
    4,555       4,089       11,619       9,843  
Amortization of other intangible assets
    701       677       2,020       2,040  
FDIC insurance
    4,642       4,334       13,456       16,468  
OREO expenses, net
    4,767       10,243       11,948       13,671  
Other
    12,046       10,465       34,484       29,540  
         
Total non-interest expense
    99,723       92,563       276,324       253,770  
         
Income before taxes
    32,385       54,587       78,665       74,402  
Income tax expense
    12,287       22,592       29,540       29,500  
         
Net income
  $ 20,098     $ 31,995     $ 49,125     $ 44,902  
         
Preferred stock dividends and discount accretion
  $ 4,943     $ 4,668     $ 14,830     $ 14,668  
         
Net income applicable to common shares
  $ 15,155     $ 27,327     $ 34,295     $ 30,234  
         
Net income per common share — Basic
  $ 0.49     $ 1.14     $ 1.17     $ 1.26  
         
Net income per common share — Diluted
  $ 0.47     $ 1.07     $ 1.12     $ 1.25  
         
Cash dividends declared per common share
  $ 0.09     $ 0.09     $ 0.18     $ 0.27  
         
Weighted average common shares outstanding
    31,117       24,052       29,396       23,958  
Dilutive potential common shares
    988       2,493       1,132       323  
         
Average common shares and dilutive common shares
    32,105       26,545       30,528       24,281  
         
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   shareholder’s
(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
                            44,902             44,902  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  2,154       2,154  
Unrealized gains on derivative instruments
                                  2,089       2,089  
 
                                                       
 
                                                       
Comprehensive income
                                                    49,145  
 
                                                       
Cash dividends declared on common stock
                            (6,463 )           (6,463 )
Dividends on preferred stock
                            (12,480 )           (12,480 )
Accretion on preferred stock
    2,188                         (2,188 )            
Stock-based compensation
                5,132                         5,132  
Cumulative effect of change in accounting for other-than-temporary impairment
                            309       (309 )      
Common stock issued for:
                                                       
Exercise of stock options and warrants
          175       2,482                         2,657  
Restricted stock awards
          73       (820 )     (147 )                 (894 )
Employee stock purchase plan
          56       635                         691  
Director compensation plan
          50       1,672                         1,722  
 
Balance at September 30, 2009
  $ 284,061     $ 26,965     $ 580,988     $ (122,437 )   $ 342,873     $ (6,368 )   $ 1,106,082  
 
 
                                                       
Balance at December 31, 2009
  $ 284,824     $ 27,079     $ 589,939     $ (122,733 )   $ 366,152     $ (6,622 )   $ 1,138,639  
Comprehensive income:
                                                       
Net income
                            49,125             49,125  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  11,031       11,031  
Unrealized losses on derivative instruments
                                  (310 )     (310 )
 
                                                       
 
                                                       
Comprehensive income
                                        59,846  
 
                                                       
Cash dividends declared on common stock
                            (4,992 )           (4,992 )
Dividends on preferred stock
                            (12,420 )           (12,420 )
Accretion on preferred stock
    2,410                         (2,410 )            
Stock-based compensation
                3,116                         3,116  
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
          141       2,856                         2,997  
Restricted stock awards
          56       (83 )     (149 )                 (176 )
Employee stock purchase plan
          26       896                         922  
Director compensation plan
          48       1,803                         1,851  
 
Balance at September 30, 2010
  $ 287,234     $ 31,145     $ 682,318     $ (51 )   $ 394,323     $ 3,943     $ 1,398,912  
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
                 
    Nine Months ended September 30,
    2010   2009
Other comprehensive income (loss)
               
Unrealized gains (losses) on available-for-sale securities arising during the period, net
  $ 26,836     $ 2,435  
Unrealized (losses) gains on derivative instruments arising during the period, net
    (505 )     3,399  
Less: Reclassification adjustment for gains (losses) included in net income, net
    9,673       (910 )
Less: Income tax expense
    5,937       2,501  
     
Other comprehensive income
  $ 10,721     $ 4,243  
     
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Nine Months ended September 30,
(In thousands)   2010   2009
 
Operating Activities:
               
Net income
  $ 49,125     $ 44,902  
Adjustments to reconcile net income to net cash provided by (used for) operating activities
               
Provision for credit losses
    95,870       129,329  
Depreciation and amortization
    13,426       15,246  
Stock-based compensation expense
    4,521       5,132  
Tax benefit (expense) from stock-based compensation arrangements
    744       (140 )
Excess tax benefits from stock-based compensation arrangements
    (1,020 )     (724 )
Net amortization of premium on securities
    4,674       129  
Mortgage servicing rights fair value change and amortization, net
    3,724       2,057  
Originations and purchases of mortgage loans held-for-sale
    (2,495,880 )     (3,713,883 )
Proceeds from sales of mortgage loans held-for-sale
    2,498,438       3,620,400  
Originations of premium finance receivables held-for-sale
          (790,044 )
Proceeds from sales and securitizations of premium finance receivables held-for-sale
          106,282  
Bank owned life insurance income, net of claims
    (1,593 )     (1,403 )
Gain on sales of premium finance receivables
          (4,147 )
Decrease (increase) in trading securities, net
    28,839       (24,805 )
Net increase in brokerage customer receivables
    (4,571 )     (1,540 )
Gain on mortgage loans sold
    (47,283 )     (38,656 )
(Gain) loss on available-for-sale securities, net
    (9,673 )     910  
Gain on bargain purchases
    (43,981 )     (113,062 )
Loss on sale of premises and equipment, net
    7       366  
Decrease (increase) in accrued interest receivable and other assets, net
    100,824       (34,073 )
Decrease in accrued interest payable and other liabilities, net
    9       25,599  
 
Net Cash Provided by (Used for) Operating Activities
    196,200       (772,125 )
 
 
               
Investing Activities:
               
Proceeds from maturities of available-for-sale securities
    907,492       1,146,564  
Proceeds from sales of available-for-sale securities
    628,462       1,145,137  
Purchases of available-for-sale securities
    (1,609,840 )     (2,153,313 )
Proceeds from sales and securitizations of premium finance receivables
          600,000  
Net cash received (paid) for business combinations
    84,920       (685,456 )
Net increase in interest-bearing deposits with banks
    (51,588 )     (1,045,353 )
Net (increase) decrease in loans
    (551,016 )     122,433  
Purchases of premises and equipment, net
    (15,896 )     (16,404 )
 
Net Cash Used for Investing Activities
    (607,466 )     (886,392 )
 
 
               
Financing Activities:
               
Increase in deposit accounts
    354,941       1,470,407  
Decrease in other borrowings, net
    (5,915 )     (84,693 )
Decrease in Federal Home Loan Bank advances, net
    (44,592 )     (2,000 )
Repayment of subordinated note
    (5,000 )     (5,000 )
Excess tax benefits from stock-based compensation arrangements
    1,020       724  
Issuance of common stock, net of issuance costs
    210,417        
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants
    3,275       2,741  
Common stock repurchases
    (149 )     (147 )
Dividends paid
    (17,367 )     (17,658 )
 
               
 
Net Cash Provided by Financing Activities
    496,630       1,364,374  
 
Net Increase (Decrease) in Cash and Cash Equivalents
    85,364       (294,143 )
Cash and Cash Equivalents at Beginning of Period
    158,616       445,904  
 
Cash and Cash Equivalents at End of Period
  $ 243,980     $ 151,761  
 
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 $156,000 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 are not 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 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
FDIC-Assisted Transactions
On August 6, 2010, Northbrook Bank & Trust Company (“Northbrook”) acquired the banking operations of Ravenswood Bank (“Ravenswood”) in an FDIC assisted transaction. Northbrook acquired assets with a fair value of approximately $172 million, including $94 million of loans, and assumed liabilities with a fair value of approximately $123 million, including $121 million of deposits. Additionally, on April 23, 2010, the Company acquired the banking operations of two entities in FDIC assisted transactions. 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 and Trust Company (“Wheaton”) 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 this 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 $46.6 million for the Ravenswood acquisition, and

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$113.8 million for the Lincoln Park and Wheatland acquisitions. 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 bargain purchase gains of $33.1 million, $6.6 million for Ravenswood, $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 Statements of Income.
Life Insurance Premium Finance Acquisition
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 Statements 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.

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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.
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
Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio.
In determining the acquisition date fair value of purchased impaired loans for Ravenswood, Lincoln Park and Wheatland, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans with common risk characteristics. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.
The life insurance premium finance receivables are valued on an individual basis with the accretable component being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion is evaluated each quarter and if the loans’ credit related conditions improve, a portion is 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:
                                 
    September 30, 2010
            Gross   Gross    
    Amortized   unrealized   unrealized   Fair
(Dollars in thousands)   Cost   gains   losses   Value
U.S. Treasury
  $ 2,016     $     $ (1 )   $ 2,015  
U.S. Government agencies
    868,419       6,021       (113 )     874,327  
Municipal
    53,138       1,526       (23 )     54,641  
Corporate notes and other:
                               
Financial issuers
    94,482       3,351       (1,416 )     96,417  
Other
    75,895       714       (23 )     76,586  
Mortgage-backed: (1)
                               
Agency
    164,769       12,491             177,260  
Non-agency CMOs
    3,088       13             3,101  
Other equity securities
    40,567       96       (831 )     39,832  
     
Total available-for-sale securities
  $ 1,302,374     $ 24,212     $ (2,407 )   $ 1,324,179  
     
                                 
    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:
                               
Financial issuers
    42,241       1,518       (2,013 )     41,746  
Retained subordinated securities
    47,448       254             47,702  
Mortgage-backed: (1)
                               
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)   Consisting entirely of residential mortgage-backed securities, none of which are subprime.
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 September 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
  $ 2,015     $ (1 )   $     $     $ 2,015     $ (1 )
U.S. Government agencies
    98,057       (113 )                 98,057       (113 )
Municipal
    514       (11 )     333       (12 )     847       (23 )
Corporate notes and other:
                                               
Financial issuers
    21,541       (49 )     4,574       (1,367 )     26,115       (1,416 )
Other
    18,680       (23 )                 18,680       (23 )
Other Equity Securities
    26,776       (831 )                 26,776       (831 )
             
Total
  $ 167,583     $ (1,028 )   $ 4,907     $ (1,379 )   $ 172,490     $ (2,407 )
             

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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 September 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 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:
                                 
    Three Months Ended September,     Nine Months Ended September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Balance at beginning of period (1)
  $ (472 )   $ (4,195 )   $ (472 )   $ (6,181 )
Credit losses recognized
          (472 )           (472 )
Reductions for securities sold during the period
          3,043             5,029  
 
                       
 
                               
Balance at end of period
  $ (472 )   $ (1,624 )   $ (472 )   $ (1,624 )
 
                       
 
(1)   For the nine months ended September 30, 2009, the balance at beginning of period is as of April 1, 2009.
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:
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Realized gains
  $ 9,236     $ 1,601     $ 9,785     $ 3,417  
Realized losses
    (1 )     (1,541 )     (112 )     (1,719 )
 
                       
Net realized gains
  $ 9,235     $ 60     $ 9,673     $ 1,698  
Other than temporary impairment charges
          472             2,608  
 
                       
Gains (losses) on available- for-sale securities, net
  $ 9,235     $ (412 )   $ 9,673     $ (910 )
 
                       
Proceeds from sales of available-for-sale securities
  $ 357,808     $ 73,945     $ 628,462     $ 1,145,137  
 
                       

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The amortized cost and fair value of securities as of September 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:
                                 
    September 30, 2010     December 31, 2009  
    Amortized     Fair     Amortized     Fair  
(Dollars in thousands)   Cost     Value     Cost     Value  
Due in one year or less
  $ 595,519     $ 596,279     $ 111,380     $ 111,860  
Due in one to five years
    287,700       289,520       221,294       222,152  
Due in five to ten years
    56,875       58,139       328,914       318,796  
Due after ten years
    153,856       160,048       192,004       188,968  
Mortgage-backed
    167,857       180,361       358,608       375,306  
Other equity securities
    40,567       39,832       37,969       37,984  
 
                       
Total available-for-sale securities
  $ 1,302,374     $ 1,324,179     $ 1,250,169     $ 1,255,066  
 
                       
At September 30, 2010 and December 31, 2009, securities having a carrying value of $864 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 September 30, 2010, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.
(6) Loans
The following table shows the Company’s loan portfolio by category as of the dates shown:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2010     2009     2009  
Balance:
                       
Commercial
  $ 1,952,791     $ 1,743,208     $ 1,643,721  
Commercial real-estate
    3,331,498       3,296,698       3,392,138  
Home equity
    919,824       930,482       928,548  
Residential real-estate
    342,009       306,296       281,151  
Premium finance receivables — commercial
    1,323,934       730,144       752,032  
Premium finance receivables — life insurance
    1,434,994       1,197,893       1,045,653  
Indirect consumer
    56,575       98,134       115,528  
Other loans
    99,530       108,916       116,486  
 
                 
Total loans, net of unearned income, excluding covered loans
  $ 9,461,155     $ 8,411,771     $ 8,275,257  
Covered loans
    353,840              
 
                 
Total loans
  $ 9,814,995     $ 8,411,771     $ 8,275,257  
 
                 
 
                       
Mix:
                       
Commercial
    20 %     21 %     20 %
Commercial real-estate
    34       39       41  
Home equity
    9       11       11  
Residential real-estate
    3       4       4  
Premium finance receivables — commercial
    13       9       9  
Premium finance receivables — life insurance
    15       14       13  
Indirect consumer
    1       1       1  
Consumer and other
    1       1       1  
 
                 
Total loans, net of unearned income, excluding covered loans
    96 %     100 %     100 %
Covered loans
    4              
 
                 
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 $34.8 million at September 30, 2010, $31.8 million at December 31, 2009 and $30.1 million at September 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 FDIC-assisted acquisitions during the nine-months ended 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition”, below. The $593.8 million increase in commercial premium finance receivables at September 30, 2010 compared to December 31, 2009 is primarily due to the third quarter 2009

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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 $12.6 million at September 30, 2010, $10.7 million at December 31, 2009 and $10.4 million at September 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.
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 FDIC-assisted 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 $910.9 million at acquisition. At September 30, 2010, the unpaid principal balance and carrying value of these loans were $836.9 million and $765.6 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 $105.0 million at acquisition. At September 30, 2010, the unpaid principal balance and carrying value of these loans totaled $119.3 million and $96.0 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 September 30, 2010, the unpaid principal balance and carrying value of these loans totaled $235.8 million and $166.2 million, respectively. The portfolio of loans acquired from the Ravenswood acquisition had an unpaid principal balance of $154.6 million and a carrying value of $93.9 million at acquisition. At September 30, 2010, the unpaid principal balance and carrying value of these loans totaled $150.6 million and $91.6 million, respectively.
The following table provides details on these loans at each acquisition:
                                 
                            Life Insurance  
                            Premium  
(Dollars in thousands)   Ravenswood     Wheatland     Lincoln Park     Finance Loans  
Contractually required payments including interest
  $ 168,218     $ 307,103     $ 165,284     $ 1,032,714  
Less: Nonaccretable difference
    66,051       118,660       36,304       41,281  
 
                       
Cash flows expected to be collected (1)
    102,167       188,443       128,980       991,433  
Less: Accretable yield
    8,243       13,296       23,980       80,560  
 
                       
Fair value of loans acquired with evidence of credit quality deterioration since origination
  $ 93,924     $ 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 September 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.

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Accretable Yield Activity
The following table provides activity for the accretable yield of these loans:
                                 
    Three Months Ended  
    September 30, 2010  
                            Life Insurance  
                            Premium  
(Dollars in thousands)   Ravenswood     Wheatland     Lincoln Park     Finance Loans  
Accretable yield, beginning balance
  $     $ 11,827     $ 22,767     $ 51,779  
Acquisitions
    8,243                    
Accretable yield amortized to interest income
    (710 )     (1,903 )     (1,358 )     (8,491 )
Reclassification from the nonaccretable difference (1)
                      1,680  
Reclassification to the nonaccretable difference (2)
                      (52 )
 
                       
Accretable yield, ending balance
  $ 7,533     $ 9,924     $ 21,409     $ 44,916  
 
                       
 
(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.
                                 
    Nine Months Ended  
    September 30, 2010  
                            Life Insurance  
                            Premium  
(Dollars in thousands)   Ravenswood     Wheatland     Lincoln Park     Finance Loans  
Accretable yield, beginning balance
  $     $     $     $ 65,026  
Acquisitions
    8,243       13,296       23,980        
Accretable yield amortized to interest income
    (710 )     (3,372 )     (2,571 )     (29,287 )
Reclassification from the nonaccretable difference (1)
                      9,373  
Reclassification to the nonaccretable difference (2)
                      (196 )
 
                       
Accretable yield, ending balance
  $ 7,533     $ 9,924     $ 21,409     $ 44,916  
 
                       
 
(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     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Allowance for loan losses at beginning of period
  $ 106,547     $ 85,113     $ 98,277     $ 69,767  
Provision for credit losses
    25,528       91,193       95,870       129,329  
Other adjustments — allowance for loan losses related to consolidation of securitization entity
                1,943        
Reclassification (to)/from allowance for losses on lending-related commitments
    (206 )     (1,543 )     478       (1,543 )
Charge-offs:
    (22,223 )     (80,072 )     (88,818 )     (103,602 )
Recoveries:
    786       405       2,682       1,145  
 
                       
Net charge-offs, excluding covered loans
  $ (21,437 )   $ (79,667 )   $ (86,136 )   $ (102,457 )
Covered loans
                       
 
                       
Total net charge-offs
    (21,437 )     (79,667 )     (86,136 )     (102,457 )
 
                       
 
                               
Allowance for loan losses at end of period
  $ 110,432     $ 95,096     $ 110,432     $ 95,096  
Allowance for losses on lending-related commitments at end of period
    2,375       3,129       2,375       3,129  
 
                       
Allowance for credit losses at end of period
  $ 112,807     $ 98,225     $ 112,807     $ 98,225  
 
                       
A summary of non-accrual, impaired loans and loans past due greater than 90 days and still accruing interest as of the dates shown:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2010     2009     2009  
Non-performing loans:
                       
Loans past-due greater than 90 days and still accruing interest
  $ 8,432     $ 7,800     $ 36,937  
Non-accrual loans
    125,891       124,004       194,722  
 
                 
Total non-performing loans, excluding covered loans
  $ 134,323     $ 131,804     $ 231,659  
Covered loans
    146,974              
 
                 
Total non-performing loans
  $ 281,297     $ 131,804     $ 231,659  
 
                 
 
                       
Impaired loans (included in non-performing and restructured loans):
                       
Impaired loans with an allowance for loan loss required (1)
    91,189     $ 58,222     $ 88,664  
Impaired loans with no allowance for loan loss required
    99,733       82,250       86,949  
 
                 
Total impaired loans (included in non-performing and restructured loans):
  $ 190,922     $ 140,472     $ 175,613  
 
                 
 
                       
Allowance for loan losses related to impaired loans
  $ 25,085     $ 17,567     $ 16,485  
 
                 
Restructured loans
  $ 93,666     $ 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 $165.7 million and $125.8 million for the nine months ended September 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 Statements 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 Statements 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.
         
    September 30,  
(Dollars in thousands)   2010  
Cash collateral accounts
  $ 1,759  
Collections and interest funding accounts
    46,021  
 
     
Interest-bearing deposits with banks — restricted for securitization investors
  $ 47,780  
 
       
Loans, net of unearned income — restricted for securitization investors
  $ 637,850  
Allowance for loan losses
    (2,095 )
 
     
Net loans — restricted for securitization investors
  $ 635,755  
 
       
Other assets
    2,278  
 
     
Total assets
  $ 685,813  
 
     
 
       
Secured borrowings — owed to securitization investors
  $ 600,000  
Other liabilities
    4,442  
 
     
Total liabilities
  $ 604,442  
 
     
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,

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and recoveries on charged-off accounts. From these cash flows, investors are reimbursed for charge-offs occurring within the 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 September 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.
Securitization Activity Prior to January 1, 2010
The following disclosures apply to the securitization activity of the Company prior to January 1, 2010, when transfers of receivables to the securitization entity were treated as sales in accordance with prior GAAP.
At September 30, 2009, the outstanding balance of loans transferred to the securitization entity was $661.3 million, of which $652.2 million were securitized and $9.1 million were maintained as seller’s interests. The seller’s interest was carried at historical cost and reported as loans, net of unearned income on the Company’s Consolidated Statements of Condition.
Securitization Income
At the time of a loan securitization, the Company recorded a gain/(loss) on sale, which was calculated as the difference between the proceeds from the sale and the book basis of the loans sold. The book basis was determined by allocating the carrying amount of the sold loans between the loans sold and the interests retained based on their relative fair values. Such fair values were based on market prices at the date of transfer for the sold loans and on the estimated present value of future cash flows for retained interests. Gains on sale from securitizations are reported in gain on sales of premium finance receivables in the Company’s Consolidated Statements of Income and were $3.4 million in the third quarter of 2009. The income component resulting from the release of credit reserves upon classification as held-for-sale was reported as a reduction of provision for credit losses.
Also reported in gain on sales of premium finance receivables were changes in the fair value of the interest-only strip. This amount was the excess cash flow from interest collections allocated to the investors’ interests after deducting the interest paid on investor certificates, credit losses, contractual servicing fees, and other expenses. Changes in the fair value of the interest-only strip of $173,000 were reported in gain on sale of premium finance receivables in the third quarter of 2009.
The Company retained servicing responsibilities for the transferred loans and earns a related fee. Servicing fee income was $712,000 for the quarter ended September 30, 2009 and is reported in other non-interest income in the Consolidated Statements of Income.
Retained Interests
The Company retained subordinated interests in the securitized loans. These interests included the subordinated securities, overcollateralization of loans, cash reserves, a servicing asset, and an interest-only strip. The following table presents the Company’s retained interests at September 30, 2009:
         
(Dollars in thousands)        
Subordinated securities (1)
  $ 48,004  
Residual interests held (2)
    42,622  
Servicing asset (2)
    1,336  
 
     
Total retained interests
  $ 91,962  
 
     
 
(1)   The subordinated securities were accounted for at fair value and reported as available-for-sale securities on the Company’s Consolidated Statements of Condition with unrealized gains recorded in accumulated other comprehensive income. See Note 15 for further discussion on fair value.
 
(2)   The residual interests and servicing asset were accounted for at fair value and reported in other assets on the Company’s Consolidated Statements of Condition. Retained interests held includes overcollateralization of loans, cash reserve deposits, and an interest-only strip. See Note 15 for further discussion on fair value.

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Key economic assumptions used in the measuring of fair value and the sensitivity of the fair value to immediate adverse changes in those assumptions at September 30, 2009 for the Company’s servicing asset and other interests held related to securitized loans are presented in the following table:
                         
    Subordinated   Residual   Servicing
(Dollars in thousands)   Securities   Interests   Asset
Fair value of interest held
  $ 48,004     $ 42,622     $ 1,336  
 
                       
Expected weighted-average life (in months)
    6.5       6.5       6.5  
Decrease in fair value from:
                       
1 month reduction
  $ 239     $ (1,206 )   $ (204 )
2 month reduction
  $ 479     $ (2,420 )   $ (403 )
 
                       
Discount rate assumptions
    5.97 %     8.75 (1)     8.5 %
Decrease in fair value from:
                       
100 basis point increase
  $ (257 )   $ (200 )   $ (3 )
200 basis point increase
  $ (513 )   $ (399 )   $ (6 )
 
                       
Credit loss assumption
            0.4 %     0.4 %
Decrease in fair value from:
                       
10% higher loss
          $ (154 )   $  
20% higher loss
          $ (310 )   $  
 
(1)   Excludes the discount rate on cash reserve deposits deemed to be immaterial.
The sensitivities in the table above are hypothetical and caution should be exercised when relying on this data. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.
The following table summarizes the changes in the fair value of the Company’s servicing asset for the quarter ended September 30, 2009:
         
(Dollars in thousands)        
Balance at June 30, 2009
  $  
Fair value determined upon transfer of loans
    1,795  
Changes in fair value due to changes in inputs and assumptions (1)
    (470 )
Other changes (2)
    11  
 
     
 
       
Balance at September 30, 2009
  $ 1,336  
 
     
 
(1)   The Company measured servicing assets at fair value and reported the change in other non-interest income.
 
(2)   Represents accretable yield reported in other non-interest income.
The key economic assumptions used in measuring the fair value of the servicing asset included the prepayment speed and weighted-average life, the discount rate, and default rate. The primary risk of material changes in the value of the servicing asset resided in the potential volatility in the economic assumptions used, particularly the prepayment speed and weighted-average life.
Other Disclosures
The table below summarizes cash flows received from the securitization entity for the quarter ended September 30, 2009:
         
(Dollars in thousands)        
Proceeds from new securitizations during the period
  $ 600,000  
Proceeds from collections reinvested in revolving securitizations
    106,282  
Servicing and other fees received
     
Excess spread received
     

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The following table presents quantitative information about the premium finance receivables - commercial at September 30, 2009:
                         
            Amount of        
    Total     Loans 30 days or     Net Credit  
    Amount of     More Past Due     Write-offs during  
(Dollars in thousands)   Loans     or on Nonaccrual     the Quarter  
Premium finance receivables — commercial
  $ 1,404,221     $ 48,177     $ 2,317  
Less: Premium finance receivables — commercial securitized
    652,189       6,096        
 
                 
 
                       
Premium finance receivables — commercial on-balance sheet
  $ 752,032     $ 42,081     $ 2,317  
 
                 
(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     September 30,  
(Dollars in thousands)   2010     Acquired     Loss     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 nine 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 the dates shown and the expected amortization as of September 30, 2010 is as follows:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2010     2009     2009  
Customer list intangibles:
                       
Gross carrying amount
  $ 5,052     $ 5,052     $ 5,052  
Accumulated amortization
    (3,450 )     (3,307 )     (3,202 )
 
                 
Net carrying amount
  $ 1,602     $ 1,745     $ 1,850  
 
                 
 
                       
Core deposit intangibles:
                       
Gross carrying amount
  $ 29,508     $ 27,918     $ 27,918  
Accumulated amortization
    (17,916 )     (16,039 )     (15,400 )
 
                 
Net carrying amount
  $ 11,592     $ 11,879     $ 12,518  
 
                 
 
                       
Total other intangible assets, net
  $ 13,194     $ 13,624     $ 14,368  
         
Estimated amortization        
Actual in 9 months ended September 30, 2010
  $ 2,020  
Estimated remaining in 2010
    715  
Estimated - 2011
    2,708  
Estimated - 2012
    2,654  
Estimated - 2013
    2,573  
Estimated - 2014
    2,236  
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 (subsequently renamed Wintrust Capital Management) 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.

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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, and the FDIC-assisted acquisition of Ravenswood during the third 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 $2.0 million in each of the nine months ended September 30, 2010 and 2009.
(10) Deposits
The following table is a summary of deposits as of the dates shown:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2010     2009     2009  
Balance:
                       
Non-interest bearing
  $ 1,042,730     $ 864,306     $ 841,668  
NOW
    1,551,749       1,415,856       1,245,689  
Wealth Management deposits
    710,435       971,113       935,740  
Money Market
    1,746,168       1,534,632       1,468,228  
Savings
    713,823       561,916       513,239  
Time certificates of deposit
    5,197,334       4,569,251       4,842,599  
 
                 
Total deposits
  $ 10,962,239     $ 9,917,074     $ 9,847,163  
 
                 
 
                       
Mix:
                       
Non-interest bearing
    10 %     9 %     9 %
NOW
    14       14       13  
Wealth Management deposits
    6       10       9  
Money Market
    16       15       15  
Savings
    7       6       5  
Time certificates of deposit
    47       46       49  
 
                 
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 The Chicago Trust Company (formerly named the 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:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2010     2009     2009  
Notes payable
  $ 1,000     $ 1,000     $ 1,000  
Federal Home Loan Bank advances
    414,832       430,987       433,983  
 
                       
Other borrowings:
                       
Securities sold under repurchase agreements
    241,522       245,640       250,263  
Other
          1,797       1,808  
 
                 
Total other borrowings
    241,522       247,437       252,071  
 
                 
 
                       
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, and subordinated notes
  $ 1,312,354     $ 739,424     $ 752,054  
 
                 
At September 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 29, 2010, and a $1.0 million note maturing on June 1, 2015. At September 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 September 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 third quarter of 2010, the Company restructured $36.0 million of FHLB advances, paying $1.5 million in prepayment fees, in order to achieve lower advance interest rates. In the second quarter of 2010, the Company restructured $146.0 million of FHLB advances, paying $6.8 million in prepayment fees. In the first quarter of 2010, the Company restructured $38.0 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 September 30, 2010 securities sold under repurchase agreements represent $98.4 million of customer balances in sweep accounts in connection with master repurchase agreements at the banks and $143.1 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 Company’s adoption of new accounting standards on January 1, 2010 resulted in the consolidation of the

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QSPE that was not previously recorded on the Company’s Consolidated Statements of Condition. See Note 2 — Recent Accounting Developments and Note 8 — Loan Securitization, for more information on the QSPE.
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 September 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 September 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 September 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   9/30/10     Date   Date   Date
Wintrust Capital Trust III
  $ 25,000     $ 25,774     L+3.25     3.78 %   04/2003   04/2033   04/2008
Wintrust Statutory Trust IV
    20,000       20,619     L+2.80     3.09 %   12/2003   12/2033   12/2008
Wintrust Statutory Trust V
    40,000       41,238     L+2.60     2.89 %   05/2004   05/2034   06/2009
Wintrust Capital Trust VII
    50,000       51,550     L+1.95     2.24 %   12/2004   03/2035   03/2010
Wintrust Capital Trust VIII
    40,000       41,238     L+1.45     1.74 %   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     3.47 %   08/2003   11/2033   08/2008
Town Bankshares Capital Trust I
    6,000       6,186     L+3.00     3.47 %   08/2003   11/2033   08/2008
First Northwest Capital Trust I
    5,000       5,155     L+3.00     3.29 %   05/2004   05/2034   05/2009
 
                                   
Total
          $ 249,493           3.53 %            
 
                                   
The junior subordinated debentures totaled $249.5 million at September 30, 2010, December 31, 2009 and September 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 September 30, 2010, the weighted average contractual interest rate on the junior subordinated debentures was 3.53%. 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 September 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

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event, only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations.
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 September 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:
                                 
    Three Months Ended              
    September 30,     $ Change in     % Change in  
(Dollars in thousands)   2010     2009     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 95,373     $ 84,576     $ 10,797       13 %
Specialty finance
    14,235       33,731       (19,496 )     (58 )
Wealth management
    399       1,710       (1,311 )     (77 )
Parent and inter-segment eliminations
    (7,027 )     (32,354 )     25,327       78  
 
                       
Total net interest income
  $ 102,980     $ 87,663       15,317       17 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 44,304     $ 18,931     $ 25,373       134 %
Specialty finance
    745       114,292       (113,547 )     (99 )
Wealth management
    10,952       10,418       534       5  
Parent and inter-segment eliminations
    (1,345 )     7,039       (8,384 )     (119 )
 
                       
Total non-interest income
  $ 54,656     $ 150,680       (96,024 )     (64 )%
 
                       
 
                               
Net revenue (loss):
                               
Community banking
  $ 139,677     $ 103,507     $ 36,170       35 %
Specialty finance
    14,980       148,023       (133,043 )     (90 )
Wealth management
    11,351       12,128       (777 )     (6 )
Parent and inter-segment eliminations
    (8,372 )     (25,315 )     16,943       67  
 
                       
Total net revenue
  $ 157,636     $ 238,343       (80,707 )     (34 )%
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ 22,433     $ (35,302 )   $ 57,735       164 %
Specialty finance
    5,606       120,428       (114,822 )     (95 )
Wealth management
    (11 )     647       (658 )     (102 )
Parent and inter-segment eliminations
    (7,930 )     (53,778 )     45,848       85  
 
                       
Total segment profit (loss)
  $ 20,098     $ 31,995       (11,897 )     (37 )%
 
                       
 
                               
Segment assets:
                               
Community banking
  $ 13,308,912     $ 11,871,595     $ 1,437,317       12 %
Specialty finance
    2,915,956       2,069,415       846,541       41  
Wealth management
    66,666       60,990       5,676       9  
Parent and inter-segment eliminations
    (2,191,166 )     (1,865,979 )     (325,187 )     (17 )
 
                       
Total segment assets
  $ 14,100,368     $ 12,136,021       1,964,347       16 %
 
                       
                                 
    Nine Months Ended              
    September 30,     $ Change in     % Change in  
(Dollars in thousands)   2010     2009     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 280,834     $ 216,099     $ 64,735       30 %
Specialty finance
    43,898       71,950       (28,052 )     (39 )
Wealth management
    5,378       9,449       (4,071 )     (43 )
Parent and inter-segment eliminations
    (26,951 )     (72,556 )     45,605       63  
 
                       
Total net interest income
  $ 303,159     $ 224,942       78,217       35 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 101,118     $ 70,614     $ 30,504       43 %
Specialty finance
    12,928       115,746       (102,818 )     (89 )
Wealth management
    32,709       27,975       4,734       17  
Parent and inter-segment eliminations
    945       18,224       (17,279 )     (95 )
 
                       
Total non-interest income
  $ 147,700     $ 232,559       (84,859 )     (36 )%
 
                       
 
                               
Net revenue (loss):
                               
Community banking
  $ 381,952     $ 286,713     $ 95,239       33 %
Specialty finance
    56,826       187,696       (130,870 )     (70 )
Wealth management
    38,087       37,424       663       2  
Parent and inter-segment eliminations
    (26,006 )     (54,332 )     28,326       61  
 
                       
Total net revenue
  $ 450,859     $ 457,501       (6,642 )     (1 )%
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ 53,060     $ (24,728 )   $ 77,788       315 %
Specialty finance
    14,503       136,713       (122,210 )     (89 )
Wealth management
    2,362       3,937       (1,575 )     (40 )
Parent and inter-segment eliminations
    (20,800 )     (71,020 )     50,220       71  
 
                       
Total segment profit (loss)
  $ 49,125     $ 44,902       4,223       9 %
 
                       

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(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 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 September 30, 2010 and December 31, 2009:
                                         
    Derivative Assets     Derivative Liabilities  
    Fair Value     Fair Value  
    Balance                   Balance            
    Sheet   September 30,     December 31     Sheet   September 30,     December 31  
(Dollars in thousands)   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   $ 15,543     $ 14,701  
 
                               
 
                                       
Derivatives not designed as hedging instruments under ASC 815:
                                       
 
                                       
Interest rate derivatives
  Other assets     18,313       7,759     Other liabilities     18,999       8,076  
Interest rate lock commitments
  Other assets     6,198       32     Other liabilities     179       3,002  
Forward commitments to sell mortgage loans
  Other assets     211       4,860     Other liabilities     4,261       37  
 
                               
 
                                       
Total derivatives not designated as hedging instruments under ASC 815
      $ 24,722     $ 12,651         $ 23,439     $ 11,115  
 
                               
 
                                       
Total derivatives
      $ 24,722     $ 12,651         $ 38,982     $ 25,816  
 
                               

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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 September 30, 2010, the Company had five interest rate swaps with an aggregate notional amount of $175 million that were designated as cash flow hedges of interest rate risk.
The table below provides details on each of these five interest rate swaps as of September 30, 2010:
                                         
September 30, 2010  
(Dollars in thousands)   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     $ (977 )     0.29 %     5.25 %   Cash Flow
September 2011
    40,000       (1,955 )     0.29 %     5.25 %   Cash Flow
October 2011
    25,000       (780 )     0.53 %     3.39 %   Cash Flow
September 2013
    50,000       (6,542 )     0.29 %     5.30 %   Cash Flow
September 2013
    40,000       (5,289 )     0.29 %     5.30 %   Cash Flow
 
                                   
Total
  $ 175,000     $ (15,543 )                        
 
                                   
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 statements 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 nine months ended September 30, 2010 or September 30, 2009. The Company uses the hypothetical derivative method to assess and measure effectiveness.

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A rollforward of the amounts in accumulated other comprehensive income related to interest rate swaps designated as cash flow hedges follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Unrealized loss at beginning of period
  $ (15,969 )   $ (15,982 )   $ (15,487 )   $ (20,549 )
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures
    2,124       2,090       6,516       5,492  
Amount of loss recognized in other comprehensive income
    (2,146 )     (3,258 )     (7,020 )     (2,093 )
 
                       
Unrealized loss at end of period
  $ (15,991 )   $ (17,150 )   $ (15,991 )   $ (17,150 )
 
                       
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 September 30, 2010 accumulated other comprehensive income (loss) includes $449,000 of unrealized loss ($276,000 net of tax) related to this terminated interest rate swap.
As of September 30, 2010, the Company estimates that during the next twelve months, $8.6 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 September 30, 2010, the Company had approximately 120 derivative transactions (60 with customers and 60 with third parties) with an aggregate notional amount of approximately $460 million (all interest rate swaps) related to this program. These interest rate derivatives had maturity dates ranging from September 2011 to January 2033.
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 September 30, 2010 the Company had interest rate lock commitments with an aggregate notional amount of approximately $619 million and forward commitments to sell mortgage loans with an aggregate notional amount of approximately $816 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 September 30, 2010, December 31, 2009 or September 30, 2009.

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Amounts included in the consolidated statements of income related to derivative instruments not designated in hedge relationships were as follows:
                                     
        Three Months Ended   Nine Months Ended
(Dollars in thousands)   September 30,   September 30,
Derivative   Location in income statement   2010   2009   2010   2009
Interest rate swaps and floors
  Other income   $ (36 )   $ (415 )   $ (339 )   $ (169 )
Mortgage banking derivatives
  Mortgage banking revenue     (4,593 )     (3,836 )     (13,194 )     (1,649 )
Covered call options
  Other income     703             1,162       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 or adequate capitalized institution, which would require the Company to settle its obligations under the agreements. As of September 30, 2010, the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $35.5 million. As of September 30, 2010 the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral consisting of $12.5 million of cash and $17.3 million of securities. If the Company had breached any of these provisions at September 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.
                                 
    September 30, 2010  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 2,015     $     $ 2,015     $  
U.S. Government agencies
    874,327             874,327        
Municipal
    54,641             38,716       15,925  
Corporate notes and other
    173,003             167,511       5,492  
Mortgage-backed
    180,361             177,034       3,327  
Equity securities (1)
    39,832             11,566       28,266  
Trading account securities
    4,935       58       786       4,091  
Mortgage loans held-for-sale
    307,231             307,231        
Mortgage servicing rights
    5,179                   5,179  
Nonqualified deferred compensations assets
    3,211             3,211        
Derivative assets
    24,722             24,722        
 
                       
Total
  $ 1,669,457     $ 58     $ 1,607,119     $ 62,280  
 
                       
 
                               
Derivative liabilities
  $ 38,982     $     $ 38,982     $  
 
                       
                                 
    September 30, 2009  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 112,896     $     $ 112,896     $  
U.S. Government agencies
    655,024             655,024        
Municipal
    66,900             49,257       17,643  
Corporate notes and other
    100,506             48,120       52,386  
Mortgage-backed
    390,670             226,931       163,739  
Equity securities (1)
    28,870             3,181       25,689  
Trading account securities
    29,204       208       1,432       27,564  
Mortgage loans held-for-sale
    187,505             187,505        
Mortgage servicing rights
    6,030                   6,030  
Nonqualified deferred compensations assets
    2,660             2,660        
Derivative assets
    11,429             11,429        
Retained interests from the sale/securitization of premium finance receivables
    43,958                   43,958  
 
                       
Total
  $ 1,635,652     $ 208     $ 1,298,435     $ 337,009  
 
                       
 
                               
Derivative liabilities
  $ 29,798     $     $ 29,798     $  
 
                       
 
(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 September 30, 2010 and 2009 for mortgage loans held-for-sale measured at fair value under ASC 825 was $297.2 million and $182.0 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $307.2 million and $187.5 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 September 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 nine months ended September 30, 2010 are summarized as follows:
                                 
            Corporate              
            notes and     Mortgage-     Equity  
(Dollars in thousands)   Municipal     other debt     backed     securities  
Balance at June 30, 2010
  $ 14,028     $ 11,352     $ 145,331     $ 26,891  
Total net gains (losses) included in:
                               
Net income (1)
          (1 )     (6,947 )      
Other comprehensive income
          (834 )     2       (825 )
Purchases, issuances, sales and settlements, net
    1,897             (129,499 )     2,200  
Net transfers into/ (out) of Level 3
          (5,025 )     (5,560 )      
 
                       
Balance at September 30, 2010
  $ 15,925     $ 5,492     $ 3,327     $ 28,266  
 
                       
 
                               
Balance at January 1, 2010
  $ 17,152     $ 51,194     $ 158,449     $ 26,800  
Total net gains (losses) included in:
                               
Net income (1)
          (34 )     (6,947 )      
Other comprehensive income
          1       2,522       (825 )
Purchases, issuances, sales and settlements, net
    (1,227 )     (40,644 )     (145,871 )     2,291  
Net transfers into/ (out) of Level 3
          (5,025 )     (4,826 )      
 
                       
Balance at September 30, 2010
  $ 15,925     $ 5,492     $ 3,327     $ 28,266  
 
                       
 
(1)   Income for Municipal and 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 nine months ended September 30, 2010 are summarized as follows:
                         
    Trading     Mortgage        
    Account     servicing     Retained  
(Dollars in thousands)   Securities     rights     interests  
Balance at June 30, 2010
  $ 36,809     $ 5,437     $  
Total net gains (losses) included in:
                       
Net income (1)
    (28,688 )     (258 )      
Other comprehensive income
                 
Purchases, issuances, sales and settlements, net
    (4,030 )            
Net transfers into/ (out) of Level 3
                 
 
                 
Balance at September 30, 2010
  $ 4,091     $ 5,179     $  
 
                 
 
                       
Balance at January 1, 2010
  $ 31,924     $ 6,745     $ 43,541  
Total net gains (losses) included in:
                       
Net income (1)
    (23,803 )     (1,566 )      
Other comprehensive income
                 
Purchases, issuances, sales and settlements, net
    (4,030 )           (43,541 )
Net transfers into/ (out) of Level 3
                 
 
                 
Balance at September 30, 2010
  $ 4,091     $ 5,179     $  
 
                 
 
(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 nine months ended September 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 June 30, 2009
  $     $ 8,355     $ 4,378     $ 167,376     $ 25,681  
Total net gains (losses) included in:
                                       
Net income (1)
          (112 )     4              
Other comprehensive income
                      5,045        
Purchases, issuances, sales and settlements, net
          9,400       48,004       (8,682 )     8  
Net transfers into/ (out) of Level 3
                             
 
                             
Balance at September 30, 2009
  $     $ 17,643     $ 52,386     $ 163,739     $ 25,689  
 
                             
 
                                       
Balance at January 1, 2009
  $ 110     $ 9,373     $ 1,395     $ 4,010     $ 26,104  
Total net gains (losses) included in:
                                       
Net income (1)
          (112 )     8              
Other comprehensive income
    (1 )                 3,598        
Purchases, issuances, sales and settlements, net
          10,531       50,983       156,131       43  
Net transfers into/ (out) of Level 3
    (109 )     (2,149 )                 (458 )
 
                             
Balance at September 30, 2009
  $     $ 17,643     $ 52,386     $ 163,739     $ 25,689  
 
                             
 
(1)   Income for Municipal and 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 nine months ended September 30, 2009 are summarized as follows:
                         
    Trading     Mortgage        
    Account     servicing     Retained  
(Dollars in thousands)   Securities     rights     interests  
Balance at June 30, 2009
  $ 21,422     $ 6,278     $  
Total net gains (losses) included in:
                       
Net income (1)
    5,992       (248 )     59  
Other comprehensive income
                 
Purchases, issuances, sales and settlements, net
    150             43,899  
Net transfers into/ (out) of Level 3
                 
 
                 
Balance at September 30, 2009
  $ 27,564     $ 6,030     $ 43,958  
 
                 
 
                       
Balance at January 1, 2009
  $ 3,075     $ 3,990     $ 1,229  
Total net gains (losses) included in:
                       
Net income (1)
    22,293       2,040       59  
Other comprehensive income
                 
Purchases, issuances, sales and settlements, net
    2,196             42,670  
Net transfers into/ (out) of Level 3
                 
 
                 
Balance at September 30, 2009
  $ 27,564     $ 6,030     $ 43,958  
 
                 
 
(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. Income for retained interests is recorded as a component of gain on sales of premium finance receivables or miscellaneous income 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 September 30, 2010.
                                                 
                                    Three Months     Nine Months  
                                    Ended     Ended  
                                    September 30,     September 30,  
                                    2010     2010  
                                    Fair Value     Fair Value  
    September 30, 2010     Losses     Losses  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3     Recognized     Recognized  
Impaired loans
  $ 190,922     $     $     $ 190,922     $ 10,342     $ 29,666  
Other real estate owned
    76,654                   76,654       3,243       15,219  
 
                                   
Total
  $ 267,576     $     $     $ 267,576     $ 13,585     $ 44,885  
 
                                   
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 statements of condition, including those financial instruments carried at cost. The carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:
                                 
    At September 30, 2010     At December 31, 2009  
    Carrying     Fair     Carrying     Fair  
(Dollars in thousands)   Value     Value     Value     Value  
Financial Assets:
                               
Cash and cash equivalents
  $ 243,980     $ 243,980     $ 158,616     $ 158,616  
Interest bearing deposits with banks
    1,224,584       1,224,584       1,025,663       1,025,663  
Available-for-sale securities
    1,324,179       1,324,179       1,255,066       1,255,066  
Trading account securities
    4,935       4,935       33,774       33,774  
Brokerage customer receivables
    25,442       25,442       20,871       20,871  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
    80,445       80,445       73,749       73,749  
Mortgage loans held-for-sale, at fair value
    307,231       307,231       265,786       265,786  
Loans held-for-sale, at lower of cost or market
    13,209       13,457       9,929       10,033  
Total loans
    9,814,995       10,015,582       8,411,771       8,403,305  
Mortgage servicing rights
    5,179       5,179       6,745       6,745  
Nonqualified deferred compensation assets
    3,211       3,211       2,827       2,827  
Retained interests from the sale/securitization of premium finance receivables
                43,541       43,541  
Derivative assets
    24,722       24,722       12,651       12,651  
FDIC indemnification asset
    161,640       161,640              
Accrued interest receivable and other
    135,704       135,704       129,774       129,774  
 
                       
Total financial assets
  $ 13,369,456     $ 13,570,291     $ 11,450,763     $ 11,442,401  
 
                       
 
                               
Financial Liabilities
                               
Non-maturity deposits
  $ 5,764,905     $ 5,764,905     $ 5,347,823     $ 5,347,823  
Deposits with stated maturities
    5,197,334       5,257,220       4,569,251       4,616,658  
Notes payable
    1,000       1,000       1,000       1,000  
Federal Home Loan Bank advances
    414,832       450,772       430,987       446,663  
Subordinated notes
    55,000       55,000       60,000       60,000  
Other borrowings
    241,522       241,522       247,437       247,347  
Secured borrowings owed to securitization investors
    600,000       600,334              
Junior subordinated debentures
    249,493       251,943       249,493       245,990  
Derivative liabilities
    38,982       38,982       25,816       25,816  
Accrued interest payable and other
    17,868       17,868       15,669       15,669  
 
                       
Total financial liabilities
  $ 12,580,936     $ 12,679,546     $ 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.
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

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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 September 30, 2010, 164,033 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 nine months ending September 30, 2010 and 2009:
                 
    Nine Months Ended
    September 30, 2010   September 30, 2009
Expected dividend yield
    0.5 %     2.0 %
Expected volatility
    48.3 %     45.7 %
Risk-free rate
    2.7 %     2.4 %
Expected option life (in years)
    6.2       5.9  
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 $349,000 and $830,000 in the third quarters of 2010 and 2009, respectively, and $1.3 million and $2.6 million for the 2010 and 2009 year-to-date periods, respectively. Compensation cost charged to income for restricted share awards was $672,000 and $872,000 in the third quarters of 2010 and 2009, respectively, and $2.0 million and $2.6 million for the nine months ended September 30, 2010 and 2009, respectively.
A summary of stock option activity under the Plans for the nine months ended September 30, 2010 and September 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
    66,365       34.63                  
Exercised
    (141,362 )     15.23                  
Forfeited or canceled
    (42,736 )     51.46                  
 
Outstanding at September 30, 2010
    2,038,476     $ 38.78       3.4     $ 7,884  
 
Exercisable at September 30, 2010
    1,792,223     $ 39.41       3.2     $ 7,290  
 
                                 
            Weighted   Remaining   Intrinsic
    Common   Average   Contractual   Value (2)
Stock Options   Shares   Strike Price   Term (1)   ($000)
Outstanding at January 1, 2009
    2,388,174     $ 35.61                  
Granted
    43,500       17.85                  
Exercised
    (174,863 )     11.72                  
Forfeited or canceled
    (72,879 )     34.72                  
 
Outstanding at September 30, 2009
    2,183,932     $ 37.20       4.1     $ 7,491  
 
Exercisable at September 30, 2009
    1,833,581     $ 36.44       3.8     $ 7,029  
 
 
(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 nine months ended September 30, 2010 and 2009 was $16.39 and $6.92, respectively. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2010 and 2009, was $2.8 million and $1.9 million, respectively.

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A summary of restricted share award activity under the Plans for the nine months ended September 30, 2010 and September 30, 2009 is presented below:
                                 
    Nine Months Ended   Nine Months Ended
    September 30, 2010   September 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
    137,656       35.66       18,550       20.01  
Vested and issued
    (52,170 )     43.71       (73,798 )     40.64  
Forfeited
    (635 )     34.74       (1,625 )     30.56  
 
Outstanding at September 30
    293,281     $ 39.63       206,124     $ 43.37  
 
Vested, but not issuable at September 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 third quarter of 2010, 1,404 shares were granted under this arrangement at an average stock price of $31.16 per share, and for the nine months ended September 30, 2010, 3,866 shares were granted at an average stock price of $33.95 per share. In the third quarter of 2009, 1,588 shares were granted under this arrangement at an average stock price of $27.55 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 September 30, 2010, there was $7.9 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. 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 are 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.

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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 Nine Months  
            Ended September 30,     Ended September 30,  
(In thousands, except per share data)           2010     2009     2010     2009  
Net income
          $ 20,098     $ 31,995     $ 49,125     $ 44,902  
Less: Preferred stock dividends and discount accretion
            4,943       4,668       14,830       14,668  
 
                               
Net income applicable to common shares — Basic
    (A )     15,155       27,327       34,295       30,234  
Add: Dividends on convertible preferred stock
                  1,000              
 
                               
Net income applicable to common shares — Diluted
    (B )     15,155       28,327       34,295       30,234  
 
                               
Weighted average common shares outstanding
    (C )     31,117       24,052       29,396       23,958  
Effect of dilutive potential common shares
            988       2,493       1,132       323  
 
                               
Weighted average common shares and effect of dilutive potential common shares
    (D )     32,105       26,545       30,528       24,281  
 
                               
 
                                       
Net income per common share:
                                       
Basic
    (A/C )   $ 0.49     $ 1.14     $ 1.17     $ 1.26  
 
                               
Diluted
    (B/D )   $ 0.47     $ 1.07     $ 1.12     $ 1.25  
 
                               
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 October 22, 2010, the Company’s wholly-owned subsidiary bank, Wheaton, acquired a branch of First National Bank of Brookfield that is located in Naperville, Illinois. Through this transaction, subject to final adjustments, Wheaton acquired approximately $23 million of deposits, approximately $11 million of performing loans, the property, bank facility and various other assets. This branch will operate as Naperville Bank & Trust.

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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 September 30, 2010, compared with December 31, 2009 and September 30, 2009, and the results of operations for the nine month periods ended September 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 the Company’s business in 2010. In response to these conditions, Management continues to carefully monitor 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 third quarter of 2010 totaled $25.5 million, a decrease of $65.7 million when compared to the third quarter of 2009. The provision for credit losses in the first nine months of 2010 totaled $95.9 million, a decrease of $33.5 million when compared to the first nine months of 2009. Net charge-offs decreased to $21.4 million in the third quarter of 2010 (of which $18.3 million related to commercial and commercial real estate loans), compared to $79.7 million for the same period in 2009 (of which $74.5 million related to commercial and commercial real estate loans). Net charge-offs decreased to $86.1 million in the first nine months of 2010 (of which $59.1 million related to commercial and commercial real estate loans), compared to $102.5 million for the same period in 2009 (of which $91.9 million related to commercial and commercial real estate loans).
    The Company increased its allowance for loan losses to $110.4 million at September 30, 2010, reflecting an increase of $15.3 million, or 16%, when compared to the same period in 2009 and an increase of $12.2 million, or 12%, when compared to December 31, 2009. At September 30, 2010, approximately $56.5 million, or 51%, of the allowance for loan losses was associated with commercial real estate loans and another $32.0 million, or 29%, was associated with commercial loans.
    During the third quarter of 2010, Wintrust had significant exposure to commercial real estate. At September 30, 2010, $3.3 billion, or 34%, of our loan portfolio was commercial real estate, with more than 91% located in the greater Chicago metropolitan and southeastern Wisconsin market areas. The commercial real estate loan portfolio was comprised of $545.9 million related to land, residential and commercial construction, $537.9 million related to office buildings loans, $492.6 million related to retail loans, $472.6 million related to industrial use loans, $279.1 million related to multi-family loans and $1.0 billion related to mixed use and other use types. In analyzing the commercial real estate market, the Company does 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 estate 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

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      management knowledge to analyze and manage the local market conditions at each of its banks. Despite these efforts, as of September 30, 2010, the Company had approximately $83.3 million of non-performing commercial real estate loans representing approximately 3% of the total commercial real estate loan portfolio. $43.3 million, or 52%, 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 $134.3 million (of which $83.3 million, or 62%, was related to commercial real estate) at September 30, 2010, a decrease of $97.3 million compared to September 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.
    The Company’s other real estate owned, excluding covered other real estate owned, increased by $36.1 million, to $76.7 million during the third quarter of 2010, from $40.6 million at September 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 $76.7 million of other real estate owned as of September 30, 2010 was comprised of $22.6 million of residential real estate development property, $45.3 million of commercial real estate property and $8.8 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 third 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 believed that the distressed macro-economic conditions would continue to exist in 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 third 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 third quarter of 2010 from the same period in the prior year, 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 continues 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 level of loans past due 30 days or more and still accruing interest, excluding covered loans, totaled $158.3 million as of September 30 2010, increasing $21.6 million compared to the balance of $136.7 million as of June 30, 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 third 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 September 30, 2010, approximately $93.7 million in loans had terms modified, with $74.0 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.
A positive result of the economic environment was that our mortgage banking operation benefited from the low interest rate environment during 2009 and 2010 as 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. Through the first nine months of 2010 loan originations have been lower than in the same period in 2009. However, the Company has realized an increase in gains on sales of loans, which has been driven by better pricing realized as a result of the company utilizing mandatory execution of forward commitments with investors in 2010. The increase in gains on sales was

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partially offset by 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 request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. Fewer requests from investors for loss indemnification occurred in the current quarter as compared to the second quarter of 2010. The Company recognized $1.4 million of expense in the third quarter of 2010, a decrease of $3.3 million compared to the second quarter of 2010 and has recognized $9.6 million on a year-to-date basis in 2010. The Company has established an $8.7 million estimated liability, as of September 30, 2010, 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. 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 regulatory 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. Net proceeds to the Company totaled $210.4 million.
In total, the Company increased its loan portfolio, excluding covered loans, from $8.3 billion at September 30, 2009 to $9.5 billion at September 30, 2010. This increase was primarily a result of the securitization transaction that is accounted for as a secured borrowing as of January 1, 2010 as well as growth in the premium finance receivables — life insurance 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 and 2010, 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 September 30, 2010, the Company had over $1 billion in overnight liquid funds and interest-bearing deposits with banks. Redeployment of 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 September 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 nine 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. 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. From the second quarter of 2008 to the first quarter of 2010, we did not establish a new banking location either through a de novo opening or through an acquisition, 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 have resumed the formation of additional branches and acquisitions of additional banks. On April 23, 2010, two of the Company’s wholly-owned subsidiary banks, Northbrook Bank & Trust Company and Wheaton Bank & Trust Company, in two FDIC-assisted transactions, respectively acquired certain assets and liabilities and the banking operations of Lincoln Park Savings Bank (“Lincoln Park”) and Wheatland Bank (“Wheatland”). On August 6, 2010, Northbrook Bank & Trust Company, in an FDIC-assisted transaction, acquired certain assets and liabilities and the banking operations of Ravenswood Bank (“Ravenswood”). Additionally, on October 22, 2010, Wheaton Bank & Trust Company acquired certain assets and liabilities of the banking operations of a branch of First National Bank of Brookfield. This branch will be operated as Naperville Bank & Trust.
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 $772.9 million in commercial insurance premium finance receivables in the third 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. 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 by the enhancement of various control procedures to mitigate the risks associated with this lending. 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 Statements 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 $115.0 million in life insurance premium finance receivables in the third quarter of 2010. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and/or 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 including trust and investment services, asset management and securities brokerage services, through three separate subsidiaries including Wayne Hummer Investments, LLC, The Chicago Trust Company and Wintrust Capital Management. In October 2010, the Company changed the name of its trust and investment services subsidiary, Wayne Hummer Trust Company, N.A., to The Chicago Trust Company. Additionally, the Company’s asset management company, Wayne Hummer Asset Management, changed its name to Wintrust Capital Management.
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 $210 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

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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 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 offering 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 and Consumer Protection 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, 2012. 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.
Financial Regulatory Reform
In July 2010, the President signed into law the Dodd-Frank Act, which contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. While final rulemaking under the Dodd-Frank Act will occur over the course of several years, changes mandated by the Dodd-Frank Act, as well as other legislative and regulatory changes, could have a significant impact on us by, for example, requiring us to change our business practices, requiring us to meet more stringent capital, liquidity and leverage ratio requirements, limiting our ability to pursue business opportunities, imposing additional costs on us, limiting fees we can charge for services, impacting the value of our assets, or otherwise adversely affecting our businesses. These changes may also require us to invest significant management attention and resources in order to comply with new statutory and regulatory requirements. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact that such requirements will have on our operations is unclear.
The Dodd-Frank Act also addresses risks to the economy and the financial system. It contemplates enhanced regulation of derivatives, restrictions on and additional disclosure of executive compensation, additional corporate governance requirements, and oversight of credit rating agencies. It also strengthens the ability of the regulatory agencies to supervise and examine bank holding companies and their subsidiaries. Effective July 2011, the Dodd-Frank Act requires a bank holding company that elects treatment as a financial holding company, including us, to be both well-capitalized and well-managed in addition to the existing requirement that a financial holding company’s subsidiary banks be well-capitalized and well-managed. Bank holding companies and banks must also be both well-capitalized and well-managed in order to engage in interstate bank acquisitions.
Among other things, the Dodd-Frank Act requires the issuance of new banking regulations regarding the establishment of minimum leverage and risk-based capital requirements for bank holding companies and banks. These regulations, which are required to be effective within 18 months from the enactment of the Dodd-Frank Act, are required to be no less stringent than current capital requirements applied to insured depository institutions and may, in fact, be higher when established by the agencies. Although Wintrust’s outstanding trust preferred securities will remain eligible for Tier 1 capital treatment, any future issuances of trust preferred securities will not be Tier 1 capital. The Dodd-Frank Act also requires the regulatory agencies to seek to make capital requirements for bank holding companies and insured institutions countercyclical, so that capital requirements increase in times of economic expansion and decrease in times of economic contraction. The Dodd-Frank Act may also require us to conduct annual stress tests, in accordance with future regulations. Any such testing would result in increased compliance costs.
Certain provisions of the Dodd-Frank Act have near-term effect on the Company. In particular, effective one year from the date of enactment, the Dodd-Frank Act eliminates U.S. federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending upon market response, this change could have an adverse impact on our interest expense. In addition, the Dodd-Frank Act includes provisions that change the assessment base for federal deposit insurance from the amount of insured deposits to total consolidated assets less tangible capital, eliminate the maximum size of the deposit insurance fund (the “DIF”), eliminate the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds, and increase the minimum reserve ratio of the DIF from 1.15% to 1.35%, which will generally require an increase in the level of assessments for institutions with assets in excess of $10 billion. The applicability of increased assessments to the Company may depend upon regulations issued by banking regulators, who are granted significant rulemaking discretion by the Dodd-Frank Act.
Additionally, the Dodd-Frank Act establishes the Bureau of Consumer Financial Protection (the “Bureau”) within the Federal Reserve, which will regulate consumer financial products and services. On July 21, 2011, the consumer financial protection functions currently assigned to the federal banking and other designated agencies will shift to the Bureau. The Bureau will have broad rulemaking authority over a wide range of consumer protection laws that apply to banks and thrifts, including the authority to prohibit “unfair, deceptive or abusive practices” to ensure that all consumers have access to markets for consumer financial products and services, and that such markets are fair, transparent and competitive. In particular, the Bureau may enact sweeping reforms in the mortgage broker industry which may increase the costs of engaging in these activities for all market participants, including our subsidiaries. The Bureau will have broad supervisory, examination and enforcement authority. In addition, state attorneys general and other state officials will be authorized to enforce consumer protection rules issued by the Bureau.

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The Dodd-Frank Act weakens federal preemption available for national banks and eliminates federal preemption for subsidiaries of national banks, which may subject the Company’s national banks and their subsidiaries, including Wintrust Mortgage Company, to additional state regulation. With regard to mortgage lending, the Dodd-Frank Act imposes new requirements regarding the origination and servicing of residential mortgage loans. The law creates a variety of new consumer protections, including limitations on the manner by which loan originators may be compensated and an obligation of the part of lenders to assess and verify a borrower’s “ability to repay” a residential mortgage loan.
The Dodd-Frank Act also enhances provisions relating to affiliate and insider lending restrictions and loans to one borrower limitations. Federal banking law currently limits a national bank’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions. It also eventually will prohibit state-chartered banks (including certain of the Company’s banking subsidiaries) from engaging in derivative transactions unless the state lending limit laws take into account credit exposure to such transactions.
Recent Actions Related to Capital and Liquidity
In December 2009, the Basel Committee on Banking Supervision released two consultative documents proposing significant changes to bank capital, leverage and liquidity requirements, commonly referred to as “Basel III.”
In September 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, announced minimum capital ratios and transition periods and endorsed the statements the Committee released in July 2010. The announcement provides that: (i) the minimum requirement for the Tier 1 common equity ratio will be increased from the current 2% level to 4.5%, to be phased in by January 1, 2015, and (ii) the minimum requirement for the Tier 1 capital ratio will be increased from 4% to 6%, to be phased in by January 1, 2015.
In addition, Basel III includes a “capital conservation buffer” that requires banking organizations to maintain an additional 2.5% of Tier 1 common equity to total risk weighted assets on top of the minimum requirement, which will be phased in between January 1, 2016 and January 1, 2019. The capital conservation buffer is designed to absorb losses in periods of financial and economic distress and, while banks are allowed to draw on the buffer during periods of stress, if a bank’s regulatory capital ratios approach the minimum requirement, the bank will be subject to constraints on earnings distributions. In addition, Basel III includes a countercyclical buffer within a range of 0% — 2.5%, which would be implemented according to national circumstances.
These capital requirements are supplemented under Basel III by a non-risk-based leverage ratio. A minimum Tier 1 leverage ratio of 3% will be tested during the parallel run period starting January 1, 2013. Based on the results of the parallel run period, any final adjustments would be carried out in the first half of 2017.
The Basel III liquidity proposals have three main elements: (i) a “liquidity coverage ratio” designed to ensure that a bank maintains an adequate level of unencumbered high-quality assets sufficient to meet the bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a “net stable funding ratio” designed to promote more medium and long-term funding of the assets and activities of banks over a one-year time horizon, and (iii) a set of monitoring tools that the Basel Committee indicates should be considered as the minimum types of information that banks should report to supervisors. After an observation period beginning in 2011, the liquidity coverage ratio will become effective on January 1, 2015. The revised net stable funding ratio will become effective January 1, 2018.
The U.S. federal banking agencies expressed support for the agreements reached by the Group of Governors and Heads of Supervision set forth in the announcement made in September 2010. While the announcement provided clarity on the minimum capital levels, many of the details of the new framework will remain unclear until the final release is issued. The Basel Committee is expected to release the final detailed requirements later this year. Implementation of any final provisions of Basel III in the U.S. will require implementing regulations and guidelines by U.S. banking regulators, which may differ in significant ways from the recommendations published by the Basel Committee. It is unclear how U.S. banking regulators will define “well-capitalized” in their implementation of Basel III.
We are not able to predict at this time the content of capital and liquidity guidelines or regulations that may be adopted by regulatory agencies having authority over us and our subsidiaries or the impact that any changes in regulation would have on us. If new standards require us or our banking subsidiaries to maintain more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities in order to comply with formulaic liquidity requirements, such regulation could significantly impact our return on equity, financial condition, operations, capital position and ability to pursue business opportunities.
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.

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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 September 30, 2010.
FDIC-Assisted Transactions — Acquisition of Lincoln Park Bank, Wheatland Bank and Ravenswood Bank
On August 6, 2010, Northbrook Bank & Trust Company acquired the banking operations of Ravenswood in an FDIC-assisted transaction. Northbrook acquired assets with a fair value of approximately $172 million, including $94 million of loans, and assumed liabilities with a fair value of approximately $123 million, including $121 million of deposits. Additionally, on April 23, 2010, the Company acquired the banking operations of two entities in FDIC-assisted transactions. 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. Wheaton Bank and 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 this 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 $46.6 million for the Ravenswood acquisition, and $113.8 million for the Lincoln Park and Wheatland acquisitions. 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 gains of $33.1 million, $6.6 million for Ravenswood, $22.3 million for Wheatland, and $4.2 million for Lincoln Park, and is shown as a component of non-interest income on the Company’s Consolidated Statements of Income.
Acquisition of a branch of the First National Bank of Brookfield
On October 22, 2010, the Company’s wholly-owned subsidiary bank, Wheaton, acquired a branch of First National Bank of Brookfield that is located in Naperville, Illinois. Through this transaction, subject to final adjustments, Wheaton acquired approximately $23 million of deposits, approximately $11 million of performing loans, the property, bank facility and various other assets. This branch will operate as Naperville Bank & Trust.

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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)   September 30, 2010   September 30, 2009   Change
Net income
  $ 20,098     $ 31,995       (37 )%
Net income per common share — Diluted
    0.47       1.07       (56 )
 
                       
Net revenue (1)
    157,636       238,343       (34 )
Net interest income
    102,980       87,663       17  
 
                       
Core pre-tax earnings (2) (6)
    47,572       37,137       28  
 
                       
Net interest margin (2)
    3.22 %     3.25 %   (3 )bp
Net overhead ratio (3)
    1.28       (1.95 )     323  
Efficiency ratio (2) (4)
    67.01       38.69       2,832  
Return on average assets
    0.57       1.08       (51 )
Return on average common equity
    5.44       13.79       (835 )
                         
    Nine Months   Nine Months   Percentage (%) or
    Ended   Ended   Basis Point (bp)
(Dollars in thousands, except per share data)   September 30, 2010   September 30, 2009   Change
Net income
  $ 49,125     $ 44,902       9 %
Net income per common share — Diluted
    1.12       1.25       (10 )
 
                       
Net revenue (1)
    450,859       457,501       (1 )
Net interest income
    303,159       224,942       35  
 
                       
Core pre-tax earnings (2) (6)
    137,287       81,996       67  
 
                       
Net interest margin (2)
    3.34 %     2.98 %   36 bp
Net overhead ratio (3)
    1.29       0.25       104  
Efficiency ratio (2) (4)
    62.45       55.15       730  
Return on average assets
    0.49       0.54       (5 )
Return on average common equity
    4.43       5.16       (73 )
 
                       
At end of period
                       
Total assets
  $ 14,100,368     $ 12,136,021       16 %
Total loans
    9,814,995       8,275,257       19  
Total loans, including loans held-for-sale
    10,135,435       8,468,512       20  
Total deposits
    10,962,239       9,847,163       11  
Junior subordinated debentures
    249,493       249,493        
Total shareholders’ equity
    1,398,912       1,106,082       26  
Tangible common equity ratio (TCE) (2)
    5.9 %     4.5 %   146 bp
Book value per common share
    35.70       34.10       5 %
Market price per common share
    32.41       27.96       16  
 
                       
Excluding covered loans:
                       
Allowance for loan losses to total loans (5)
    1.17 %     1.15 %   2 bp
Allowance for credit losses to total loans (5)
    1.19       1.19        
Non-performing loans to total loans
    1.42       2.80       (138 )
 
                       
Including covered loans:
                       
Allowance for loan losses to total loans (5)
    1.13 %     1.15 %   (2 )bp
Allowance for credit losses to total loans (5)
    1.15       1.19       (4 )
Non-performing loans to total loans
    2.87       2.80       7  
 
(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 measure/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.

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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%.
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     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
(A) Interest Income (GAAP)
  $ 147,401     $ 141,577     $ 439,144     $ 390,785  
Taxable-equivalent adjustment:
                               
- Loans
    85       93       254       360  
- Liquidity management assets
    324       413       1,051       1,314  
- Other earning assets
    7       9       16       30  
 
                       
Interest Income — FTE
  $ 147,817     $ 142,092     $ 440,465     $ 392,489  
(B) Interest Expense (GAAP)
    44,421       53,914       135,985       165,843  
 
                       
Net interest income — FTE
    103,396       88,178       304,480       226,646  
 
                       
(C) Net Interest Income (GAAP) (A minus B)
  $ 102,980     $ 87,663     $ 303,159     $ 224,942  
 
                       
(D) Net interest margin (GAAP)
    3.20 %     3.23 %     3.32 %     2.95 %
Net interest margin — FTE
    3.22 %     3.25 %     3.34 %     2.98 %
(E) Efficiency ratio (GAAP)
    67.20 %     38.77 %     62.63 %     55.36 %
Efficiency ratio — FTE
    67.01 %     38.69 %     62.45 %     55.15 %
 
                               
Calculation of Tangible Common Equity ratio (at period end)
                               
Total shareholders equity
  $ 1,398,912     $ 1,106,082                  
Less: Preferred stock
    (287,234 )     (284,061 )                
Less: Intangible assets
    (291,219 )     (290,893 )                
 
                           
(F) Total tangible shareholders equity
  $ 820,459     $ 531,128                  
 
                           
 
                               
Total assets
  $ 14,100,368     $ 12,136,021                  
Less: Intangible assets
    (291,219 )     (290,893 )                
 
                           
(G) Total tangible assets
  $ 13,809,149     $ 11,845,128                  
 
                           
 
                               
Tangible common equity ratio (F/G)
    5.9 %     4.5 %                
 
                               
Income before taxes
  $ 32,385     $ 54,587     $ 78,665     $ 74,402  
Add: Provision for credit losses
    25,528       91,193       95,870       129,329  
Add: OREO expenses, net
    4,767       10,243       11,948       13,671  
Add: Recourse obligation on loans previously sold
    1,432             9,605        
Less: Gain on bargain purchases
    (6,593 )     (113,062 )     (43,981 )     (113,062 )
Less: Trading (gains) losses
    (712 )     (6,236 )     (5,147 )     (23,254 )
Less: (Gains) losses on available-for-sale securities, net
    (9,235 )     412       (9,673 )     910  
 
                       
Core pre-tax earnings
  $ 47,572     $ 37,137     $ 137,287     $ 81,996  
 
                       

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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 September 30, 2010 totaled $20.1 million, a decrease of $11.9 million, or 37%, compared to the third quarter of 2009, and an increase of approximately $7.1 million, or 54%, compared to the second quarter of 2010. On a per share basis, net income for the third quarter of 2010 totaled $0.47 per diluted common share, a decrease of $0.60 per share as compared to the 2009 third quarter total of $1.07 per diluted common share. Compared to the second quarter of 2010, net income per diluted common share in the third quarter of 2010 increased $0.22, or 88%. Primarily 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, average common shares and dilutive common shares in the third quarter of 2010 increased by approximately 5.6 million shares, or 21%, compared to the same period in 2009.
The most significant factors affecting net income for the third quarter of 2010 as compared to the same period in the prior year include a decrease in gain on bargain purchases as a result of the third quarter 2009 acquisition of the life insurance premium finance portfolio, offset by a decrease in the provision for credit losses and interest expense on deposits as well as increased mortgage banking revenues and interest income on loans. The return on average common equity for the third quarter of 2010 was 5.44%, compared to 13.79% for the prior year third quarter and 2.98% for the second quarter of 2010.
Net income for the first nine months of 2010 totaled $49.1 million, an increase of $4.2 million, or 9.4%, compared to $44.9 million for the same period in 2009. On a per share basis, net income per diluted common share was $1.12 for the first nine months of 2010, a decrease of $0.13 per share compared to $1.25 for the first nine months of 2009. Return on average common equity for the first nine months of 2010 was 4.43% versus 5.16% for the same period of 2009.
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.

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Quarter Ended September 30, 2010 compared to the Quarter Ended September 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 third quarter of 2010 as compared to the third quarter of 2009 (linked quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    September 30, 2010     September 30, 2009  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
     
Liquidity management assets (1) (2) (7)
  $ 2,802,964     $ 9,625       1.36 %   $ 2,078,330     $ 15,403       2.94 %
Other earning assets (2) (3) (7)
    34,263       205       2.37       24,874       148       2.36  
Loans, net of unearned income (2) (4) (7)
    9,603,561       134,016       5.54       8,665,281       126,541       5.79  
Covered loans
    325,751       3,971       4.84                    
         
Total earning assets (7)
  $ 12,766,539     $ 147,817       4.59 %   $ 10,768,485     $ 142,092       5.24 %
         
Allowance for loan losses
    (113,631 )                     (85,300 )                
Cash and due from banks
    154,078                       109,645                  
Other assets
    1,208,771                       1,004,690                  
 
                                           
Total assets
  $ 14,015,757                     $ 11,797,520                  
 
                                           
 
                                               
Interest-bearing deposits
  $ 9,823,525     $ 31,088       1.26 %   $ 8,799,578     $ 42,806       1.93 %
Federal Home Loan Bank advances
    414,789       4,042       3.87       434,134       4,536       4.14  
Notes payable and other borrowings
    232,991       1,411       2.40       245,352       1,779       2.88  
Secured borrowings — owed to securitization investors
    600,000       3,167       2.09                    
Subordinated notes
    55,000       265       1.89       65,000       333       2.01  
Junior subordinated notes
    249,493       4,448       6.98       249,493       4,460       6.99  
         
Total interest-bearing liabilities
  $ 11,375,798     $ 44,421       1.55 %   $ 9,793,557     $ 53,914       2.18 %
         
Non-interest bearing liabilities
    1,005,170                       775,202                  
Other liabilities
    243,282                       158,666                  
Equity
    1,391,507                       1,070,095                  
 
                                           
Total liabilities and shareholders’ equity
  $ 14,015,757                     $ 11,797,520                  
 
                                           
 
                                               
Interest rate spread (5) (7)
                    3.04 %                     3.06 %
Net free funds/contribution (6)
  $ 1,390,741               0.18 %   $ 974,928               0.19 %
         
Net interest income/Net interest margin (7)
          $ 103,396       3.22 %           $ 88,178       3.25 %
                         
 
(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 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 September 30, 2010 and 2009 were $416,000 and $515,000, respectively.
 
(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 ratio.
The higher level of net interest income recorded in the third quarter of 2010 compared to the third 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 $714 million 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 third quarter of 2010, the yield on earning assets decreased 65 basis points as the yield on liquidity management assets declined by 158 basis points and the rate on interest-bearing liabilities decreased 63 basis points compared to the third 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 67 basis points when compared to the third quarter of 2009.

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Quarter Ended September 30, 2010 compared to the Quarter 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 third quarter of 2010 as compared to the second quarter of 2010 (sequential quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    September 30, 2010     June 30, 2010  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
     
Liquidity management assets (1) (2) (7)
  $ 2,802,964     $ 9,625       1.36 %   $ 2,613,179     $ 13,305       2.04 %
Other earning assets (2) (3) (7)
    34,263       205       2.37       62,874       515       3.28  
Loans, net of unearned income (2) (4) (7)
    9,603,561       134,016       5.54       9,356,033       133,207       5.71  
Covered loans
    325,751       3,971       4.84       210,030       2,682       5.12  
         
Total earning assets (7)
  $ 12,766,539     $ 147,817       4.59 %   $ 12,242,116     $ 149,709       4.91 %
         
Allowance for loan losses
    (113,631 )                     (108,764 )                
Cash and due from banks
    154,078                       137,531                  
Other assets
    1,208,771                       1,119,654                  
 
                                           
Total assets
  $ 14,015,757                     $ 13,390,537                  
 
                                           
 
                                               
Interest-bearing deposits
  $ 9,823,525     $ 31,088       1.26 %   $ 9,348,541     $ 31,626       1.36 %
Federal Home Loan Bank advances
    414,789       4,042       3.87       417,835       4,094       3.93  
Notes payable and other borrowings
    232,991       1,411       2.40       217,751       1,439       2.65  
Secured borrowings — owed to securitization investors
    600,000       3,167       2.09       600,000       3,115       2.08  
Subordinated notes
    55,000       265       1.89       57,198       256       1.77  
Junior subordinated notes
    249,493       4,448       6.98       249,493       4,404       6.98  
         
Total interest-bearing liabilities
  $ 11,375,798     $ 44,421       1.55 %   $ 10,890,818     $ 44,934       1.65 %
         
Non-interest bearing liabilities
    1,005,170                       932,046                  
Other liabilities
    243,282                       195,984                  
Equity
    1,391,507                       1,371,689                  
 
                                           
Total liabilities and shareholders’ equity
  $ 14,015,757                     $ 13,390,537                  
 
                                           
 
                                               
Interest rate spread (5) (7)
                    3.04 %                     3.26 %
Net free funds/contribution (6)
  $ 1,390,741               0.18 %   $ 1,351,298               0.17 %
         
Net interest income/Net interest margin (7)
          $ 103,396       3.22 %           $ 104,775       3.43 %
                         
 
(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 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 September 30, 2010 and June 30, 2010 were $416,000 and $461,000, respectively.
 
(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 ratio.
The decline in net interest margin in the third quarter of 2010 compared to the second quarter of 2010 was primarily caused by $3.2 million less accretion on the purchased life insurance premium finance portfolio as less prepayments occurred (reduced net interest margin by 10 basis points), higher balances and lower yields on liquidity management assets (reduced net interest margin by 14 basis points), the negative impact of selling certain collateralized mortgage obligations (reduced net interest margin by nine basis points), offset by lower costs for interest-bearing deposits (increased net interest margin by 11 basis points) and higher contribution from net free funds (increased net interest margin by 1 basis point). The decline in the yield on loans is primarily attributable to reduced accretion on the purchased life insurance premium finance portfolio.

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Nine months Ended September 30, 2010 compared to the Nine months Ended September 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 first nine months of 2010 as compared to the first nine months of 2009:
                                                 
    For the Nine Months Ended     For the Nine Months Ended  
    September 30, 2010     September 30, 2009  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
     
Liquidity management assets (1) (2) (7)
  $ 2,592,751     $ 36,084       1.86 %   $ 1,923,869     $ 48,004       3.34 %
Other earning assets (2) (3) (7)
    50,192       883       2.35       23,242       488       2.81  
Loans, net of unearned income (2) (4) (7)
    9,371,291       396,845       5.66       8,244,336       343,997       5.58  
Covered loans
    178,492       6,653       4.98                    
         
Total earning assets (7)
  $ 12,192,726     $ 440,465       4.83 %   $ 10,191,447     $ 392,489       5.15 %
         
Allowance for loan losses
    (109,982 )                     (76,886 )                
Cash and due from banks
    135,476                       103,164                  
Other assets
    1,104,240                       936,468                  
 
                                           
Total assets
  $ 13,322,460                     $ 11,154,193                  
 
                                           
 
                                               
Interest-bearing deposits
  $ 9,358,313     $ 95,926       1.37 %   $ 8,217,631     $ 132,261       2.15 %
Federal Home Loan Bank advances
    420,554       12,482       3.97       435,359       13,492       4.14  
Notes payable and other borrowings
    225,579       4,312       2.56       266,264       5,401       2.71  
Secured borrowings — owed to securitization investors
    600,000       9,276       2.07                    
Subordinated notes
    57,381       762       1.75       67,198       1,341       2.63  
Junior subordinated notes
    249,493       13,227       6.99       249,498       13,348       7.05  
         
Total interest-bearing liabilities
  $ 10,911,320     $ 135,985       1.66 %   $ 9,235,950     $ 165,843       2.40 %
         
Non-interest bearing liabilities
    934,734                       754,666                  
Other liabilities
    155,795                       97,130                  
Equity
    1,320,611                       1,066,447                  
 
                                           
Total liabilities and shareholders’ equity
  $ 13,322,460                     $ 11,154,193                  
 
                                           
 
                                               
Interest rate spread (5) (7)
                    3.17 %                     2.75 %
Net free funds/contribution (6)
  $ 1,281,406               0.17 %   $ 955,497               0.23 %
         
Net interest income/Net interest margin (7)
          $ 304,480       3.34 %           $ 226,646       2.98 %
                         
 
(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 securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the nine months ended September 30, 2010 and 2009 were $1.3 million and $1.7 million, respectively.
 
(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 ratio.
Tax-equivalent net interest income for the first nine months of 2010 totaled $304.5 million, an increase of $77.9 million, or 34%, as compared to the $226.6 million recorded in the first nine 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 $996 million 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 nine months of 2010, the yield on earning assets decreased 32 basis points as the yield on liquidity management assets declined by 148 basis points and the rate on interest-bearing liabilities decreased 74 basis points compared to the first nine 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 78 basis points when compared to the first nine months of 2009.

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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 September 30, 2010 and June 30, 2010, the nine month periods ended September 30, 2010 and September 30, 2009 and the three-month periods ended September 30, 2010 and September 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:
                         
    Third Quarter     First Nine Months     Third Quarter  
    of 2010     of 2010     of 2010  
    Compared to     Compared to     Compared to  
    Second Quarter     First Nine Months     Third Quarter  
(Dollars in thousands)   of 2010     of 2009     of 2009  
Tax-equivalent net interest income for comparative period
  $ 104,775     $ 226,646     $ 88,178  
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)
    3,965       33,803       9,722  
Change due to interest rate fluctuations (rate)
    (6,483 )     44,031       5,496  
Change due to number of days in each period
    1,139                
 
                 
Tax-equivalent net interest income for the period ended September 30, 2010
  $ 103,396     $ 304,480     $ 103,396  
 
                 

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Non-interest Income
For the third quarter of 2010, non-interest income totaled $54.7 million, a decrease of $96.0 million, or 64%, compared to the third quarter of 2009. The decrease was primarily attributable to the bargain purchase gain related to the life insurance premium finance loan acquisition in the third quarter of 2009 and lower trading gains, partially offset by an increase in mortgage banking revenue and gains on available-for-sale securities. For the first nine months of 2010, non-interest income totaled $147.7 million, a decrease of $84.9 million, or 36%, compared to the first nine months of 2009.
The following table presents non-interest income by category for the periods presented:
                                 
    Three Months Ended              
    September 30     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Brokerage
  $ 5,806     $ 4,593     $ 1,213       26  
Trust and asset management
    3,167       2,908       259       9  
 
                       
Total wealth management
    8,973       7,501       1,472       20  
 
                       
Mortgage banking
    20,980       13,204       7,776       59  
Service charges on deposit accounts
    3,384       3,447       (63 )     (2 )
Gains on sales of premium finance receivables
          3,629       (3,629 )     (100 )
Gains (losses) on available-for-sale securities
    9,235       (412 )     9,647     NM  
Gain on bargain purchases
    6,593       113,062       (106,469 )     (94 )
Trading gains
    712       6,236       (5,524 )     (89 )
Other:
                               
Fees from covered call options
    703             703     NM  
Bank Owned Life Insurance
    552       552              
Administrative services
    744       527       217       41  
Miscellaneous
    2,780       2,934       (154 )     (5 )
 
                       
Total Other
    4,779       4,013       766       19  
 
                       
 
                               
Total Non-Interest Income
  $ 54,656     $ 150,680     $ (96,024 )     (64 )
 
                       
                                 
    Nine Months Ended              
    September 30     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Brokerage
  $ 17,072     $ 12,693     $ 4,379       34  
Trust and asset management
    9,761     $ 7,617       2,144       28  
 
                       
Total wealth management
    26,833       20,310       6,523       32  
 
                       
Mortgage banking
    38,693       52,032       (13,339 )     (26 )
Service charges on deposit accounts
    10,087       9,600       487       5  
Gains on sales of premium finance receivables
          4,147       (4,147 )     (100 )
Gains (losses) on available-for-sale securities
    9,673       (910 )     10,583     NM  
Gain on bargain purchases
    43,981       113,062       (69,081 )     (61 )
Trading gains
    5,147       23,254       (18,107 )     (78 )
Other:
                               
Fees from covered call options
    1,162       1,998       (836 )     (42 )
Bank Owned Life Insurance
    1,593       1,403       190       14  
Administrative services
    2,034       1,463       571       39  
Miscellaneous
    8,497       6,200       2,297       37  
 
                       
Total Other
    13,286       11,064       2,222       20  
 
                       
 
                               
Total Non-Interest Income
  $ 147,700     $ 232,559     $ (84,859 )     (36 )
 
                       
 
NM = Not Meaningful

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Wealth management revenue is comprised of the trust and asset management revenue of Wintrust Capital Management and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and The Chicago Trust Company. Wealth management revenue totaled $9.0 million in the third quarter of 2010 and $7.5 million in the third 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 September 30, 2010, this revenue source totaled $21.0 million, an increase of $7.8 million when compared to the third quarter of 2009. For the first nine months of 2010, mortgage banking revenue totaled $38.7 million, a decrease of $13.3 million when compared to the first nine months of 2009. Mortgages originated and sold totaled $1.1 billion in the third quarter of 2010 compared to $732 million in the second quarter of 2010 and $960 million in the third quarter of 2009. The increase in mortgage banking revenue in the third quarter of 2010 as compared to the third quarter of 2009 resulted primarily from an increase in gains on sales of loans, which was driven by higher origination volumes and better pricing realized as a result of the company utilizing mandatory execution of forward commitments with investors in 2010. The increase in gains on sales was partially offset by 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 request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. Fewer requests from investors for loss indemnification occurred in the current quarter as compared to the second quarter of 2009. The company recognized $1.4 million of expense in the third quarter of 2010, a decrease of $3.3 million compared to the second quarter of 2010. However, on a year-to-date basis, higher recourse expense has been recorded in 2010 as compared to 2009, based on a larger volume of investor loss indemnification requests. The Company has established an $8.7 million estimated liability, as of September 30, 2010, on loans expected to be repurchased from loans previously 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:
Mortgage banking revenue
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Mortgage loans originated and sold
  $ 1,076,736     $ 960,218     $ 2,495,880     $ 3,713,883  
 
                               
Mortgage loans serviced
    787,923       715,351                  
Fair value of mortgage servicing rights (MSRs)
    5,179       6,030                  
MSRs as a percentage of loans serviced
    0.66 %     0.84 %                
 
                               
Gain on sales of loans
  $ 28,096     $ 13,957     $ 59,287     $ 54,187  
Derivative/Fair value, net
    (4,212 )     86       (7,200 )     (98 )
Mortgage servicing rights
    (1,472 )     (839 )     (3,789 )     (2,057 )
Recourse obligation on loans previously sold
    (1,432 )           (9,605 )      
 
                       
Total mortgage banking revenue
  $ 20,980     $ 13,204     $ 38,693     $ 52,032  
 
                       
 
                               
Gain on sales of loans as a percentage of loans sold (1)
    2.22 %     1.46 %     2.09 %     1.46 %
 
(1)   Includes derivative/fair value, net
All mortgage loan servicing by the Company is performed by four of its subsidiary banks. Mortgage servicing rights are carried on the balance sheet at fair value. 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).

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Service charges on deposit accounts totaled $3.4 million for the third quarter of 2010, an decrease of $63,000, or 2%, when compared to the same quarter of 2009. On a year-to-date basis, service charges on deposit accounts totaled $10.1 million, an increase of $487,000 or 5%, 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 third quarter and the first nine months of 2009 relate to the clean up calls on previous sales of premium finance receivables – commercial to unrelated third parties.
The Company recognized a $9.2 million net gain on available-for-sale securities in the third quarter of 2010 compared to a net loss of $412,000 in the prior year quarter. For the nine months ended September 30, 2010 and 2009, the Company recognized net gains of $9.7 million and net losses of $910,000, respectively. The net gains in the third quarter of 2010 and in the first nine months of 2009 primarily related to the sale of certain collateralized mortgage obligations. 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 nine months ended September 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 $6.6 million recognized in the third quarter of 2010 relates to the FDIC-assisted bank acquisition during the period. On August 6, 2010, the Company announced that its wholly-owned subsidiary bank, Northbrook, in a FDIC-assisted transaction, had acquired certain assets and liabilities and the banking operations of Ravenswood. For the nine months ended September 30, 2010, the Company recognized $44.0 million of bargain purchase gains as a result of the bank acquisition noted above as well as the acquisition of the life insurance premium finance receivable portfolio and other FDIC-assisted bank acquisitions in the first six months of 2010. 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 gains of $712,000 were recognized by the Company in the third quarter of 2010 compared to gains of $6.2 million in the third quarter of 2009. On a year-to-date basis, trading gains totaled $5.1 million, a decrease of $18.1 million, or 78%, 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.
Other non-interest income for the third quarter of 2010 totaled $4.8 million, compared to $4.0 million in the third quarter of 2009. Fees from certain covered call option transactions increased by $703,000 in the third quarter of 2010 as compared to the same period in the prior year. On a year-to-date basis, other non-interest income totaled $13.3 million, an increase of $2.2 million, or 20% when compared to the same period of 2009. Historically, compression in the net interest margin was effectively offset, as has consistently been the case, by the Company’s covered call strategy. In 2010 management chose to engage in limited covered call option activity.

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Non-interest Expense
Non-interest expense for the third quarter of 2010 totaled $99.7 million and increased approximately $7.2 million, or 8%, from the third quarter 2009. On a year-to-date basis, non-interest expense for 2010 totaled $276.3 million and increased $22.6 million, or 9%, over the same period in 2009. The following table presents non-interest expense by category for the periods presented:
                                 
    Three Months Ended              
    September 30     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Salaries and employee benefits:
                               
Salaries
  $ 30,537     $ 28,189       2,348       8  
Commissions and bonus
    17,366       11,887       5,479       46  
Benefits
    9,111       8,012       1,099       14  
 
                       
Total salaries and employee benefits
    57,014       48,088       8,926       19  
Equipment
    4,203       4,069       134       3  
Occupancy, net
    6,254       5,884       370       6  
Data processing
    3,891       3,226       665       21  
Advertising and marketing
    1,650       1,488       162       11  
Professional fees
    4,555       4,089       466       11  
Amortization of other intangible assets
    701       677       24       4  
FDIC insurance
    4,642       4,334       308       7  
OREO expenses, net
    4,767       10,243       (5,476 )     (53 )
Other:
                               
Commissions - 3rd party brokers
    979       843       136       16  
Postage
    1,254       1,139       115       10  
Stationery and supplies
    812       769       43       6  
Miscellaneous
    9,001       7,714       1,287       17  
 
                       
Total other
    12,046       10,465       1,581       15  
 
                       
 
                               
Total Non-Interest Expense
  $ 99,723     $ 92,563     $ 7,160       8  
 
                       
                                 
    Nine Months Ended              
    September 30     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Salaries and employee benefits:
                               
Salaries
  $ 88,334     $ 80,421       7,913       10  
Commissions and bonus
    40,064       33,751       6,313       19  
Benefits
    28,337       24,751       3,586       14  
 
                       
Total salaries and employee benefits
    156,735       138,923       17,812       13  
Equipment
    12,144       12,022       122       1  
Occupancy, net
    18,517       17,682       835       5  
Data processing
    10,967       9,578       1,389       15  
Advertising and marketing
    4,434       4,003       431       11  
Professional fees
    11,619       9,843       1,776       18  
Amortization of other intangible assets
    2,020       2,040       (20 )     (1 )
FDIC insurance
    13,456       16,468       (3,012 )     (18 )
OREO expenses, net
    11,948       13,671       (1,723 )     (13 )
Other:
                               
Commissions - 3rd party brokers
    3,037       2,338       699       30  
Postage
    3,593       3,466       127       4  
Stationery and supplies
    2,305       2,330       (25 )     (1 )
Miscellaneous
    25,549       21,406       4,143       19  
 
                       
Total other
    34,484       29,540       4,944       17  
 
                       
 
                               
Total Non-Interest Expense
  $ 276,324     $ 253,770     $ 22,554       9  
 
                       
Salaries and employee benefits comprised 57% of total non-interest expense in the third quarter of 2010 and 52% in the third quarter of 2009. Salaries and employee benefits expense increased $8.9 million, or 19%, in the third quarter of 2010 compared to the third quarter of 2009 primarily as a result of a $5.5 million increase in bonus and commissions as variable pay based revenue increased (mortgage banking and wealth management), a $2.3 million increase in salaries caused by the additional employees from the three

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FDIC-assisted transactions and larger staffing as the Company grows and a $1.1 million increase from employee benefits (primarily health plan related). On a year-to-date basis, salaries and employee benefits increased $17.8 million, or 13%, compared to the same period in 2009 primarily as a result of increases in base compensation and higher incentive compensation expenses in 2010.
Equipment expense, which includes furniture, equipment and computer software depreciation and repairs and maintenance costs, totaled $4.2 million for the third quarter of 2010 representing a 3% increase compared to the same period of 2009. On a year-to-date basis, equipment expense was $12.1 million in 2010, a increase of $122,000, or 1%, compared to the same period of 2009. These increases are primarily a result of increased repairs and maintenance costs in 2010 compared to 2009, offset by a decrease in depreciation expense in 2010.
Occupancy expense for the third quarter of 2010 was $6.3 million, an increase of $370,000, or 6%, 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 $18.5 million in 2010, an increase of $835,000, or 5%, compared to the same period of 2009. These increases are primarily the result of rent expense on additional leased premises in 2010.
Data processing expenses totaled $3.9 million in the third quarter of 2010, representing an increase of $665,000, or 21%, compared to the third quarter of 2009. On a year-to-date basis, data processing expense was $11.0 million in 2010, an increase of $1.4 million, or 15%, compared to the same period of 2009. These increases are primarily due to the overall growth of loan and deposit accounts as well as from additional expenses incurred for FDIC-assisted transactions in 2010.
Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the third quarter of 2010 were $4.6 million, an increase of $466,000, or 11%, compared to the same period in 2009. On a year-to-date basis, professional fees were $11.6 million in 2010, an increase of $1.8 million, or 18%, 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 $4.6 million in the third quarter of 2010, an increase of $308,000 compared to $4.3 million in the third quarter of 2009. On a year-to-date basis, FDIC insurance was $13.5 million in 2010, a decrease of $3.0 million, or 18%, compared to the same period of 2009. The increase in FDIC insurance expense in the current quarter is primarily the result of the higher level of deposits at the Company’s banks. The reduction in year-to-date 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 September 30, 2010 decreased $5.5 million and $1.7 million, respectively, compared to the same periods in the prior year. These decreases in OREO expenses are primarily related to lower valuation adjustments of properties held in OREO in 2010 compared to 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 third quarter of 2010 increased $1.3 million, or 17%, compared to the same period in the prior year. On a year-to-date basis, miscellaneous expense increased $4.1 million, or 19%, compared to the same period in the prior year. The increase in the current quarter and year-to-date period ended September 30, 2010 compared to the same periods in the prior year is primarily attributable to the general growth in the Company’s business.
Income Taxes
The Company recorded income tax expense of $12.3 million for the three months ended September 30, 2010, compared to $22.6 million for same period of 2009. Income tax expense was $29.5 million for the nine months ended September 30, 2010 and for the nine months ended September 30, 2009. The effective tax rates were 37.9% and 41.4% for the third quarters of 2010 and 2009, respectively and 37.6% and 39.6% for the 2010 and 2009 year-to-date periods, respectively. The higher effective tax rates in the 2009 quarterly and year-to-date periods as compared to the same periods of 2010, are primarily a result of a higher level of state taxes accrued in the 2009 period.
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.

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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.)
The community banking segment’s net interest income for the quarter ended September 30, 2010 totaled $95.4 million as compared to $84.6 million for the same period in 2009, an increase of $10.8 million, or 13%. On a year-to-date basis, net interest income totaled $280.8 million for the first nine months of 2010, an increase of $64.7 million, or 30%, as compared to the $216.1 million recorded last year. These increases are primarily attributable to the three 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 $44.3 million in the third quarter of 2010, an increase of $25.4 million, or 134%, when compared to the third quarter of 2009 total of $18.9 million. On a year-to-date basis, the segment’s non-interest income totaled $101.1 million in the first nine months of 2010, an increase of $30.5 million, or 43%, when compared to the first nine months of 2009 total of $70.6 million. This increase is primarily attributable to the $6.6 million of bargain purchase gain in the third quarter of 2010 related to the Ravenswood FDIC-assisted bank acquisition, higher mortgage banking revenues and gain on the sale of certain collateralized mortgage obligations. The year-to-date increase in non-interest income is primarily attributable to the $33.1 million of bargain purchase gains related to the three FDIC-assisted bank acquisitions in 2010, and the gain on the sale of certain collateralized mortgage obligations in the third quarter of 2010, partially offset by lower mortgage banking revenues. The community banking segment’s net income for the quarter ended September 30, 2010 totaled $22.4 million, an increase of $57.7 million, as compared to a net loss in the third quarter of 2009 of $35.3 million. The after-tax profit for the nine months ended September 30, 2010, totaled $53.1 million, an increase of $77.8 million, or 315% as compared to the prior year net loss of $24.7 million. In the third quarter of 2009, additional provision for loan losses was recorded in the community banking segment to accommodate for additional net charge-offs and valuation write-downs of other real estate owned.
Net interest income for the specialty finance segment totaled $14.2 million for the quarter ended September 30, 2010, compared to $33.7 million for the same period in 2009, a decrease of $19.5 million or 58%. On a year-to-date basis, net interest income totaled $43.9 million for the first nine months of 2010, a decrease of $28.0 million, or 39%, as compared to the $71.9 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 in 2009. Beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statements 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 $745,000 for the quarter ended September 30, 2010, compared to $114.3 million for the same period in 2009, a decrease of $113.5 million. The non-interest income decreased $102.8 million to $12.9 million in the first nine months of 2010 as compared to the same period in the prior year. These decreases are attributable to the impact of the life insurance premium finance receivable portfolio bargain purchase gain in the third quarter of 2009. See Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of the bargain purchase. The after-tax profit of the specialty finance segment for the quarter ended September 30, 2010 totaled $5.6 million as compared an after-tax profit of $120.4 million for the quarter ended September 30, 2009. The specialty finance segment’s after-tax profit for the nine months ended September 30, 2010 totaled $14.5 million, a decrease of $122.2 million, or 89%, as compared to the prior year total of $136.7 million. The decrease in net income in 2010 compared to 2009 is a result of the life insurance premium finance receivable bargain purchase gain in 2009 and, 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.
The wealth management segment reported net interest income of $399,000 for the third quarter of 2010 compared to $1.7 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 $264,000 ($151,000 after tax) in the third quarter of 2010 compared to a profit of $1.6 million ($1.0 million after tax) in the third quarter of 2009. On a year-to-date basis, net interest income totaled $5.4 million for the first nine months of 2010, a decrease of $4.0 million or 43%, as compared to the $9.4 million recorded last year. The allocated net interest income included in this segment’s profitability was $5.0 million ($3.1 million after tax) in the first nine months of 2010 and $9.0 million ($5.6 million after tax) in the first nine months of 2009. This segment recorded non-interest income of $11.0 million for the third quarter of 2010 compared to $10.4 million for the third quarter of 2009. On a year-to-date basis, non-interest income totaled $32.7 million for the first nine months of 2010, a decrease of $4.7 million or 17%, as compared to the $28.0 million recorded last year. The wealth management segment’s net loss totaled $11,000 for the third quarter of 2010 compared to net income of $647,000 for the third quarter of 2009. This segment’s after-tax net income for the nine months ended September 30, 2010, totaled $2.4 million compared to $3.9 million for the nine months ended September 30, 2009, a decrease of $1.5 million.
FINANCIAL CONDITION
Total assets were $14.1 billion at September 30, 2010, representing an increase of $2.0 billion, or 16%, when compared to September 30, 2009 and approximately $392 million, or 11% on an annualized basis, when compared to June 30, 2010. Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $12.5 billion at September 30, 2010,

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$10.8 billion at September 30, 2009 and $12.2 billion at June 30, 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  
    September 30, 2010     June 30, 2010     September 30, 2009  
(Dollars in thousands)   Balance     Percent     Balance     Percent     Balance     Percent  
Loans:
                                               
Commercial
  $ 1,846,013       15 %   $ 1,792,307       15 %   $ 1,639,293       15 %
Commercial real estate
    3,347,963       26       3,341,735       27       3,431,518       32  
Home equity
    923,333       7       924,307       7       918,576       9  
Residential real estate (1)
    604,272       5       528,540       4       499,708       5  
Premium finance receivables (2)
    2,722,567       21       2,580,778       21       1,938,645       18  
Indirect consumer loans
    62,655       1       75,709       1       124,552       1  
Other loans
    96,758       1       112,657       1       112,989       1  
 
                                   
Total loans, net of unearned income (3) excluding covered loans
  $ 9,603,561       76 %   $ 9,356,033       76 %   $ 8,665,281       81 %
Covered loans
    325,751       2       210,030       2              
 
                                   
Total average loans (3)
  $ 9,929,312       78 %   $ 9,566,063       78 %   $ 8,665,281       81 %
 
                                   
Liquidity management assets (4)
  $ 2,802,964       22       2,613,179       21       2,078,330       19  
Other earning assets (5)
  $ 34,263             62,874       1       24,874        
 
                                   
Total average earning assets
  $ 12,766,539       100 %   $ 12,242,116       100 %   $ 10,768,485       100 %
 
                                   
Total average assets
  $ 14,015,757             $ 13,390,537             $ 11,797,520          
 
                                         
Total average earning assets to total average assets
            91 %             91 %             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 third quarter of 2010 increased $2.0 billion, or 19%, to $12.8 billion, compared to the third quarter of 2009, and increased $524 million, or 17% on an annualized basis, compared to the second quarter of 2010. The ratio of total average earning assets as a percent of total average assets was 91% at September 30, 2010 and 2009 and June 30, 2010.
Total average loans during the third quarter of 2010 increased $1.3 billion, or 15%, over the previous year third quarter. Approximately $784 million 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, as a result of competitive pricing pressures, ceased the origination of indirect automobile loans through Hinsdale Bank. However, as a result of current favorable pricing opportunities coupled with reduced competition in the indirect consumer auto business, the Company will be re-entering this business with originations through Hinsdale Bank.
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

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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 FDIC-assisted transactions in the second and third quarters 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. In the normal course of business Wayne Hummer Investments, LLC (“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&#