e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
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 001-35077
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
     
     
Illinois   36-3873352
     
(State of incorporation or organization)   (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
(Address of principal executive offices)
(847) 615-4096
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 þ Accelerated filer o 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
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, 35,536,596 shares, as of July 29, 2011
 
 

 


 

TABLE OF CONTENTS
             
        Page  
 
           
 
  PART I. — FINANCIAL INFORMATION        
 
           
  Financial Statements     1  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     42  
  Quantitative and Qualitative Disclosures About Market Risk     85  
  Controls and Procedures     86  
 
           
 
  PART II. — OTHER INFORMATION        
 
           
ITEM 1.
  Legal Proceedings   NA  
  Risk Factors     86  
  Unregistered Sales of Equity Securities and Use of Proceeds     86  
ITEM 3.
  Defaults Upon Senior Securities   NA  
ITEM 4.
  Removed and Reserved   NA  
ITEM 5.
  Other Information   NA  
  Exhibits     87  
 
  Signatures     88  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
                         
    (Unaudited)           (Unaudited)
    June 30,   December 31,   June 30,
(In thousands, except share data)   2011   2010   2010
 
Assets
                       
Cash and due from banks
  $ 140,434     $ 153,690     $ 123,712  
Federal funds sold and securities purchased under resale agreements
    43,634       18,890       28,664  
Interest-bearing deposits with other banks (balance restricted for securitization investors of $23,276 at June 30, 2011, $36,620 at December 31, 2010, and $83,501 at June 30, 2010)
    990,308       865,575       1,110,123  
Available-for-sale securities, at fair value
    1,456,426       1,496,302       1,418,035  
Trading account securities
    509       4,879       38,261  
Federal Home Loan Bank and Federal Reserve Bank stock
    86,761       82,407       79,300  
Brokerage customer receivables
    29,736       24,549       24,291  
Mortgage loans held-for-sale, at fair value
    133,083       356,662       222,703  
Mortgage loans held-for-sale, at lower of cost or market
    5,881       14,785       15,278  
Loans, net of unearned income, excluding covered loans
    9,925,077       9,599,886       9,324,163  
Covered loans
    408,669       334,353       275,563  
 
Total loans
    10,333,746       9,934,239       9,599,726  
Less: Allowance for loan losses
    117,362       113,903       106,547  
Less: Allowance for covered loan losses
    7,443              
 
Net Loans (balance restricted for securitization investors of $660,294 at June 30, 2011, $646,268 at December 31, 2010, and $598,857 at June 30, 2010)
    10,208,941       9,820,336       9,493,179  
Premises and equipment, net
    403,577       363,696       346,806  
FDIC indemnification asset
    110,049       118,182       114,102  
Accrued interest receivable and other assets
    389,634       366,438       374,172  
Trade date securities receivable
    322,091             28,634  
Goodwill
    283,301       281,190       278,025  
Other intangible assets
    11,532       12,575       13,275  
 
Total assets
  $ 14,615,897     $ 13,980,156     $ 13,708,560  
 
 
                       
Liabilities and Shareholders’ Equity
                       
Deposits:
                       
Non-interest bearing
  $ 1,397,433     $ 1,201,194     $ 953,814  
Interest bearing
    9,861,827       9,602,479       9,670,928  
 
Total deposits
    11,259,260       10,803,673       10,624,742  
Notes payable
    1,000       1,000       1,000  
Federal Home Loan Bank advances
    423,500       423,500       415,571  
Other borrowings
    432,706       260,620       218,424  
Secured borrowings — owed to securitization investors
    600,000       600,000       600,000  
Subordinated notes
    40,000       50,000       55,000  
Junior subordinated debentures
    249,493       249,493       249,493  
Trade date securities payable
    2,243             200  
Accrued interest payable and other liabilities
    134,309       155,321       159,394  
 
Total liabilities
    13,142,511       12,543,607       12,323,824  
 
 
                       
Shareholders’ Equity:
                       
Preferred stock, no par value; 20,000,000 shares authorized:
                       
Series A — $1,000 liquidation value; 50,000 shares issued and outstanding at June 30, 2011, December 31, 2010 and June 30, 2010
    49,704       49,640       49,379  
Series B — $1,000 liquidation value; no shares issued and outstanding at June 30, 2011 and December 31, 2010, and 250,000 shares issued and outstanding at June 30, 2010
                237,081  
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 34,988,497 shares issued at June 30, 2011, 34,864,068 shares issued at December 31, 2010, and 31,084,417 shares issued at June 30, 2010
    34,988       34,864       31,084  
Surplus
    969,315       965,203       680,261  
Treasury stock, at cost, 1,441 shares at June 30, 2011, no shares at December 31, 2010, and 119 shares at June 30, 2010, respectively.
    (50 )           (4 )
Retained earnings
    415,297       392,354       381,969  
Accumulated other comprehensive income (loss)
    4,132       (5,512 )     4,966  
 
Total shareholders’ equity
    1,473,386       1,436,549       1,384,736  
 
Total liabilities and shareholders’ equity
  $ 14,615,897     $ 13,980,156     $ 13,708,560  
 
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   Six Months Ended
    June 30,   June 30,
(In thousands, except per share data)   2011   2010   2011   2010
 
Interest income
                               
Interest and fees on loans
  $ 132,338     $ 135,800     $ 268,881     $ 265,342  
Interest bearing deposits with banks
    870       1,215       1,806       2,489  
Federal funds sold and securities purchased under resale agreements
    23       34       55       83  
Securities
    11,438       11,218       20,978       22,230  
Trading account securities
    10       343       23       364  
Federal Home Loan Bank and Federal Reserve Bank stock
    572       472       1,122       931  
Brokerage customer receivables
    194       166       360       304  
 
Total interest income
    145,445       149,248       293,225       291,743  
 
Interest expense
                               
Interest on deposits
    22,404       31,626       46,360       64,838  
Interest on Federal Home Loan Bank advances
    4,010       4,094       7,968       8,440  
Interest on notes payable and other borrowings
    2,715       1,439       5,345       2,901  
Interest on secured borrowings — owed to securitization investors
    2,994       3,115       6,034       6,109  
Interest on subordinated notes
    194       256       406       497  
Interest on junior subordinated debentures
    4,422       4,404       8,792       8,779  
 
Total interest expense
    36,739       44,934       74,905       91,564  
 
Net interest income
    108,706       104,314       218,320       200,179  
Provision for credit losses
    29,187       41,297       54,531       70,342  
 
Net interest income after provision for credit losses
    79,519       63,017       163,789       129,837  
 
Non-interest income
                               
Wealth management
    10,601       9,193       20,837       17,860  
Mortgage banking
    12,817       7,985       24,448       17,713  
Service charges on deposit accounts
    3,594       3,371       6,905       6,703  
Gains on available-for-sale securities, net
    1,152       46       1,258       438  
Gain on bargain purchases
    746       26,494       10,584       37,388  
Trading (losses) gains
    (30 )     (1,617 )     (470 )     4,344  
Other
    7,772       4,964       13,977       8,598  
 
Total non-interest income
    36,652       50,436       77,539       93,044  
 
Non-interest expense
                               
Salaries and employee benefits
    53,079       50,649       109,178       99,721  
Equipment
    4,409       4,046       8,673       7,941  
Occupancy, net
    6,772       6,033       13,277       12,263  
Data processing
    3,147       3,669       6,670       7,076  
Advertising and marketing
    1,440       1,470       3,054       2,784  
Professional fees
    4,533       3,957       8,079       7,064  
Amortization of other intangible assets
    704       674       1,393       1,319  
FDIC insurance
    3,281       5,005       7,799       8,814  
OREO expenses, net
    6,577       5,843       12,385       7,181  
Other
    13,264       11,317       24,807       22,438  
 
Total non-interest expense
    97,206       92,663       195,315       176,601  
 
Income before taxes
    18,965       20,790       46,013       46,280  
Income tax expense
    7,215       7,781       17,861       17,253  
 
Net income
  $ 11,750     $ 13,009     $ 28,152     $ 29,027  
 
Preferred stock dividends and discount accretion
  $ 1,033     $ 4,943     $ 2,064     $ 9,887  
 
Net income applicable to common shares
  $ 10,717     $ 8,066     $ 26,088     $ 19,140  
 
Net income per common share — Basic
  $ 0.31     $ 0.26     $ 0.75     $ 0.67  
 
Net income per common share — Diluted
  $ 0.25     $ 0.25     $ 0.60     $ 0.64  
 
Cash dividends declared per common share
  $     $     $ 0.09     $ 0.09  
 
Weighted average common shares outstanding
    34,971       31,074       34,950       28,522  
Dilutive potential common shares
    8,438       1,267       8,437       1,203  
 
Average common shares and dilutive common shares
    43,409       32,341       43,387       29,725  
 
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, 2009
  $ 284,824     $ 27,079     $ 589,939     $ (122,733 )   $ 366,152     $ (6,622 )   $ 1,138,639  
Comprehensive income:
                                                       
Net income
                            29,027             29,027  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  12,040       12,040  
Unrealized losses on derivative instruments
                                  (296 )     (296 )
 
                                                     
Comprehensive income
                                                    40,771  
Cash dividends declared on common stock
                            (2,191 )           (2,191 )
Dividends on preferred stock
                            (8,251 )           (8,251 )
Accretion on preferred stock
    1,636                         (1,636 )            
Common stock repurchases
                      (102 )                 (102 )
Stock-based compensation
                2,505                         2,505  
Cumulative effect of change in accounting for loan securitizations
                            (1,132 )     (156 )     (1,288 )
Common stock issued for:
                                                       
New issuance, net of costs
          3,795       83,791       122,831                   210,417  
Exercise of stock options and warrants
          108       2,198                         2,306  
Restricted stock awards
          41       (91 )                       (50 )
Employee stock purchase plan
          13       482                         495  
Director compensation plan
          48       1,437                         1,485  
 
Balance at June 30, 2010
  $ 286,460     $ 31,084     $ 680,261     $ (4 )   $ 381,969     $ 4,966     $ 1,384,736  
 
 
                                                       
Balance at December 31, 2010
  $ 49,640     $ 34,864     $ 965,203     $     $ 392,354     $ (5,512 )   $ 1,436,549  
Comprehensive income:
                                                       
Net income
                            28,152             28,152  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  7,690       7,690  
Unrealized gains on derivative instruments
                                  1,954       1,954  
 
                                                     
Comprehensive income
                                                    37,796  
Cash dividends declared on common stock
                            (3,145 )           (3,145 )
Dividends on preferred stock
                            (2,000 )           (2,000 )
Accretion on preferred stock
    64                         (64 )            
Common stock repurchases
                      (50 )                 (50 )
Stock-based compensation
                2,034                         2,034  
Common stock issued for:
                                                       
Exercise of stock options and warrants
          45       567                         612  
Restricted stock awards
          25       (28 )                       (3 )
Employee stock purchase plan
          29       868                         897  
Director compensation plan
          25       671                         696  
 
Balance at June 30, 2011
  $ 49,704     $ 34,988     $ 969,315     $ (50 )   $ 415,297     $ 4,132     $ 1,473,386  
 
                 
    Six Months Ended June 30,  
    2011     2010  
 
               
Other comprehensive income (loss)
               
Unrealized gains on available-for-sale securities arising during the period, net
  $ 14,013     $ 20,023  
Unrealized gains (losses) on derivative instruments arising during the period, net
    3,203       (482 )
Less: Reclassification adjustment for gains included in net income, net
    1,258       438  
Less: Income tax expense
    6,314       7,359  
 
           
Other comprehensive income
  $ 9,644     $ 11,744  
 
           
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Six Months Ended June 30,
(In thousands)   2011   2010
 
Operating Activities:
               
Net income
  $ 28,152     $ 29,027  
Adjustments to reconcile net income to net cash provided by operating activities
               
Provision for credit losses
    54,531       70,342  
Depreciation and amortization
    9,772       9,060  
Stock-based compensation expense
    2,034       2,505  
Tax benefit from stock-based compensation arrangements
    169       562  
Excess tax benefits from stock-based compensation arrangements
    (238 )     (760 )
Net amortization of premium on securities
    5,496       1,159  
Mortgage servicing rights fair value change and amortization, net
    1,136       2,242  
Originations and purchases of mortgage loans held-for-sale
    (1,020,626 )     (1,419,144 )
Proceeds from sales of mortgage loans held-for-sale
    1,257,619       1,480,862  
Bank owned life insurance income, net of claims
    (1,537 )     (1,042 )
Decrease (increase) in trading securities, net
    4,370       (4,487 )
Net increase in brokerage customer receivables
    (5,187 )     (3,420 )
Gain on mortgage loans sold
    (4,510 )     (23,984 )
Gain on available-for-sale securities, net
    (1,258 )     (438 )
Gain on bargain purchases
    (10,584 )     (37,388 )
Loss on sales of premises and equipment, net
          8  
Decrease in accrued interest receivable and other assets, net
    85,641       97,626  
Decrease in accrued interest payable and other liabilities, net
    (29,341 )     (14,350 )
 
Net Cash Provided by Operating Activities
    375,639       188,380  
 
 
               
Investing Activities:
               
Proceeds from maturities of available-for-sale securities
    746,324       675,419  
Proceeds from sales of available-for-sale securities
    53,511       270,654  
Purchases of available-for-sale securities
    (1,072,299 )     (1,148,417 )
Net cash received for acquisitions
    19,925       133,952  
Net (increase) decrease in interest-bearing deposits with banks
    (100,337 )     36,909  
Net increase in loans
    (364,474 )     (421,140 )
Purchases of premises and equipment, net
    (48,741 )     (5,067 )
 
Net Cash Used for Investing Activities
    (766,091 )     (457,690 )
 
 
               
Financing Activities:
               
Increase in deposit accounts
    243,605       137,276  
Increase (decrease) in other borrowings, net
    171,673       (29,013 )
Decrease in Federal Home Loan Bank advances, net
          (43,069 )
Repayment of subordinated note
    (10,000 )     (5,000 )
Excess tax benefits from stock-based compensation arrangements
    238       760  
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
    1,619       2,242  
Common stock repurchases
    (50 )     (102 )
Dividends paid
    (5,145 )     (10,441 )
 
Net Cash Provided by Financing Activities
    401,940       263,070  
 
Net Increase (Decrease) in Cash and Cash Equivalents
    11,488       (6,240 )
Cash and Cash Equivalents at Beginning of Period
    172,580       158,616  
 
Cash and Cash Equivalents at End of Period
  $ 184,068     $ 152,376  
 
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 on Form 10-K for the year ended December 31, 2010 (“2010 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, covered loan losses, and 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 2010 Form 10-K.
(2) Recent Accounting Developments
Presentation of Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which amends the presentation formats permitted for reporting other comprehensive income. This ASU no longer allows other comprehensive income to be presented as part of the statement of changes in stockholder’s equity. Entities must present other comprehensive income and its components in a single statement along with net income or in a separate, consecutive statement of other comprehensive income. This guidance is effective for fiscal and interim periods beginning after December 15, 2011. Other than changing the format of the comprehensive income disclosure, the Company does not expect adoption of this new guidance to have a material impact on our consolidated financial statements.
Amended Guidance for Fair Value Measurement and Disclosure
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which amends the language used to describe U.S. GAAP requirements for measuring fair value and for disclosing information about fair value measurements. The amended language seeks to clarify the application of existing guidance as well as change the measurement and disclosure of a few specific items. The principles changed include measurement of financial instruments that are managed within a portfolio and application of premiums and discounts in fair value measurement. The new guidance will also require additional disclosures including expanded disclosures for measurements categorized within level three, disclosures for nonfinancial assets at fair value and disclosure displaying the fair value hierarchy by level for items in the statement of financial position that are not measured at fair value but for which a fair value is required to be disclosed. The guidance is effective during interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
Changes to the Effective Control Assessment in Accounting for Transfers
In April 2011, the FASB issued ASU No. 2011-03, “Transfers and Servicing (Topic 860); Reconsideration of Effective Control for Repurchase Agreements,” which amends the criteria used to determine when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. The changes presented in this ASU are intended to improve the accounting for these transactions by removing the criterion requiring the transferor to have the ability to repurchase or redeem the

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transferred financial assets from the assessment of effective control. The guidance in this update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
Credit Quality Disclosures of Financing Receivables and Allowance for Credit Losses
In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which required more information in disclosures related to the credit quality of financing receivables and the credit reserves held against them. This guidance required 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 impaired loans. This ASU also included disclosure requirements for information related to loans modified in a troubled debt restructuring, however these disclosures were deferred in January 2011 upon FASB’s issuance of ASU No. 2011-01 “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in update No. 2010-20” to become effective for reporting periods beginning on or after June 15, 2011. All other provisions of ASU 2010-20, except for the summary of activity in the allowance for credit losses by loan portfolio, were effective for the Company’s reporting period ending on or after December 15, 2010. Although not required, the Company disclosed the summary of activity in the allowance for credit losses for the year ending December 31, 2010. Additional credit quality disclosures are included in our consolidated financial statements to provide disaggregated information with respect to the Company’s loan portfolio and the allowance for loan losses. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Item 2 — Loan Portfolio and Asset Quality for further detail.
Determination of a Troubled Debt Restructuring
In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which sought to clarify guidance used to evaluate troubled debt restructurings resulting in consistent application of U.S. GAAP. The update provided guidance to evaluate what is considered to be an economic concession as well as circumstances which indicate that a debtor is experiencing financial difficulties. The effective periods for application of the amendments in this update were interim and annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company does not expect adoption of this new guidance to significantly change the Company’s troubled debt restructuring determination process or have a material impact on its consolidated financial statements.
(3) Business Combinations
FDIC-Assisted Transactions
Since April 2010, the Company has acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of five financial institutions in FDIC-assisted transactions.
The following table presents details related to these transactions:
                                         
                            Community First   The Bank of
(Dollars in thousands)   Lincoln Park   Wheatland   Ravenswood   Bank — Chicago   Commerce
 
                                       
Date of acquisition
  April 23, 2010   April 23, 2010   August 6, 2010   February 4, 2011   March 25, 2011
 
                                       
Fair value of assets acquired, at the acquisition date
  $ 157,078     $ 343,870     $ 173,919     $ 50,891     $ 173,986  
Fair value of loans acquired, at the acquisition date
    103,420       175,277       97,956       27,332       77,887  
Fair value of liabilities assumed, at the acquisition date
    192,018       415,560       122,943       49,779       168,472  
Loans comprise the majority of the assets acquired in these transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. The Company refers to the loans subject to these loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At the acquisition date in 2011, the Company estimated the fair value of the reimbursable losses to be approximately $48.9 million for The Bank of Commerce (“TBOC”) acquisition and $6.7 million for the Community First Bank-Chicago (“CFBC”) acquisition. In 2010, the Company estimated the fair value of the reimbursable losses to be approximately $44.0 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.

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The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as an FDIC indemnification asset 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. See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion of the allowance on covered loans. These transactions resulted in bargain purchase gains of $10.6 million in 2011, $8.6 million for TBOC and $2.0 million for CFBC, and are shown as a component of non-interest income on the Company’s Consolidated Statements of Income. In 2010, FDIC-assisted 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.
Other Bank Acquisitions
On October 22, 2010, Wheaton Bank acquired a branch from an unaffiliated bank that is located in Naperville, Illinois. The acquired operations are operating as Naperville Bank & Trust. Wheaton Bank acquired assets with a fair value of approximately $22.9 million, including $10.7 million of loans, and assumed liabilities with a fair value of approximately $22.9 million, including $22.8 million of deposits. Additionally, the Company recorded goodwill of $1.7 million on the acquisition.
Mortgage Banking Acquisitions
On April 13, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of River City Mortgage, LLC (“River City”) of Bloomington, Minnesota. Currently licensed to originate loans in five states, and with offices in Minnesota, Nebraska and North Dakota, River City originated nearly $500 million in mortgage loans in 2010.
On February 3, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Woodfield Planning Corporation (“Woodfield”) of Rolling Meadows, Illinois. With offices in Rolling Meadows, Illinois and Crystal Lake, Illinois, Woodfield originated approximately $180 million in mortgage loans in 2010.
Purchased 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 the five FDIC-assisted transactions, 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 Company purchased a portfolio of life insurance premium finance receivables in 2009. These purchased 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:
                                 
    June 30, 2011
            Gross   Gross    
    Amortized   unrealized   unrealized   Fair
(Dollars in thousands)   Cost   gains   losses   Value
U.S. Treasury
  $ 104,300     $ 3     $ (3,566 )   $ 100,737  
U.S. Government agencies
    679,261       4,445       (16 )     683,690  
Municipal
    48,710       775       (28 )     49,457  
Corporate notes and other:
                               
Financial issuers
    165,908       3,348       (1,988 )     167,268  
Other
    46,549       456       (21 )     46,984  
Mortgage-backed: (1)
                               
Agency
    351,246       13,706             364,952  
Non-agency CMOs
    362       9             371  
Other equity securities
    42,945       50       (28 )     42,967  
     
Total available-for-sale securities
  $ 1,439,281     $ 22,792     $ (5,647 )   $ 1,456,426  
     
                                 
    December 31, 2010
            Gross   Gross    
    Amortized   unrealized   unrealized   Fair
(Dollars in thousands)   Cost   gains   losses   Value
U.S. Treasury
  $ 104,418     $     $ (8,321 )   $ 96,097  
U.S. Government agencies
    882,095       2,682       (722 )     884,055  
Municipal
    51,493       896       (86 )     52,303  
Corporate notes and other:
                               
Financial issuers
    186,931       3,048       (2,972 )     187,007  
Other
    74,629       330       (51 )     74,908  
Mortgage-backed: (1)
                               
Agency
    148,693       9,963       (3 )     158,653  
Non-agency CMOs
    3,018       10             3,028  
Other equity securities
    40,636       96       (481 )     40,251  
     
Total available-for-sale securities
  $ 1,491,913     $ 17,025     $ (12,636 )   $ 1,496,302  
     
 
(1)   Consisting entirely of residential mortgage-backed securities, none of which are subprime.
The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2011:
                                                 
    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
  $ 98,727     $ (3,566 )   $     $     $ 98,727     $ (3,566 )
U.S. Government agencies
    59,539       (16 )                 59,539       (16 )
Municipal
    2,463       (28 )                 2,463       (28 )
Corporate notes and other:
                                               
Financial issuers
    61,994       (1,052 )     5,007       (936 )     67,001       (1,988 )
Other
    1,012       (21 )                 1,012       (21 )
Other equity securities
    2,228       (28 )                 2,228       (28 )
             
Total
  $ 225,963     $ (4,711 )   $ 5,007     $ (936 )   $ 230,970     $ (5,647 )
             
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.

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The Company does not consider securities with unrealized losses at June 30, 2011 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.
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 June 30,     Six Months Ended June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
Realized gains
  $ 1,152     $ 46     $ 1,258     $ 549  
Realized losses
                      (111 )
 
                       
Net realized gains
  $ 1,152     $ 46     $ 1,258     $ 438  
Other than temporary impairment charges
                       
 
                       
Gains on available- for-sale securities, net
  $ 1,152     $ 46     $ 1,258     $ 438  
 
                       
Proceeds from sales of available-for-sale securities
  $ 3,369     $ 86,139     $ 53,511     $ 270,654  
 
                       
The amortized cost and fair value of securities as of June 30, 2011 and December 31, 2010, 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:
                                 
    June 30, 2011     December 31, 2010  
    Amortized     Fair     Amortized     Fair  
(Dollars in thousands)   Cost     Value     Cost     Value  
Due in one year or less
  $ 246,118     $ 246,435     $ 647,494     $ 647,987  
Due in one to five years
    495,758       497,409       309,795       310,663  
Due in five to ten years
    210,106       209,120       194,442       185,938  
Due after ten years
    92,746       95,172       147,835       149,782  
Mortgage-backed
    351,608       365,323       151,711       161,681  
Other equity securities
    42,945       42,967       40,636       40,251  
 
                       
Total available-for-sale securities
  $ 1,439,281     $ 1,456,426     $ 1,491,913     $ 1,496,302  
 
                       
At June 30, 2011 and December 31, 2010, securities having a carrying value of $1.1 billion and $876 million, respectively, which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At June 30, 2011, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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(6) Loans
The following table shows the Company’s loan portfolio by category as of the dates shown:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Balance:
                       
Commercial
  $ 2,132,436     $ 2,049,326     $ 1,827,618  
Commercial real-estate
    3,374,668       3,338,007       3,347,823  
Home equity
    880,702       914,412       922,305  
Residential real-estate
    329,381       353,336       332,673  
Premium finance receivables — commercial
    1,429,436       1,265,500       1,346,985  
Premium finance receivables — life insurance
    1,619,668       1,521,886       1,378,657  
Indirect consumer
    57,718       51,147       69,011  
Consumer and other
    101,068       106,272       99,091  
 
                 
Total loans, net of unearned income, excluding covered loans
  $ 9,925,077     $ 9,599,886     $ 9,324,163  
Covered loans
    408,669       334,353       275,563  
 
                 
Total loans
  $ 10,333,746     $ 9,934,239     $ 9,599,726  
 
                 
 
                       
Mix:
                       
Commercial
    20 %     21 %     19 %
Commercial real-estate
    33       34       35  
Home equity
    8       9       10  
Residential real-estate
    3       3       3  
Premium finance receivables — commercial
    14       13       14  
Premium finance receivables — life insurance
    16       15       14  
Indirect consumer
    1       1       1  
Consumer and other
    1       1       1  
 
                 
Total loans, net of unearned income, excluding covered loans
    96 %     97 %     97 %
Covered loans
    4       3       3  
 
                 
Total loans
    100 %     100 %     100 %
 
                 
Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $37.3 million at June 30, 2011, $32.3 million at December 31, 2010 and $36.9 million at June 30, 2010. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the covered loans acquired in the FDIC-assisted acquisitions during 2010 and 2011 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.
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 $12.9 million at June 30, 2011, $12.5 million at December 31, 2010 and $11.7 million at June 30, 2010.
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 Company serves. 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 in 2010 and 2011, 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.

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The following table presents the unpaid principal balance and carrying value for these acquired loans:
                                 
    June 30, 2011   December 31, 2010
    Unpaid           Unpaid    
    Principal   Carrying   Principal   Carrying
(Dollars in thousands)   Balance   Value   Balance   Value
Acquisitions during 2011:
                               
The Bank of Commerce
  $ 119,273     $ 64,097     $     $  
Community First Bank — Chicago
    17,701       13,425              
 
                               
Acquisitions during prior periods:
                               
Covered loans from FDIC-assisted acquistions
    358,726       310,452       432,566       331,295  
Life insurance premium finance loans
    695,088       652,739       752,129       695,587  
For the loans acquired as a result of acquisitions during the six months ended June 30, 2011, the following table provides estimated details on these loans at the date of each acquisition:
                 
    The Bank of     Community First  
(Dollars in thousands)   Commerce     Bank — Chicago  
 
               
Contractually required payments including interest
  $ 127,122     $ 22,178  
Less: Nonaccretable difference
    56,257       6,313  
 
           
Cash flows expected to be collected (1)
    70,865       15,865  
Less: Accretable yield
    4,414       688  
 
           
Fair value of loans acquired with evidence of credit quality deterioration since origination
  $ 66,451     $ 15,177  
 
           
 
(1)   Represents undiscounted expected principal and interest cash flows at acquisition.
See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with the covered loan portfolio at June 30, 2011.
Accretable Yield Activity
The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination:
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2011  
            Life Insurance             Life Insurance  
    FDIC—Assisted     Premium     FDIC—Assisted     Premium  
(Dollars in thousands)   Acquisitions     Finance Loans     Acquisitions     Finance Loans  
 
                               
Accretable yield, beginning balance
  $ 91,332     $ 25,543     $ 39,809     $ 33,315  
Acquisitions
                7,107        
Accretable yield amortized to interest income
    (13,568 )     (5,122 )     (27,727 )     (14,174 )
Increase in expected cash flows (1)
    2,984       4,470       61,559       5,750  
 
                       
Accretable yield, ending balance
  $ 80,748     $ 24,891     $ 80,748     $ 24,891  
 
                       
 
(1)   Represents reclassifications to/from non-accretable difference, increases/decreases in interest cash flows due to prepayments and/or changes in interest rates.

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(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans
The tables below show the aging of the Company’s loan portfolio at June 30, 2011, December 31, 2010 and June 30, 2010:
                                                 
            90+ days     60-89     30-59              
As of June 30, 2011           and still     days past     days past              
(Dollars in thousands)   Nonaccrual     accruing     due     due     Current     Total Loans  
Loan Balances:
                                               
Commercial
                                               
Commercial and industrial
  $ 22,289     $     $ 7,164     $ 23,754     $ 1,309,455     $ 1,362,662  
Franchise
    1,792                         112,342       114,134  
Mortgage warehouse lines of credit
                            68,477       68,477  
Community Advanatage — homeowners association
                            73,929       73,929  
Aircraft
                            21,231       21,231  
Asset-based lending
    2,087                   2,415       361,594       366,096  
Municipal
                            63,296       63,296  
Leases
                      763       61,772       62,535  
Other
                            76       76  
 
                                   
Total commercial
    26,168             7,164       26,932       2,072,172       2,132,436  
 
                                   
Commercial real-estate
                                               
Residential construction
    3,011             938       5,245       81,561       90,755  
Commercial construction
    2,453             7,579       7,075       120,540       137,647  
Land
    33,980             10,281       8,076       160,597       212,934  
Office
    17,503             1,648       3,846       509,385       532,382  
Industrial
    2,470             2,689       2,480       506,895       514,534  
Retail
    8,164             3,778       14,806       498,040       524,788  
Multi-family
    4,947             4,628       3,836       302,740       316,151  
Mixed use and other
    17,265             9,350       4,201       1,014,661       1,045,477  
 
                                   
Total commercial real-estate
    89,793             40,891       49,565       3,194,419       3,374,668  
 
                                   
Home equity
    15,853             1,502       4,081       859,266       880,702  
Residential real estate
    7,379             1,272       949       319,781       329,381  
Premium finance receivables
                                               
Commercial insurance loans
    10,309       4,446       5,089       7,897       1,401,695       1,429,436  
Life insurance loans
    670       324       4,873       3,254       957,808       966,929  
Purchased life insurance loans
                            652,739       652,739  
Indirect consumer
    89       284       98       531       56,716       57,718  
Consumer and other
    757             123       418       99,770       101,068  
 
                                   
Total loans, net of unearned income, excluding covered loans
  $ 151,018     $ 5,054     $ 61,012     $ 93,627     $ 9,614,366     $ 9,925,077  
Covered loans
          121,271       5,643       11,899       269,856       408,669  
 
                                   
Total loans, net of unearned income
  $ 151,018     $ 126,325     $ 66,655     $ 105,526     $ 9,884,222     $ 10,333,746  
 
                                   

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            90+ days     60-89     30-59              
As of December 31, 2010           and still     days past     days past              
(Dollars in thousands)   Nonaccrual     accruing     due     due     Current     Total Loans  
Loan Balances:
                                               
Commercial
                                               
Commercial and industrial
  $ 15,922     $ 478     $ 4,416     $ 9,928     $ 1,280,009     $ 1,310,753  
Franchise
                      2,250       117,238       119,488  
Mortgage warehouse lines of credit
                            131,306       131,306  
Community Advanatage — homeowners association
                            75,542       75,542  
Aircraft
                178       1,000       23,440       24,618  
Asset-based lending
    417             161       2,846       285,555       288,979  
Municipal
                            56,343       56,343  
Leases
    43                         41,498       41,541  
Other
                            756       756  
 
                                   
Total commercial
    16,382       478       4,755       16,024       2,011,687       2,049,326  
 
                                   
Commercial real-estate
                                               
Residential construction
    10,010             96       1,801       84,040       95,947  
Commercial construction
    1,820                   1,481       128,371       131,672  
Land
    37,602             6,815       11,915       203,857       260,189  
Office
    12,718             9,121       3,202       510,290       535,331  
Industrial
    3,480             686       2,276       493,859       500,301  
Retail
    3,265             4,088       3,839       499,335       510,527  
Multi-family
    4,794             1,573       3,062       281,525       290,954  
Mixed use and other
    20,274             8,481       15,059       969,272       1,013,086  
 
                                   
Total commercial real-estate
    93,963             30,860       42,635       3,170,549       3,338,007  
 
                                   
Home equity
    7,425             2,181       7,098       897,708       914,412  
Residential real estate
    6,085             1,836       8,224       337,191       353,336  
Premium finance receivables
                                               
Commercial insurance loans
    8,587       8,096       6,076       16,584       1,226,157       1,265,500  
Life insurance loans
    180                         826,119       826,299  
Purchased life insurance loans
    174                         695,413       695,587  
Indirect consumer
    191       318       301       918       49,419       51,147  
Consumer and other
    252       1       109       379       105,531       106,272  
 
                                   
Total loans, net of unearned income, excluding covered loans
  $ 133,239     $ 8,893     $ 46,118     $ 91,862     $ 9,319,774     $ 9,599,886  
Covered loans
          117,161       7,352       22,744       187,096       334,353  
 
                                   
Total loans, net of unearned income
  $ 133,239     $ 126,054     $ 53,470     $ 114,606     $ 9,506,870     $ 9,934,239  
 
                                   

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            90+ days     60-89     30-59              
As of June 30, 2010           and still     days past     days past              
(Dollars in thousands)   Nonaccrual     accruing     due     due     Current     Total Loans  
Loan Balances:
                                               
Commercial
                                               
Commercial and industrial
  $ 16,456     $ 99     $ 7,211     $ 5,781     $ 1,200,955     $ 1,230,502  
Franchise
                            138,687       138,687  
Mortgage warehouse lines of credit
                            118,823       118,823  
Community Advanatage — homeowners association
                            62,452       62,452  
Aircraft
                178             38,396       38,574  
Asset-based lending
    1,219             270             178,997       180,486  
Municipal
                            35,797       35,797  
Leases
    66             891             21,338       22,295  
Other
                            2       2  
 
                                   
Total commercial
    17,741       99       8,550       5,781       1,795,447       1,827,618  
 
                                   
Commercial real-estate
                                               
Residential construction
    15,468             6,166       3,035       104,793       129,462  
Commercial construction
    6,140                   2,117       179,919       188,176  
Land
    21,699             5,313       8,721       233,823       269,556  
Office
    2,991       1,194       193       8,423       522,740       535,541  
Industrial
    5,540             5,612       3,530       458,033       472,715  
Retail
    5,174             1,906       4,712       472,745       484,537  
Multi-family
    11,074             421       1,498       263,888       276,881  
Mixed use and other
    14,898       1,054       11,156       10,476       953,371       990,955  
 
                                   
Total commercial real-estate
    82,984       2,248       30,767       42,512       3,189,312       3,347,823  
 
                                   
Home equity
    7,149             1,063       4,253       909,840       922,305  
Residential real estate
    4,436             1,379       2,489       324,369       332,673  
Premium finance receivables
                                               
Commercial insurance loans
    11,389       6,350       3,938       9,944       1,315,364       1,346,985  
Life insurance loans
          1,923       3,960       7,712       576,793       590,388  
Purchased life insurance loans
                            788,269       788,269  
Indirect consumer
    438       579       204       1,453       66,337       69,011  
Consumer and other
    62       3       438       1,021       97,567       99,091  
 
                                   
Total loans, net of unearned income, excluding covered loans
  $ 124,199     $ 11,202     $ 50,299     $ 75,165     $ 9,063,298     $ 9,324,163  
Covered loans
          101,333       10,963       9,180       154,087       275,563  
 
                                   
Total loans, net of unearned income
  $ 124,199     $ 112,535     $ 61,262     $ 84,345     $ 9,217,385     $ 9,599,726  
 
                                   
Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating (1 to 10 rating) to each loan at the time of origination and review loans on a regular basis.
Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer or the directors’ loan committee. Credit risk ratings are determined by evaluating a number of factors including, a borrower’s financial strength, cash flow coverage, collateral protection and guarantees.
The Company’s Problem Loan Reporting system automatically includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible or an impairment reserve may be established. The Company’s impairment analysis utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

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Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. If we determine that a loan amount or portion thereof, is uncollectible the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses.
If, based on current information and events, it is probable that the Company will be unable to collect all amounts due to it according to the contractual terms of the loan agreement, a specific impairment reserve is established. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.
Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest. The remainder of the portfolio not classified as non-performing are considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at June 30, 2011, December 31, 2010, and June 30, 2010:
                                                                         
    Performing     Non-performing     Total  
    June 30,     December 31,     June 30,     June 30,     December 31,     June 30,     June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010     2011     2010     2010     2011     2010     2010  
Loan Balances:
                                                                       
Commercial
                                                                       
Commercial and industrial
  $ 1,340,373     $ 1,294,353     $ 1,213,947     $ 22,289     $ 16,400     $ 16,555     $ 1,362,662     $ 1,310,753     $ 1,230,502  
Franchise
    112,342       119,488       138,687       1,792                   114,134       119,488       138,687  
Mortgage warehouse lines of credit
    68,477       131,306       118,823                         68,477       131,306       118,823  
Community Advanatage — homeowners association
    73,929       75,542       62,452                         73,929       75,542       62,452  
Aircraft
    21,231       24,618       38,574                         21,231       24,618       38,574  
Asset-based lending
    364,009       288,562       179,267       2,087       417       1,219       366,096       288,979       180,486  
Municipal
    63,296       56,343       35,797                         63,296       56,343       35,797  
Leases
    62,535       41,498       22,229             43       66       62,535       41,541       22,295  
Other
    76       756       2                         76       756       2  
 
                                                     
Total commercial
    2,106,268       2,032,466       1,809,778       26,168       16,860       17,840       2,132,436       2,049,326       1,827,618  
 
                                                     
Commercial real-estate
                                                                       
Residential construction
    87,744       85,937       113,994       3,011       10,010       15,468       90,755       95,947       129,462  
Commercial construction
    135,194       129,852       182,036       2,453       1,820       6,140       137,647       131,672       188,176  
Land
    178,954       222,587       247,857       33,980       37,602       21,699       212,934       260,189       269,556  
Office
    514,879       522,613       531,356       17,503       12,718       4,185       532,382       535,331       535,541  
Industrial
    512,064       496,821       467,175       2,470       3,480       5,540       514,534       500,301       472,715  
Retail
    516,624       507,262       479,363       8,164       3,265       5,174       524,788       510,527       484,537  
Multi-family
    311,204       286,160       265,807       4,947       4,794       11,074       316,151       290,954       276,881  
Mixed use and other
    1,028,212       992,812       975,003       17,265       20,274       15,952       1,045,477       1,013,086       990,955  
 
                                                     
Total commercial real-estate
    3,284,875       3,244,044       3,262,591       89,793       93,963       85,232       3,374,668       3,338,007       3,347,823  
 
                                                     
Home equity
    864,849       906,987       915,156       15,853       7,425       7,149       880,702       914,412       922,305  
Residential real estate
    322,002       347,251       328,237       7,379       6,085       4,436       329,381       353,336       332,673  
Premium finance receivables
                                                                       
Commercial insurance loans
    1,414,681       1,248,817       1,329,246       14,755       16,683       17,739       1,429,436       1,265,500       1,346,985  
Life insurance loans
    965,935       826,119       588,465       994       180       1,923       966,929       826,299       590,388  
Purchased life insurance loans
    652,739       695,413       788,269             174             652,739       695,587       788,269  
Indirect consumer
    57,345       50,638       67,994       373       509       1,017       57,718       51,147       69,011  
Consumer and other
    100,311       106,019       99,026       757       253       65       101,068       106,272       99,091  
 
                                                     
Total loans, net of unearned income, excluding covered loans
  $ 9,769,005     $ 9,457,754     $ 9,188,762     $ 156,072     $ 142,132     $ 135,401     $ 9,925,077     $ 9,599,886     $ 9,324,163  
 
                                                     

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A summary of impaired loans, including restructured loans is as follows:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Impaired loans (included in non-performing and restructured loans):
                       
Impaired loans with an allowance for loan loss required (2)
  $ 94,056     $ 115,381     $ 85,312  
Impaired loans with no allowance for loan loss required
    131,797       86,893       77,792  
 
                 
Total impaired loans (1):
  $ 225,853     $ 202,274     $ 163,104  
 
                 
Allowance for loan losses related to impaired loans
  $ 27,305     $ 30,626     $ 24,018  
 
                 
Restructured loans
  $ 103,044     $ 101,190     $ 64,683  
 
                 
 
(1)   Impaired loans are considered by the Company to be non-accrual loans, restructured loans or loans with principal and/or interest at risk, even if the loan is current with all payments of principal and interest.
 
(2)   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.

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The following tables present impaired loans evaluated for impairment by loan class for the periods ended as follows:
                                         
    As of     For the Six Months Ended  
    Recorded     Unpaid Principal     Related     Average Recorded     Interest Income  
June 30, 2011 (dollars in thousands)   Investment     Balance     Allowance     Investment     Recognized  
Impaired loans with a related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 17,620     $ 29,123     $ 5,937     $ 15,843     $ 742  
Franchise
                             
Mortgage warehouse lines of credit
                             
Community Advantage — homeowners association
                             
Aircraft
                             
Asset-based lending
    2,087       2,087       1,595       2,108       55  
Municipal
                             
Leases
                             
Other
                             
Commercial real-estate
                                       
Residential construction
    1,116       1,118       293       1,118       28  
Commercial construction
    2,076       2,501       326       2,258       69  
Land
    20,427       22,644       5,841       21,127       557  
Office
    14,427       16,527       4,551       16,090       501  
Industrial
    159       162       32       160       6  
Retail
    3,407       4,495       979       3,913       115  
Multi-family
    2,452       2,458       744       2,465       64  
Mixed use and other
    11,161       11,352       2,906       11,238       329  
Home equity
    12,898       13,251       2,143       13,000       333  
Residential real estate
    5,791       5,921       1,619       5,798       119  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
    49       50       9       50       2  
Consumer and other
    386       386       330       368       9  
Impaired loans with no related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 17,065     $ 23,716     $     $ 19,943     $ 544  
Franchise
    1,792       1,792             1,792       60  
Mortgage warehouse lines of credit
                             
Community Advanatage — homeowners association
                             
Aircraft
                             
Asset-based lending
                             
Municipal
                             
Leases
                             
Other
                             
Commercial real-estate
                                       
Residential construction
    4,522       5,268             6,511       257  
Commercial construction
    11,151       11,151             11,428       261  
Land
    21,486       30,975             22,172       959  
Office
    12,579       12,613             12,627       299  
Industrial
    6,844       7,385             7,315       193  
Retail
    12,373       14,833             15,153       458  
Multi-family
    2,718       6,877             5,563       173  
Mixed use and other
    35,258       39,189             37,421       941  
Home equity
    2,954       3,412             3,208       65  
Residential real estate
    2,667       3,142             3,109       87  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
    17       24             19       1  
Consumer and other
    371       656             566       15  
 
                             
Total loans, net of unearned income, excluding covered loans
  $ 225,853     $ 273,108     $ 27,305     $ 242,363     $ 7,242  
 
                             

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    As of     For the Twelve Months Ended  
    Recorded     Unpaid Principal     Related     Average Recorded     Interest Income  
December 31, 2010 (dollars in thousands)   Investment     Balance     Allowance     Investment     Recognized  
Impaired loans with a related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 17,678     $ 19,789     $ 5,939     $ 19,574     $ 982  
Franchise
                             
Mortgage warehouse lines of credit
                             
Community Advanatage — homeowners association
                             
Aircraft
                             
Asset-based lending
    407       976       140       876       60  
Municipal
                             
Leases
                             
Other
                             
Commercial real-estate
                                       
Residential construction
    7,978       8,941       710       9,067       621  
Commercial construction
    719       719       631       722       37  
Land
    26,671       27,424       5,598       28,443       1,611  
Office
    13,186       13,723       3,718       13,448       917  
Industrial
    2,761       2,761       301       893       31  
Retail
    8,635       9,171       1,271       9,150       465  
Multi-family
    5,939       6,767       2,062       6,691       327  
Mixed use and other
    21,755       22,885       7,104       23,310       1,466  
Home equity
    6,356       6,553       961       6,494       365  
Residential real estate
    3,283       3,283       461       3,288       170  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
                             
Consumer and other
    13       13       4       15       1  
Impaired loans with no related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 12,407     $ 16,368     $ 157     $ 13,210     $ 971  
Franchise
                             
Mortgage warehouse lines of credit
                             
Community Advanatage — homeowners association
                             
Aircraft
                             
Asset-based lending
    10       130             121       9  
Municipal
                             
Leases
    43       336             491       36  
Other
                             
Commercial real-estate
                                       
Residential construction
    6,063       6,138       127       5,927       268  
Commercial construction
    1,713       1,713       5       1,715       97  
Land
    31,598       43,319       1,035       34,258       2,361  
Office
    6,365       6,563       78       6,370       358  
Industrial
    3,869       3,868       49       4,086       286  
Retail
    6,155       6,155       75       6,153       346  
Multi-family
    2,238       4,479       27       2,584       150  
Mixed use and other
    13,738       15,569       124       14,343       919  
Home equity
    1,069       1,142       13       1,119       39  
Residential real estate
    1,485       1,486       34       1,478       93  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
    59       67       1       68       7  
Consumer and other
    81       81       1       88       6  
 
                             
Total loans, net of unearned income, excluding covered loans
  $ 202,274     $ 230,419     $ 30,626     $ 213,982     $ 12,999  
 
                             

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    As of     For the Six Months Ended  
    Recorded     Unpaid Principal     Related     Average Recorded     Interest Income  
June 30, 2010 (dollars in thousands)   Investment     Balance     Allowance     Investment     Recognized  
Impaired loans with a related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 11,962     $ 14,664     $ 5,013     $ 12,218     $ 330  
Franchise
                             
Mortgage warehouse lines of credit
                             
Community Advanatage — homeowners association
                             
Aircraft
                             
Asset-based lending
    922       922       583       922       25  
Municipal
                             
Leases
                             
Other
                             
Commercial real-estate
                                       
Residential construction
    10,802       11,239       2,622       11,426       340  
Commercial construction
    12,855       14,059       3,669       12,989       530  
Land
    13,926       20,923       2,560       14,668       688  
Office
    1,876       2,380       584       2,094       47  
Industrial
    1,360       1,360       271       1,361       54  
Retail
    4,211       4,274       521       4,266       100  
Multi-family
    9,626       11,641       1,587       10,921       276  
Mixed use and other
    10,584       11,010       2,824       10,758       337  
Home equity
    5,549       6,143       1,401       6,054       161  
Residential real estate
    1,608       1,608       217       1,607       43  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
    31       31       9       31       1  
Consumer and other
                             
Impaired loans with no related ASC 310 allowance recorded
                                       
Commercial
                                       
Commercial and industrial
  $ 8,920     $ 12,353     $ 173     $ 9,573     $ 375  
Franchise
                             
Mortgage warehouse lines of credit
                             
Community Advanatage — homeowners association
                             
Aircraft
                             
Asset-based lending
    297       391             412       12  
Municipal
                             
Leases
    66       70       3       67       3  
Other
                             
Commercial real-estate
                                       
Residential construction
    11,536       11,991       225       11,396       297  
Commercial construction
    1,635       1,635       39       1,823       47  
Land
    22,977       29,052       932       24,296       759  
Office
    4,345       4,404       111       4,370       162  
Industrial
    4,180       4,181       178       4,214       133  
Retail
    5,266       5,266       94       5,274       153  
Multi-family
    4,658       4,658       81       4,758       115  
Mixed use and other
    9,199       9,444       203       8,990       281  
Home equity
    1,600       1,901       54       1,738       37  
Residential real estate
    2,998       2,998       60       2,985       97  
Premium finance receivables
                                       
Commercial insurance
                             
Life insurance
                             
Purchased life insurance
                             
Indirect consumer
    54       61       2       57       3  
Consumer and other
    61       66       2       67       3  
 
                             
Total impaired loans, net of unearned income, excluding covered loans
  $ 163,104     $ 188,725     $ 24,018     $ 169,335     $ 5,409  
 
                             

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A summary of activity in the allowance for credit losses by loan portfolio (excluding covered loans) for the three months and six months ended June 30, 2011 and 2010 is as follows:
                                                                 
Three Months Ended June 30, 2011                                   Premium                     Total,  
            Commercial             Residential     Finance     Indirect     Consumer     Excluding  
(Dollars in thousands)   Commercial     Real-estate     Home Equity     Real-estate     Receivable     Consumer     and Other     Covered Loans  
 
                                                               
Allowance for credit losses
                                                               
Allowance for loan losses at beginning of period
  $ 28,106     $ 66,120     $ 6,466     $ 5,718     $ 6,690     $ 557     $ 1,392     $ 115,049  
Reclassification to/from allowance for unfunded lending-related commitments
    (120 )     (197 )                                   (317 )
 
                                                               
Charge-offs
    (7,583 )     (20,691 )     (1,300 )     (282 )     (2,107 )     (44 )     (266 )     (32,273 )
Recoveries
    301       463       19       3       5,387       42       22       6,237  
Provision for credit losses
    12,143       16,008       1,892       439       (2,534 )     58       660       28,666  
 
                                               
 
                                                               
Allowance for loan losses at period end
  $ 32,847     $ 61,703     $ 7,077     $ 5,878     $ 7,436     $ 613     $ 1,808     $ 117,362  
 
                                               
 
                                                               
Allowance for unfunded lending-related commitments at period end
  $ 120     $ 2,215     $     $     $     $     $     $ 2,335  
 
                                               
 
                                                               
Allowance for credit losses at period end
  $ 32,967     $ 63,918     $ 7,077     $ 5,878     $ 7,436     $ 613     $ 1,808     $ 119,697  
 
                                               
Individually evaluated for impairment
    7,652       17,404       2,143       1,619             9       330       29,157  
 
                                               
Collectively evaluated for impairment
    25,315       46,514       4,934       4,259       7,436       604       1,478       90,540  
 
                                               
Loans acquired with deteriorated credit quality
                                               
 
                                               
 
                                                               
Loans at period end
                                                               
Individually evaluated for impairment
  $ 38,564     $ 162,156     $ 15,852     $ 8,458     $     $ 66     $ 757     $ 225,853  
Collectively evaluated for impairment
    2,093,872       3,212,512       864,850       320,923       2,396,365       57,652       100,311       9,046,485  
Loans acquired with deteriorated credit quality
                            652,739                   652,739  
                                                                 
Three Months Ended June 30, 2010                                   Premium                     Total,  
            Commercial             Residential     Finance     Indirect     Consumer     Excluding  
(Dollars in thousands)   Commercial     Real-estate     Home Equity     Real-estate     Receivable     Consumer     and Other     Covered Loans  
 
                                                               
Allowance for credit losses
                                                               
Allowance for loan losses at beginning of period
  $ 28,772     $ 52,587     $ 9,952     $ 3,457     $ 5,754     $ 1,063     $ 812     $ 102,397  
Other adjustments
                                               
Reclassification to/from allowance for unfunded lending-related commitments
    1,439       (825 )     171                               785  
 
                                                               
Charge-offs
    (4,781 )     (12,311 )     (3,089 )     (310 )     (17,747 )     (256 )     (109 )     (38,603 )
Recoveries
    143       218       6       2       188       81       33       671  
Provision for credit losses
    5,143       15,795       1,326       424       18,425       (70 )     254       41,297  
 
                                               
 
                                                               
Allowance for loan losses at period end
  $ 30,716     $ 55,464     $ 8,366     $ 3,573     $ 6,620     $ 818     $ 990     $ 106,547  
 
                                               
 
                                                               
Allowance for unfunded lending-related commitments at period end
  $     $ 2,169     $     $     $     $     $     $ 2,169  
 
                                               
 
                                                               
Allowance for credit losses at period end
  $ 30,716     $ 57,633     $ 8,366     $ 3,573     $ 6,620     $ 818     $ 990     $ 108,716  
 
                                               
Individually evaluated for impairment
  $ 5,597     $ 16,356     $ 1,401     $ 217     $     $ 9     $     $ 23,580  
 
                                               
Collectively evaluated for impairment
  $ 25,119     $ 41,277     $ 6,965     $ 3,356     $ 6,620     $ 809     $ 990     $ 85,136  
 
                                               
Loans acquired with deteriorated credit quality
  $     $     $     $     $     $     $     $  
 
                                               
 
                                                               
Loans at period end
                                                               
Individually evaluated for impairment
  $ 14,515     $ 71,686     $ 5,751     $ 1,626     $     $ 41     $ 15     $ 93,634  
Collectively evaluated for impairment
    1,813,103       3,276,137       916,554       331,047       1,937,373       68,970       99,076       8,442,260  
Loans acquired with deteriorated credit quality
                            788,269                   788,269  

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Six Months Ended June 30, 2011                                   Premium                     Total,  
            Commercial             Residential     Finance     Indirect     Consumer     Excluding  
(Dollars in thousands)   Commercial     Real-estate     Home Equity     Real-estate     Receivable     Consumer     and Other     Covered Loans  
 
                                                               
Allowance for credit losses
                                                               
Allowance for loan losses at beginning of period
  $ 31,777     $ 62,618     $ 6,213     $ 5,107     $ 6,319     $ 526     $ 1,343     $ 113,903  
Reclassification to/from allowance for unfunded lending-related commitments
    1,530       269                                     1,799  
 
                                                               
Charge-offs
    (16,723 )     (34,033 )     (2,073 )     (1,557 )     (3,644 )     (164 )     (426 )     (58,620 )
Recoveries
    567       801       27       5       5,655       108       75       7,238  
Provision for credit losses
    15,696       32,048       2,910       2,323       (894 )     143       816       53,042  
 
                                               
 
                                                               
Allowance for loan losses at period end
  $ 32,847     $ 61,703     $ 7,077     $ 5,878     $ 7,436     $ 613     $ 1,808     $ 117,362  
 
                                               
 
                                                               
Allowance for unfunded lending-related commitments at period end
  $ 120     $ 2,215     $     $     $     $     $     $ 2,335  
 
                                               
 
                                                               
Allowance for credit losses at period end
  $ 32,967     $ 63,918     $ 7,077     $ 5,878     $ 7,436     $ 613     $ 1,808     $ 119,697  
 
                                               
                                                                 
Six Months Ended June 30, 2010                                   Premium                     Total,  
            Commercial             Residential     Finance     Indirect     Consumer     Excluding  
(Dollars in thousands)   Commercial     Real-estate     Home Equity     Real-estate     Receivable     Consumer     and Other     Covered Loans  
 
                                                               
Allowance for credit losses
                                                               
Allowance for loan losses at beginning of period
  $ 28,012     $ 50,952     $ 9,013     $ 3,139     $ 3,816     $ 1,368     $ 1,977     $ 98,277  
Other adjustments
                            1,943                   1,943  
Reclassification to/from allowance for unfunded lending-related commitments
          684                                     684  
 
                                                               
Charge-offs
    (9,456 )     (32,554 )     (3,370 )     (717 )     (19,680 )     (529 )     (288 )     (66,594 )
Recoveries
    586       660       13       7       417       132       80       1,895  
Provision for credit losses
    11,574       35,722       2,710       1,144       20,124       (153 )     (779 )     70,342  
 
                                               
 
                                                               
Allowance for loan losses at period end
  $ 30,716     $ 55,464     $ 8,366     $ 3,573     $ 6,620     $ 818     $ 990     $ 106,547  
 
                                               
 
                                                               
Allowance for unfunded lending-related commitments at period end
  $     $ 2,169     $     $     $     $     $     $ 2,169  
 
                                               
 
                                                               
Allowance for credit losses at period end
  $ 30,716     $ 57,633     $ 8,366     $ 3,573     $ 6,620     $ 818     $ 990     $ 108,716  
 
                                               

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A summary of activity in the allowance for covered loan losses for the three months and six months ended June 30, 2011 and 2010 is as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
 
                               
Balance at beginning of period
  $ 4,844     $     $     $  
Provision for covered loan losses before benefit attributable to FDIC loss share agreements
    2,599             7,443        
Benefit attributable to FDIC loss share agreements
    (2,078 )           (5,954 )      
 
                       
Net provision for covered loan losses
    521             1,489        
Increase in FDIC indemnification asset
    2,076             5,952        
Loans charged-off
                       
Recoveries of loans charged-off
    2             2        
 
                       
Net charge-offs
    2             2        
 
                       
Balance at end of period
  $ 7,443     $     $ 7,443     $  
 
                       
In conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. These agreements cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets are also separately measured from the related loans and foreclosed real estate and recorded separately on the Consolidated Statements of Condition. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses will reduce the loss share assets. Additional expected losses, to the extent such expected losses result in the recognition of an allowance for loan losses, will increase the loss share assets. The allowance for loan losses for loans acquired in FDIC-assisted transactions is determined without giving consideration to the amounts recoverable through loss share agreements (since the loss share agreements are separately accounted for and thus presented “gross” on the balance sheet). On the Consolidated Statements of Income, the provision for credit losses is reported net of changes in the amount recoverable under the loss share agreements. Reductions to expected losses, to the extent such reductions to expected losses are the result of an improvement to the actual or expected cash flows from the covered assets, will reduce the loss share assets. The increases in cash flows for the purchased loans are recognized as interest income prospectively.
(8) Loan Securitization
During the third quarter of 2009, the Company entered into a 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.
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, “Consolidation”. 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, the Company’s retained interests in the transaction, principally consisting of subordinated securities, cash collateral, and overcollateralization of loans, 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

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realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the securitization entity’s debt.
The carrying values and classification of the restricted assets and liabilities relating to the securitization activities are shown in the table below.
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Cash collateral accounts
  $ 1,759     $ 1,759     $ 1,759  
Collections and interest funding accounts
    21,517       34,861       81,742  
 
                 
Interest-bearing deposits with banks — restricted for securitization investors
  $ 23,276     $ 36,620     $ 83,501  
 
                       
Loans, net of unearned income — restricted for securitization investors
  $ 662,528     $ 648,439     $ 600,834  
Allowance for loan losses
    (2,234 )     (2,171 )     (1,977 )
 
                 
Net loans — restricted for securitization investors
  $ 660,294     $ 646,268     $ 598,857  
 
                       
Other assets
    2,557       2,289       1,949  
 
                 
Total assets
  $ 686,127     $ 685,177     $ 684,307  
 
                 
 
                       
Secured borrowings — owed to securitization investors
  $ 600,000     $ 600,000     $ 600,000  
Other liabilities
    4,750       4,458       3,914  
 
                 
Total liabilities
  $ 604,750     $ 604,458     $ 603,914  
 
                 
The assets of the consolidated securitization entity are subject to credit, payment and interest rate risks on the transferred premium finance receivables — commercial. To protect investors, the securitization structure includes certain features that could result in earlier-than-expected repayment of the securities. Investors are allocated cash flows derived from activities related to the accounts comprising the securitized pool of receivables, the amounts of which reflect finance charges collected net of agent fees, certain fee assessments, and recoveries on charged-off accounts. From these cash flows, investors are reimbursed for charge-offs occurring within the securitized pool of receivables and receive the contractual rate of return and FIFC is paid a servicing fee as servicer. Any cash flows remaining in excess of these requirements are reported to investors as net yield and remitted to the Company. A net yield rate of less than 0% for a three month period would trigger an economic early amortization event. In addition to this performance measurement associated with the transferred loans, there are additional performance measurements and other events or conditions which could trigger an early amortization event. As of June 30, 2011, no economic or other early amortization events have occurred. Apart from the restricted assets related to securitization activities, the investors and the securitization entity have no recourse to the Company’s other assets or credit for a shortage in cash flows.
The Company continues to service the loan receivables held by the securitization entity. FIFC receives a monthly servicing fee from the securitization entity based on a percentage of the monthly investor principal balance outstanding. Although the fee income to FIFC offsets the fee expense to the securitization entity and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income.
(9) Goodwill and Other Intangible Assets
A summary of the Company’s goodwill assets by business segment is presented in the following table:
                                 
    January 1,     Goodwill     Impairment     June 30,  
(Dollars in thousands)   2011     Acquired     Loss     2011  
Community banking
  $ 250,766     $ 2,111     $     $ 252,877  
Specialty finance
    16,095                   16,095  
Wealth management
    14,329                   14,329  
 
                       
Total
  $ 281,190     $ 2,111     $     $ 283,301  
 
                       
The Community banking segment’s goodwill increased $2.1 million in 2011 as a result of the acquisition of certain assets and the assumption of certain liabilities of the mortgage banking businesses of Woodfield and River City. The acquisition of Woodfield and River City increased goodwill $750,000 and $1.4 million, respectively.
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.

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A summary of finite-lived intangible assets as of the dates shown and the expected amortization as of June 30, 2011, December 31, 2010, and June 30, 2010 is as follows:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Specialty finance segment:
                       
Customer list intangibles:
                       
Gross carrying amount
  $ 1,800     $ 1,800     $ 5,052  
Accumulated amortization
    (361 )     (253 )     (3,401 )
 
                 
Net carrying amount
  $ 1,439     $ 1,547     $ 1,651  
 
                 
 
                       
Community banking segment:
                       
Core deposit intangibles:
                       
Gross carrying amount
  $ 29,808     $ 29,608     $ 28,888  
Accumulated amortization
    (19,715 )     (18,580 )     (17,264 )
 
                 
Net carrying amount
  $ 10,093     $ 11,028     $ 11,624  
 
                 
 
                       
Total other intangible assets, net
  $ 11,532     $ 12,575     $ 13,275  
 
                 
         
Estimated amortization        
 
Actual in six months ended June 30, 2011
  $ 1,393  
Estimated remaining in 2011
    1,392  
Estimated — 2012
    2,728  
Estimated — 2013
    2,639  
Estimated — 2014
    2,293  
Estimated — 2015
    915  
The customer list intangibles recognized in connection with the purchase of life insurance premium finance assets in 2009 are being amortized over an 18-year period on an accelerated basis.
The increase in core deposit intangibles from 2010 was related to the FDIC-assisted acquisition of CFBC and TBOC during the first quarter of 2011. Core deposit intangibles recognized in connection with the Company’s bank acquisitions are being amortized over ten-year periods on an accelerated basis.
Total amortization expense associated with finite-lived intangibles totaled approximately $1.4 million and $1.3 million for the six months ended June 30, 2011 and 2010, respectively.
(10) Deposits
The following table is a summary of deposits as of the dates shown:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Balance:
                       
Non-interest bearing
  $ 1,397,433     $ 1,201,194     $ 953,814  
NOW
    1,530,068       1,561,507       1,560,733  
Wealth management deposits
    737,428       658,660       694,830  
Money market
    1,985,661       1,759,866       1,722,729  
Savings
    736,974       744,534       594,753  
Time certificates of deposit
    4,871,696       4,877,912       5,097,883  
 
                 
Total deposits
  $ 11,259,260     $ 10,803,673     $ 10,624,742  
 
                 
 
                       
Mix:
                       
Non-interest bearing
    12 %     11 %     9 %
NOW
    14       15       15  
Wealth management deposits
    6       6       6  
Money market
    18       16       16  
Savings
    7       7       6  
Time certificates of deposit
    43       45       48  
 
                 
Total deposits
    100 %     100 %     100 %
 
                 

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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 and brokerage customers from unaffiliated companies.
(11) Notes Payable, Federal Home Loan Bank Advances, Other Borrowings, Secured Borrowings and Subordinated Notes
The following table is a summary of notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings and subordinated notes as of the dates shown:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2011     2010     2010  
Notes payable
  $ 1,000     $ 1,000     $ 1,000  
Federal Home Loan Bank advances
    423,500       423,500       415,571  
 
                       
Other borrowings:
                       
Securities sold under repurchase agreements
    395,724       217,289       218,424  
Other
    36,982       43,331        
 
                 
Total other borrowings
    432,706       260,620       218,424  
 
                 
 
                       
Secured borrowings — owed to securitization investors
    600,000       600,000       600,000  
Subordinated notes
    40,000       50,000       55,000  
 
                 
 
                       
Total notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings, and subordinated notes
  $ 1,497,206     $ 1,335,120     $ 1,289,995  
 
                 
At June 30, 2011, 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 28, 2011, and a $1.0 million note maturing on June 1, 2015. At June 30, 2011, there was no outstanding balance on the $50.0 million revolving note. Borrowings under the Agreement that are considered “Base Rate Loans” will bear interest at a rate equal to the higher of (1) 450 basis points and (2) for the applicable period, the highest of (a) the federal funds rate plus 100 basis points, (b) the lender’s prime rate plus 50 basis points, and (c) the Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 150 basis points. Borrowings under the Agreement that are considered “Eurodollar Rate Loans” will bear interest at a rate equal to the higher of (1) the British Bankers Association’s LIBOR rate for the applicable period plus 350 basis points (the “Eurodollar Rate”) and (2) 450 basis points.
Commencing August 2009, a commitment fee is payable quarterly equal to 0.50% of the actual daily amount by which the lenders’ commitment under the revolving note exceeds the amount outstanding under such facility.
The Agreement is secured by the stock of some of the banks and contains several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. At June 30, 2011, 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. The Company did not restructure any FHLB advances in 2011, but restructured $146 million of FHLB advances, paying $6.8 million in prepayment fees, in the second quarter of 2010. Total restructurings in 2010 were $220.0 million, requiring $10.1 million in prepayment fees. These prepayment fees are classified in other assets on the Consolidated Statements of Condition and are amortized as an adjustment to interest expense using the effective interest method. The restructurings in 2010 were done in order to achieve lower interest rates and extend maturities.
At June 30, 2011 securities sold under repurchase agreements represent $77.3 million of customer balances in sweep accounts in connection with master repurchase agreements at the banks and $318.4 million of short-term borrowings from brokers. Securities pledged for customer balances in sweep accounts are maintained under the Company’s control and consist of U.S. Government agency, mortgage-backed and corporate securities. These securities are included in the available-for-sale securities portfolio as reflected on the Company’s Consolidated Statements of Condition.
Other borrowings at June 30, 2011 represent the junior subordinated amortizing notes issued by the Company in connection with the issuance of the Tangible Equity Units (TEUs) in December 2010. These junior subordinated notes were recorded at their initial principal balance of $44.7 million, net of issuance costs. These notes have a stated interest rate of 9.5% and require quarterly principal

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and interest payments of $4.3 million, with an initial payment of $4.6 million that was paid on March 15, 2011. The issuance costs are being amortized to interest expense using the effective-interest method. The scheduled final installment payment on the notes is December 15, 2013, subject to extension. See Note 17 — Shareholders’ Equity and Earnings Per Share for further discussion of the TEUs.
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. These notes are reflected on the Company’s Consolidated Statements of Condition as secured borrowings owed to securitization investors. See 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 June 30, 2011 were $10.0 million, $10.0 million and $20.0 million, respectively. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year, with final maturities in the tenth year. The Company may redeem the subordinated notes at any time prior to maturity. Interest on each note is calculated at a rate equal to three-month LIBOR plus 130 basis points.
(12) Junior Subordinated Debentures
As of June 30, 2011, the Company owned 100% of the common securities of nine trusts, Wintrust Capital Trust III, Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, and First Northwest Capital Trust I (the “Trusts”) set up to provide long-term financing. The Northview, Town and First Northwest capital trusts were acquired as part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., and First Northwest Bancorp, Inc., respectively. The Trusts were formed for purposes of issuing trust preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.
The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in available-for-sale securities.
The following table provides a summary of the Company’s junior subordinated debentures as of June 30, 2011. The junior subordinated debentures represent the par value of the obligations owed to the Trusts.
                                                                 
                    Junior                                     Earliest  
    Common     Trust Preferred     Subordinated     Rate     Contractual rate     Issue     Maturity     Redemption  
(Dollars in thousands)   Securities     Securities     Debentures     Structure     at 6/30/11     Date     Date     Date  
Wintrust Capital Trust III
  $ 774     $ 25,000     $ 25,774       L+3.25       3.53 %     04/2003       04/2033       04/2008  
Wintrust Statutory Trust IV
    619       20,000       20,619       L+2.80       3.05 %     12/2003       12/2033       12/2008  
Wintrust Statutory Trust V
    1,238       40,000       41,238       L+2.60       2.85 %     05/2004       05/2034       06/2009  
Wintrust Capital Trust VII
    1,550       50,000       51,550       L+1.95       2.20 %     12/2004       03/2035       03/2010  
Wintrust Capital Trust VIII
    1,238       40,000       41,238       L+1.45       1.70 %     08/2005       09/2035       09/2010  
Wintrust Captial Trust IX
    1,547       50,000       51,547     Fixed     6.84 %     09/2006       09/2036       09/2011  
Northview Capital Trust I
    186       6,000       6,186       L+3.00       3.27 %     08/2003       11/2033       08/2008  
Town Bankshares Capital Trust I
    186       6,000       6,186       L+3.00       3.27 %     08/2003       11/2033       08/2008  
First Northwest Capital Trust I
    155       5,000       5,155       L+3.00       3.25 %     05/2004       05/2034       05/2009  
 
                                                           
Total
                  $ 249,493               3.46 %                        
 
                                                           
The junior subordinated debentures totaled $249.5 million at June 30, 2011, December 31, 2010 and June 30, 2010.
The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. The interest rate on the Wintrust Capital Trust IX junior subordinated debentures, currently fixed at 6.84%, changes to a variable rate equal to three-month LIBOR plus 1.63% effective September 15, 2011. At June 30, 2011, the weighted average contractual interest rate on the junior subordinated debentures was 3.46%. The Company entered into $175 million of interest rate swaps to hedge the variable cash flows on certain junior subordinated debentures. The hedge-adjusted rate on the junior subordinated debentures on June 30, 2011, was 6.99%. 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.

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The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts under the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations.
The junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. At June 30, 2011, 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, 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. 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 “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2010 Form 10-K. 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 reflected parent company information and intersegment eliminations.

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The following is a summary of certain operating information for reportable segments:
                                 
    Three Months Ended              
    June 30,     $ Change in     % Change in  
(Dollars in thousands)   2011     2010     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 101,580     $ 97,437     $ 4,143       4 %
Specialty finance
    27,974       22,378       5,596       25  
Wealth management
    886       2,437       (1,551 )     (64 )
Parent and inter-segment eliminations
    (21,734 )     (17,938 )     (3,796 )     (21 )
 
                       
Total net interest income
  $ 108,706     $ 104,314       4,392       4 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 24,967     $ 41,618     $ (16,651 )     (40 )%
Specialty finance
    781       707       74       10  
Wealth management
    13,432       11,069       2,363       21  
Parent and inter-segment eliminations
    (2,528 )     (2,958 )     430       15  
 
                       
Total non-interest income
  $ 36,652     $ 50,436       (13,784 )     (27 )%
 
                       
 
                               
Net revenue:
                               
Community banking
  $ 126,547     $ 139,055     $ (12,508 )     (9 )%
Specialty finance
    28,755       23,085       5,670       25  
Wealth management
    14,318       13,506       812       6  
Parent and inter-segment eliminations
    (24,262 )     (20,896 )     (3,366 )     (16 )
 
                       
Total net revenue
  $ 145,358     $ 154,750       (9,392 )     (6 )%
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ 10,630     $ 24,604     $ (13,974 )     (57 )%
Specialty finance
    15,413       (493 )     15,906     NM  
Wealth management
    980       1,316       (336 )     (26 )
Parent and inter-segment eliminations
    (15,273 )     (12,418 )     (2,855 )     (23 )
 
                       
Total segment profit (loss)
  $ 11,750     $ 13,009       (1,259 )     (10 )%
 
                       
 
                               
Segment assets:
                               
Community banking
  $ 13,768,237     $ 12,875,801     $ 892,436       7 %
Specialty finance
    3,211,599       2,886,020       325,579       11  
Wealth management
    67,262       66,123       1,139       2  
Parent and inter-segment eliminations
    (2,431,201 )     (2,119,384 )     (311,817 )     (15 )
 
                       
Total segment assets
  $ 14,615,897     $ 13,708,560       907,337       7 %
 
                       
                                 
    Six Months Ended              
    June 30,     $ Change in     % Change in  
(Dollars in thousands)   2011     2010     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 202,811     $ 185,461     $ 17,350       9 %
Specialty finance
    56,006       45,411       10,595       23  
Wealth management
    3,439       4,979       (1,540 )     (31 )
Parent and inter-segment eliminations
    (43,936 )     (35,672 )     (8,264 )     (23 )
 
                       
Total net interest income
  $ 218,320     $ 200,179       18,141       9 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 53,458     $ 56,814     $ (3,356 )     (6 )%
Specialty finance
    1,498       12,183       (10,685 )     (88 )
Wealth management
    26,430       21,757       4,673       21  
Parent and inter-segment eliminations
    (3,847 )     2,290       (6,137 )   NM  
 
                       
Total non-interest income
  $ 77,539     $ 93,044       (15,505 )     (17 )%
 
                       
 
                               
Net revenue:
                               
Community banking
  $ 256,269     $ 242,275     $ 13,994       6 %
Specialty finance
    57,504       57,594       (90 )      
Wealth management
    29,869       26,736       3,133       12  
Parent and inter-segment eliminations
    (47,783 )     (33,382 )     (14,401 )     (43 )
 
                       
Total net revenue
  $ 295,859     $ 293,223       2,636       1 %
 
                       
 
                               
Segment profit:
                               
Community banking
  $ 28,271     $ 30,627     $ (2,356 )     (8 )%
Specialty finance
    27,965       15,414       12,551       81  
Wealth management
    2,703       2,373       330       14  
Parent and inter-segment eliminations
    (30,787 )     (19,387 )     (11,400 )     (59 )
 
                       
Total segment profit
  $ 28,152     $ 29,027       (875 )     (3 )%
 
                       
 
NM — Not Meaningful

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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 and caps 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 June 30, 2011 and 2010:
                                                 
    Derivative Assets     Derivative Liabilties  
    Fair Value     Fair Value  
    Balance                     Balance              
    Sheet     June 30,     June 30,     Sheet     June 30,     June 30,  
(Dollars in thousands)   Location     2011     2010     Location     2011     2010  
Derivatives designated as hedging instruments under ASC 815:
                                               
 
                                               
Interest rate derivatives designated as Cash Flow Hedges
  Other assets   $ 547     $     Other liabilities   $ 10,555     $ 15,408  
 
                                       
 
                                               
Derivatives not designed as hedging instruments under ASC 815:
                                               
 
                                               
Interest rate derivatives
  Other assets     17,515       11,677     Other liabilities     18,075       12,297  
Interest rate lock commitments
  Other assets     2,243       4,651     Other liabilities     539       166  
Forward commitments to sell mortgage loans
  Other assets     691       122     Other liabilities     1,420       7,785  
 
                                       
 
                                               
Total derivatives not designated as hedging instruments under ASC 815
          $ 20,449     $ 16,450             $ 20,034     $ 20,248  
 
                                       
 
                                               
Total derivatives
          $ 20,996     $ 16,450             $ 30,589     $ 35,656  
 
                                       
 
                                               

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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 and interest rate caps 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. Interest rate caps designated as cash flow hedges involve the receipt of payments at the end of each period in which the interest rate specified in the contract exceed the agreed upon strike price.
In May 2011, the Company entered into four new interest rate derivatives, two interest rate swaps and two interest rate caps, which replace current derivatives maturing in the third and fourth quarters of 2011 that hedge the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures and create a hedge associated with the interest rate expense on Wintrust Capital Trust IX which changes from a fixed rate to a variable rate in September 2011. See Note 12 — Junior Subordinated Debentures for more detail. The two new interest rate swap derivatives designated as cash flow hedges have an aggregate notional value of $75 million and are forward-starting with effective dates in September and October 2011, respectively. The two new interest rate cap derivatives designated as cash flow hedges have an aggregate notional value of $60 million and are forward-starting with an effective date in September 2011.
As of June 30, 2011, the Company had seven interest rate swaps and two interest rate caps with an aggregate notional amount of $310 million that were designated as cash flow hedges of interest rate risk. The table below provides details on each of these cash flow hedges as of June 30, 2011:
                 
June 30, 2011  
(Dollars in thousands)   Notional     Fair Value  
Maturity Date   Amount     Gain (Loss)  
Interest Rate Swaps:
               
September 2011
  $ 20,000     $ (252 )
September 2011
    40,000       (506 )
October 2011
    25,000       (230 )
September 2013
    50,000       (5,019 )
September 2013
    40,000       (4,072 )
September 2016*
    50,000       (330 )
October 2016*
    25,000       (146 )
 
           
Total Interest Rate Swaps
    250,000       (10,555 )
 
               
Interest Rate Caps:
               
September 2014*
    20,000       182  
September 2014*
    40,000       365  
 
           
Total Interest Rate Caps
    60,000       547  
 
           
Total Cash Flow Hedges
  $ 310,000     $ (10,008 )
 
           
 
*   Forward starting in the third and fourth quarters of 2011
Since entering into these interest rate derivatives, the Company has used them 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 six months ended June 30, 2011 or June 30, 2010. The Company uses the hypothetical derivative method to assess and measure effectiveness.
A rollforward of the amounts in accumulated other comprehensive income related to interest rate derivatives designated as cash flow hedges follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Dollars in thousands)   2011     2010     2011     2010  
 
                               
Unrealized loss at beginning of period
  $ (11,202 )   $ (15,754 )   $ (13,323 )   $ (15,487 )
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures
    2,197       2,199       4,369       4,392  
Amount of loss recognized in other comprehensive income
    (1,115 )     (2,414 )     (1,166 )     (4,874 )
 
                       
Unrealized loss at end of period
  $ (10,120 )   $ (15,969 )   $ (10,120 )   $ (15,969 )
 
                       

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As of June 30, 2011, the Company estimates that during the next twelve months, $6.7 million will be reclassified from accumulated other comprehensive income as an increase to interest expense.
Non-Designated Hedges
The Company does not use derivatives for speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
Interest Rate Derivatives — The Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, doing so allows the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At June 30, 2011, the Company had approximately 314 derivative transactions (157 with customers and 157 with third parties) with an aggregate notional amount of approximately $891.7 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 June 30, 2011, the Company had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $318.1 million. At June 30, 2011, the Company had interest rate lock commitments with an aggregate notional amount of approximately $239.6 million. Additionally, the Company’s total mortgage loans held-for-sale at June 30, 2011 was $139.0 million. The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.
Other Derivatives — Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the Banks’ investment portfolios (covered call options). These option transactions are designed primarily to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of June 30, 2011, December 31, 2010 or June 30, 2010.
Amounts included in the consolidated statements of income related to derivative instruments not designated in hedge relationships were as follows:
                                         
            Three Months Ended   Six Months Ended
(Dollars in thousands)           June 30,   June 30,
Derivative   Location in income statement   2011   2010   2011   2010
Interest rate swaps and floors
  Trading gains/losses   $ (94 )   $ (227 )   $ (628 )   $ (303 )
Mortgage banking derivatives
  Mortgage banking revenue     (165 )     (6,458 )     (1,508 )     (8,601 )
Covered call options
  Other income     2,287       169       4,757       459  
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

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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 June 30, 2011, the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $29.5 million. As of June 30, 2011 the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral consisting of $7.9 million of cash and $19.2 million of securities. If the Company had breached any of these provisions at June 30, 2011 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.
(15) Fair Values of Assets and Liabilities
The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets and financial liabilities are 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 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.

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The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented:
                                 
    June 30, 2011  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 100,737     $     $ 100,737     $  
U.S. Government agencies
    683,690             683,690        
Municipal
    49,457             24,932       24,525  
Corporate notes and other
    214,252             197,939       16,313  
Mortgage-backed
    365,323             362,639       2,684  
Equity securities (1)
    42,967             12,076       30,891  
Trading account securities
    509             337       172  
Mortgage loans held-for-sale
    133,083             133,083        
Mortgage servicing rights
    8,762                   8,762  
Nonqualified deferred compensations assets
    4,564             4,564        
Derivative assets
    20,996             20,996        
 
                       
Total
  $ 1,624,340     $     $ 1,540,993     $ 83,347  
 
                       
 
                               
Derivative liabilities
  $ 30,589     $     $ 30,589     $  
 
                       
                                 
    June 30, 2010  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 117,013     $     $ 117,013     $  
U.S. Government agencies
    796,937             796,937        
Municipal
    51,892             37,864       14,028  
Corporate notes and other
    74,995             63,643       11,352  
Mortgage-backed
    341,550             196,219       145,331  
Equity securities (1)
    35,648             8,757       26,891  
Trading account securities
    38,261       53       1,399       36,809  
Mortgage loans held-for-sale
    222,703             222,703        
Mortgage servicing rights
    5,347                   5,347  
Nonqualified deferred compensations assets
    3,135             3,135        
Derivative assets
    16,450             16,450        
 
                       
Total
  $ 1,703,931     $ 53     $ 1,464,120     $ 239,758  
 
                       
 
                               
Derivative liabilities
  $ 35,656     $     $ 35,656     $  
 
                       
 
(1)   Excludes the common securities issued by trusts formed by the Company in conjunction with Trust Preferred Securities offerings.
The aggregate remaining contractual principal balance outstanding as of June 30, 2011 and 2010 for mortgage loans held-for-sale measured at fair value was $129.6 million and $213.9 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $133.1 million and $222.7 million, respectively, as shown in the above tables. There were no nonaccrual loans or loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio measured at fair value as of June 30, 2011 and 2010.

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The changes in Level 3 assets measured at fair value on a recurring basis during the three and six months ended June 30, 2011 are summarized as follows:
                                                 
            Corporate                     Trading     Mortgage  
            notes and     Mortgage-     Equity     Account     servicing  
(Dollars in thousands)   Municipal     other debt     backed     securities     Securities     rights  
Balance at March 31, 2011
  $ 15,594     $ 9,713     $ 2,723     $ 28,745     $ 640     $ 9,448  
Total net gains (losses) included in:
                                               
Net income (1)
          (146 )     (39 )                 (686 )
Other comprehensive income
    (748 )                 346              
Purchases
    5,181       6,746             1,800              
Issuances
                                   
Sales
    (5 )                       (468 )      
Settlements
                                   
Net transfers into Level 3 (2)
    4,503                                
 
                                   
Balance at June 30, 2011
  $ 24,525     $ 16,313     $ 2,684     $ 30,891     $ 172     $ 8,762  
 
                                   
 
                                               
Balance at January 1, 2011
  $ 16,416     $ 9,841     $ 2,460     $ 28,672     $ 4,372     $ 8,762  
Total net gains (losses) included in:
                                               
Net income (1)
          (274 )     (53 )                  
Other comprehensive income
    (748 )                 419              
Purchases
    9,138       6,746       277       1,800              
Issuances
                                   
Sales
    (4,784 )                       (4,200 )      
Settlements
                                   
Net transfers into Level 3 (2)
    4,503                                
 
                                   
Balance at June 30, 2011
  $ 24,525     $ 16,313     $ 2,684     $ 30,891     $ 172     $ 8,762  
 
                                   
 
(1)   Income for Corporate notes and other debt, and mortgage-backed are recognized as a component of interest income on securities. Additionally, changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.
 
(2)   The transfer of Municipal securities into Level 3 is the result of the use of unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing these securities.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2010 are summarized as follows:
                                                         
            Corporate                     Trading     Mortgage        
            notes and     Mortgage-     Equity     Account     servicing     Retained  
(Dollars in thousands)   Municipal     other debt     backed     securities     Securities     rights     interests  
Balance at March 31, 2010
  $ 15,134     $ 11,582     $ 154,469     $ 26,800     $ 37,895     $ 6,602     $  
Total net gains (losses) included in:
                                                       
Net income (1)
          (38 )                 (1,086 )     (1,255 )      
Other comprehensive income
          (192 )     6,500                          
Purchases, issuances, sales and settlements, net
    (1,106 )           (16,372 )     91                    
Net transfers into Level 3
                734                          
 
                                         
Balance at June 30, 2010
  $ 14,028     $ 11,352     $ 145,331     $ 26,891     $ 36,809     $ 5,347     $  
 
                                         
Balance at January 1, 2010
  $ 17,152     $ 51,194     $ 158,449     $ 26,800     $ 31,924     $ 6,745     $ 43,541  
Total net gains (losses) included in:
                                                       
Net income (1)
          (33 )                 4,885       (1,398 )      
Other comprehensive income
          835       2,520                          
Purchases, issuances, sales and settlements, net
    (3,124 )     (40,644 )     (16,372 )     91                   (43,541 )
Net transfers into Level 3
                734                          
 
                                         
Balance at June 30, 2010
  $ 14,028     $ 11,352     $ 145,331     $ 26,891     $ 36,809     $ 5,347     $  
 
                                         
 
(1)   Income for Corporate notes and other debt is recognized as a component of interest income on securities. Additionally, income for trading account securities is recognized as a component of trading income in non-interest income and trading account securities interest income. Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.

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Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at June 30, 2011.
                                                 
                                    Three Months     Six Months  
                                    Ended     Ended  
                                    June 30,     June 30,  
                                    2011     2011  
                                    Fair Value     Fair Value  
    June 30, 2011     Losses     Losses  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3     Recognized     Recognized  
Impaired loans
  $ 225,853     $     $     $ 225,853     $ 18,466     $ 30,584  
Other real estate owned
    82,772                   82,772       7,422       13,615  
Mortgage loans held-for-sale, at lower of cost or market
    5,881             5,881                   (358 )
 
                                   
Total
  $ 314,506     $     $ 5,881     $ 308,625     $ 25,888     $ 43,841  
 
                                   
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.
Mortgage 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 and is therefore considered a Level 2 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 June 30, 2011     At December 31, 2010  
    Carrying     Fair     Carrying     Fair  
(Dollars in thousands)   Value     Value     Value     Value  
Financial Assets:
                               
Cash and cash equivalents
  $ 184,068     $ 184,068     $ 172,580     $ 172,580  
Interest bearing deposits with banks
    990,308       990,308       865,575       865,575  
Available-for-sale securities
    1,456,426       1,456,426       1,496,302       1,496,302  
Trading account securities
    509       509       4,879       4,879  
Brokerage customer receivables
    29,736       29,736       24,549       24,549  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
    86,761       86,761       82,407       82,407  
Mortgage loans held-for-sale, at fair value
    133,083       133,083       356,662       356,662  
Mortgage loans held-for-sale, at lower of cost or market
    5,881       5,946       14,785       14,841  
Total loans
    10,333,746       10,715,086       9,934,239       10,088,429  
Mortgage servicing rights
    8,762       8,762       8,762       8,762  
Nonqualified deferred compensation assets
    4,564       4,564       3,613       3,613  
Derivative assets
    20,996       20,996       18,670       18,670  
FDIC indemnification asset
    110,049       110,049       118,182       118,182  
Accrued interest receivable and other
    138,435       138,435       137,744       137,744  
 
                       
Total financial assets
  $ 13,503,324     $ 13,884,729     $ 13,238,949     $ 13,393,195  
 
                       
 
                               
Financial Liabilities
                               
Non-maturity deposits
  $ 6,387,564       6,387,564     $ 5,925,761     $ 5,925,761  
Deposits with stated maturities
    4,871,696       4,914,025       4,877,912       4,925,403  
Notes payable
    1,000       1,000       1,000       1,000  
Federal Home Loan Bank advances
    423,500       451,861       423,500       440,644  
Subordinated notes
    40,000       40,000       50,000       50,000  
Other borrowings
    432,706       432,706       260,620       260,620  
Secured borrowings owed to securitization investors
    600,000       605,792       600,000       600,333  
Junior subordinated debentures
    249,493       181,914       249,493       183,818  
Derivative liabilities
    30,589       30,589       29,974       29,974  
Accrued interest payable and other
    13,555       13,555       15,518       15,518  
 
                       
Total financial liabilities
  $ 13,050,103     $ 13,059,006     $ 12,433,778     $ 12,433,071  
 
                       
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 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

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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. In May 2009 and May 2011, the Company’s shareholders approved an additional 325,000 shares and 2,860,000 shares, respectively, of common stock that may be offered under the 2007 Plan. All grants made after 2006 were made pursuant to the 2007 Plan, and as of June 30, 2011, 2,946,092 shares were available for future grant. The 2007 Plan replaced the Wintrust Financial Corporation 1997 Stock Incentive Plan (“the 1997 Plan”) which had substantially similar terms. The 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The Plans cover substantially all employees of Wintrust.
The Company typically awards stock-based compensation in the form of stock options and restricted share awards. Stock options provide the holder of the option the right to purchase shares of Wintrust’s common stock at the fair market value of the stock on the date the options are granted. Options generally vest ratably over a five-year period and expire at such time as the Compensation Committee determines at the time of grant. The 2007 Plan provides for a maximum term of seven years from the date of grant while the 1997 Plan provided for a maximum term of ten years. Restricted share awards entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted share awards generally vest over periods of one to five years from the date of grant. Holders of the restricted share awards are not entitled to vote or receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are vested. Except in limited circumstances, these awards are canceled upon termination of employment without any payment of consideration by the Company.
Stock-based compensation cost is measured as the fair value of an award on the date of grant and is recognized on a straight-line basis over the vesting period. The fair value of restricted share awards is determined based on the average of the high and low trading prices on the grant date. The fair value of stock options is estimated at the date of grant using a Black-Scholes option-pricing model that utilizes the assumptions outlined in the following table. Option-pricing models require the input of highly subjective assumptions and are sensitive to changes in the option’s expected life and the price volatility of the underlying stock, which can materially affect the fair value estimate. Expected life is based on historical exercise and termination behavior as well as the term of the option, and expected stock price volatility is based on historical volatility of the Company’s common stock, which correlates with the expected term of the options. The risk-free interest rate is based on comparable U.S. Treasury rates. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

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The following table presents the weighted average assumptions used to determine the fair value of options granted in the six months ending June 30, 2011 and 2010.
                 
    Six Months Ended
    June 30,
    2011   2010
Expected dividend yield
    *       0.5 %
Expected volatility
    *       48.2 %
Risk-free rate
    *       2.8 %
Expected option life (in years)
    *       6.2  
 
*   No options were granted in the six months ending June 30, 2011.
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 $103,000 and $421,000 in the second quarters of 2011 and 2010, respectively, and $376,000 and $998,000 for the 2011 and 2010 year-to-date periods, respectively. Compensation cost charged to income for restricted share awards was $819,000 and $643,000 in the second quarters of 2011 and 2010, respectively, and $1.6 million and $1.4 million for the six months ended June 30, 2011 and 2010, respectively.
A summary of stock option activity under the Plans for the six months ended June 30, 2011 and June 30, 2010 is presented below:
                                 
            Weighted     Remaining     Intrinsic  
    Common     Average     Contractual     Value(2)  
Stock Options   Shares     Strike Price     Term(1)     ($000)  
Outstanding at January 1, 2011
    2,040,701     $ 38.92                  
Granted
                             
Exercised
    (45,233 )     15.66                  
Forfeited or canceled
    (95,049 )     46.59                  
 
                       
Outstanding at June 30, 2011
    1,900,419     $ 39.09       2.8     $ 6,589  
 
                       
Exercisable at June 30, 2011
    1,723,012     $ 39.86       2.6     $ 6,099  
 
                       
                                 
            Weighted     Remaining     Intrinsic  
    Common     Average     Contractual     Value(2)  
Stock Options   Shares     Strike Price     Term(1)     ($000)  
Outstanding at January 1, 2010
    2,156,209     $ 37.61                  
Granted
    57,865       35.05                  
Exercised
    (108,451 )     16.11                  
Forfeited or canceled
    (39,236 )     51.48                  
 
                       
Outstanding at June 30, 2010
    2,066,387     $ 38.40       3.6     $ 9,268  
 
                       
Exercisable at June 30, 2010
    1,789,954     $ 38.69       3.4     $ 8,566  
 
                       
 
(1)   Represents the weighted average contractual life remaining in years.
 
(2)   Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s average of the high and low stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. This amount will change based on the fair market value of the Company’s stock.
The weighted average grant date fair value per share of options granted during the six months ended June 30, 2010 was $16.65. The aggregate intrinsic value of options exercised during the six months ended June 30, 2011 and 2010, was $769,000 and $2.2 million, respectively.

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A summary of restricted share award activity under the Plans for the six months ended June 30, 2011 and June 30, 2010 is presented below:
                                 
    Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010  
            Weighted             Weighted  
            Average             Average  
    Common     Grant-Date     Common     Grant-Date  
Restricted Shares   Shares     Fair Value     Shares     Fair Value  
Outstanding at January 1
    299,040     $ 39.44       208,430     $ 43.24  
Granted
    75,785       33.57       131,656       35.84  
Vested and issued
    (25,014 )     34.02       (40,816 )     47.49  
Forfeited
    (1,500 )     35.48       (301 )     33.18  
 
                       
Outstanding at June 30
    348,311     $ 38.57       298,969     $ 39.42  
 
                       
Vested, but not issuable at June 30
    85,000     $ 51.88       85,000     $ 51.88  
 
                       
From the third quarter of 2009 to the first quarter of 2011, the Company began paying a portion of the base pay of two senior executives in the Company’s stock. The number of shares granted as of each payroll date was based on the compensation earned during the period and the average of the high and low price of the Company’s common stock on such date. In the first quarter of 2011, 446 shares were granted under this arrangement at an average stock price of $32.59 per share.
As of June 30, 2011, there was $7.8 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 6.7 million shares of its common stock at $33.25 per share. Net proceeds to the Company totaled $210.3 million. Additionally, in December 2010, the Company issued through a public offering a total of 3.7 million shares of common stock at $30.00 per share. Net proceeds to the Company totaled $104.8 million.
Tangible Equity Units
In December 2010, the Company sold 4.6 million 7.50% tangible equity units (“TEU”) at a public offering price of $50.00 per unit. The Company received net proceeds of $222.7 million after deducting underwriting discounts and commissions and estimated offering expenses. Each tangible equity unit is composed of a prepaid common stock purchase contract and a junior subordinated amortizing note due December 15, 2013. The prepaid stock purchase contracts have been recorded as surplus (a component of shareholders’ equity), net of issuance costs, and the junior subordinated amortizing notes have been recorded as debt within other borrowings. Issuance costs associated with the debt component are recorded as a discount within other borrowings and will be amortized over the term of the instrument to December 15, 2013. The Company allocated the proceeds from the issuance of the TEU to equity and debt based on the relative fair values of the respective components of each unit.
The aggregate fair values assigned to each component of the TEU offering are as follows:
                         
    Equity     Debt     TEU  
(Dollars in thousands, except per unit amounts)   Component     Component     Total  
 
                       
Units issued (1)
    4,600       4,600       4,600  
Unit price
  $ 40.271818     $ 9.728182     $ 50.00  
Gross proceeds
    185,250       44,750       230,000  
Issuance costs, including discount
    5,934       1,419       7,353  
 
                 
Net proceeds
  $ 179,316     $ 43,331     $ 222,647  
 
                 
 
                       
Balance sheet impact
                       
 
                       
Other borrowings
          43,331       43,331  
Surplus
    179,316             179,316  
 
(1)   Each TEU consists of two components: 4 .6 million units of the equity component and 4 .6 million units of the debt component.

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The fair value of the debt component was determined using a discounted cash flow model using the following assumptions: (1) quarterly cash payments of 7.5%; (2) a maturity date of December 15, 2013; and (3) an assumed discount rate of 9.5%. The discount rate used for estimating the fair value was determined by obtaining yields for comparably-rated issuers trading in the market. The debt component was recorded at fair value, and the discount is being amortized using the level yield method over the term of the instrument to the settlement date of December 15, 2013.
The fair value of the equity component was determined using Black-Scholes valuation models applied to the range of stock prices contemplated by the terms of the TEU and using the following assumptions: (1) risk-free interest rate of 0.95%; (2) expected stock price volatility in the range of 35%-45%; (c) dividend yield plus stock borrow cost of 0.85%; and (4) term of 3.02 years.
Each junior subordinated amortizing note, which had an initial principal amount of $9.728182, is bearing interest at 9.50% per annum, and has a scheduled final installment payment date of December 15, 2013. On each March 15, June 15, September 15 and December 15, the Company will pay equal quarterly installments of $0.9375 on each amortizing note. The quarterly installment payable at March 15, 2011, however, was $0.989583. Each payment will constitute a payment of interest and a partial repayment of principal. The Company may defer installment payments at any time and from time to time, under certain circumstances and subject to certain conditions, by extending the installment period so long as such period of time does not extend beyond December 15, 2015.
Each prepaid common stock purchase contract will automatically settle on December 15, 2013 and the Company will deliver not more than 1.6666 shares and not less than 1.3333 shares of its common stock based on the applicable market value (the average of the volume weighted average price of Company common stock for the twenty (20) consecutive trading days ending on the third trading day immediately preceding December 15, 2013) as follows:
     
Applicable market value    
of Company common stock   Settlement Rate
 
   
Less than or equal to $30.00
  1.6666
Greater than $30.00 but less than $37.50
  $50.00, divided by the applicable market value
Greater than or equal to $37.50
  1.3333
At any time prior to the third business day immediately preceding December 15, 2013, the holder may settle the purchase contract early and receive 1.3333 shares of Company common stock, subject to anti-dilution adjustments. Upon settlement, an amount equal to $1.00 per common share issued will be reclassified from additional paid-in capital to common stock.
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 paid a cumulative dividend at a coupon rate of 5%.
In December 2010, the Company repurchased all 250,000 shares of its Series B Preferred Stock. The Series B Preferred Stock was repurchased at a price of $251.3 million, which included accrued and unpaid dividends of $1.3 million. The repurchase of the Series B Preferred Stock resulted in a non-cash deemed preferred stock dividend that reduced net income applicable to common shares in the fourth quarter of 2010 by approximately $11.4 million. This amount represents the difference between the repurchase price and the carrying amount of the Series B Preferred Stock, or the accelerated accretion of the applicable discount on the preferred shares. In February 2011, the Treasury sold all of its interest in the warrant issued to it in a secondary underwritten public offering.

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Other
The Company has also issued other warrants to acquire common stock. These warrants entitle the holders to purchase one share of the Company’s common stock at a purchase price of $30.50 per share. Warrants outstanding at June 30, 2011 and 2010 totaled 19,000. The expiration date on these remaining outstanding warrants is February 2013.
Earnings per Share
The following table shows the computation of basic and diluted earnings per share for the periods indicated:
                                         
            For the Three Months     For the Six Months  
            Ended June 30,     Ended June 30,  
(In thousands, except per share data)           2011     2010     2011     2010  
Net income
          $ 11,750     $ 13,009     $ 28,152     $ 29,027  
Less: Preferred stock dividends and discount accretion
            1,033       4,943       2,064       9,887  
 
                               
Net income applicable to common shares — Basic
    (A )     10,717       8,066       26,088       19,140  
Add: Dividends on convertible preferred stock
                               
 
                               
Net income applicable to common shares — Diluted
    (B )     10,717       8,066       26,088       19,140  
 
                               
Weighted average common shares outstanding
    (C )     34,971       31,074       34,950       28,522  
Effect of dilutive potential common shares
            8,438       1,267       8,437       1,203  
 
                               
Weighted average common shares and effect of dilutive potential common shares
    (D )     43,409       32,341       43,387       29,725  
 
                               
Net income per common share:
                                       
Basic
    (A/C )   $ 0.31     $ 0.26     $ 0.75     $ 0.67  
 
                               
Diluted
    (B/D )   $ 0.25     $ 0.25     $ 0.60     $ 0.64  
 
                               
Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock, tangible equity unit shares 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 July 1, 2011, the Company announced the completion of its previously announced acquisition of Great Lakes Advisors, Inc. (“Great Lakes”), a Chicago-based investment manager with approximately $2.4 billion in assets under management. Great Lakes merged with Wintrust’s existing asset management business, Wintrust Capital Management, LLC and operates as “Great Lakes Advisors, LLC, a Wintrust Wealth Management Company”.
On July 8, 2011, the Company announced that its wholly-owned subsidiary bank, Northbrook, acquired certain assets and liabilities and the banking operations of First Chicago Bank & Trust (“First Chicago”) in an FDIC-assisted transaction. First Chicago operated seven locations in Illinois: three in Chicago, one each in Bloomingdale, Itasca, Norridge and Park Ridge, and had approximately $959 million in total assets and $887 million in total deposits as of March 31, 2011. Northbrook acquired substantially all of First Chicago’s assets at a discount of approximately 12% and assumed all of the non-brokered deposits at a premium of approximately 0.5%.
On July 26, 2011, the Company announced the signing of a definitive agreement to acquire Elgin State Bancorp, Inc. (“ESBI”). ESBI is the parent company of Elgin State Bank, which operates three banking locations in Elgin, Illinois. As of June 30, 2011, Elgin State Bank had approximately $277 million in assets and $249 million in deposits.

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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of June 30, 2011, compared with December 31, 2010 and June 30, 2010, and the results of operations for the six month periods ended June 30, 2011 and 2010, 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 2010 Annual Report on Form 10-K. 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
Second Quarter Highlights
The Company recorded net income of $11.8 million for the second quarter of 2011 compared to $13.0 million in the second quarter of 2010 and $14.2 million in the fourth quarter of 2010. The results for the second quarter of 2011 demonstrate continued core operating strengths as credit related costs remain at levels similar to recent quarters, core loans outstanding increased, demand deposits related to this core loan growth increased, and the beneficial shift in our deposit mix away from single-product CD customers continued. The Company also continues to take advantage of the opportunities that have resulted from distressed credit markets — specifically, a dislocation of assets, banks and people in the overall market. For more information, see “Overview—Acquisition Transactions.”
The Company increased its loan portfolio, excluding covered loans, from $9.3 billion at June 30, 2010 to $9.9 billion at June 30, 2011. This increase was primarily a result of the Company’s commercial banking initiative 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 the second quarter of 2011, 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. At June 30, 2011, the Company had over $1.1 billion in overnight liquid funds and interest-bearing deposits with banks.
The Company experienced a 37% decline in mortgage origination volumes compared to the second quarter of 2010. Over the past twelve months, the Company’s period end balances of mortgages held-for-sale and our niche mortgage warehouse lending have declined by $149.4 million. This decline in originations resulted from an industry-wide fall-off in residential real-estate loan originations.
The Company recorded net interest income of $108.7 million in the second quarter of 2011 compared to $104.3 million in the second quarter of 2010. The higher level of net interest income recorded in the second quarter of 2011 compared to the second quarter of 2010 was primarily attributable to a $504 million increase in the average balance of loans and a $208 million increase in FDIC covered loans. The bulk of this growth was funded by an increase of $143 million in interest-bearing deposits and an increase of $418 million in non-interest bearing deposits. The Company continues to see a beneficial shift in its deposit mix as non-interest bearing deposits comprised 12.4% of total average deposits in the second quarter of 2011 compared to 9.1% in the second quarter of 2010.
Non-interest income totaled $36.7 million in the second quarter of 2011, decreasing $13.8 million, or 27%, compared to the second quarter of 2010. The decrease was primarily attributable to lower bargain purchase gains, partially offset by increases in wealth management revenue, mortgage banking revenue and fees from covered call options.

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Non-interest expense totaled $97.2 million in the second quarter of 2011, increasing $4.5 million, or 5%, compared to the second quarter of 2010. The increase compared to the second quarter of 2010 was primarily attributable to a $2.4 million increase in salaries and employee benefits. The increase in salaries and employee benefits was primarily attributable to multiple FDIC-assisted transactions and larger staffing related to organic Company growth. Additionally, OREO related expenses increased approximately $700,000, primarily related to increased legal costs related to non-performing assets and recent bank acquisitions.
The Current Economic Environment
The Company’s results during the quarter continued to be impacted by the existing economic environment and depressed real estate valuations that affected both the U.S. economy, generally, and the Company’s local markets, specifically. In response to these conditions, Management continued 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’s provision for credit losses in the second quarter of 2011 totaled $29.2 million, a decrease of $12.1 million when compared to the second quarter of 2010. The provision for credit losses in the first six months of 2011 totaled $54.5 million, a decrease of $15.8 million compared to the first six months of 2010. Net charge-offs decreased to $26.0 million in the second quarter of 2011 (of which $27.5 million related to commercial and commercial real estate loans), compared to $37.9 million for the same period in 2010 (of which $16.7 million related to commercial and commercial real estate loans). Net charge-offs decreased to $51.4 million in the first six months of 2011 (of which $49.4 million related to commercial and commercial real estate loans), compared to $64.7 million for the same period in 2010 (of which $40.8 million related to commercial and commercial real estate loans).
 
    The Company increased its allowance for loan losses, excluding covered loans, to $117.4 million at June 30, 2011, reflecting an increase of $10.9 million, or 10%, when compared to the same period in 2010 and an increase of $3.5 million, or 3%, when compared to December 31, 2010. At June 30, 2011, approximately $61.7 million, or 53%, of the allowance for loan losses was associated with commercial real estate loans and another $32.8 million, or 28%, was associated with commercial loans. The increase in the allowance for loan losses, excluding covered loans, in the current period is primarily related to loan growth.
 
    The Company has significant exposure to commercial real estate. At June 30, 2011, $3.4 billion, or 33%, of our loan portfolio, excluding covered loans, 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 $441.3 million related to land, residential and commercial construction, $532.4 million related to office buildings, $524.8 million related to retail, $514.5 million related to industrial use, $316.2 million related to multi-family 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 management knowledge to analyze and manage the local market conditions at each of its banks. Despite these efforts, as of June 30, 2011, the Company had approximately $89.8 million of non-performing commercial real estate loans representing approximately 3% of the total commercial real estate loan portfolio. $39.4 million, or 44%, 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 $156.1 million (of which $89.8 million, or 58%, was related to commercial real estate) at June 30, 2011, an increase of $20.7 million compared to June 30, 2010. Non-performing loans increased as a result of deteriorating real estate conditions and stress in the overall economy.
 
    The Company’s other real estate owned, excluding covered other real estate owned, decreased by $3.6 million, to $82.8 million during the second quarter of 2011, from $86.4 million at June 30, 2010. This change was largely caused by disposal and resolution of properties. Specifically, the $82.8 million of other real estate owned as of June 30, 2011 was comprised of $16.6 million of residential real estate development property, $59.0 million of commercial real estate property and $7.2 million of residential real estate property.
An acceleration or continuation of real estate valuation and macroeconomic deterioration could result in higher default levels, a significant increase in foreclosure activity, and a material decline in the value of the Company’s assets.

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During the quarter, Management continued its strategic efforts to aggressively resolve problem loans through liquidation, rather than retention, of loans or real estate acquired as collateral through the foreclosure process. For more information regarding these efforts, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The level of loans past due 30 days or more and still accruing interest, excluding covered loans, totaled $159.7 million as of June 30, 2011, increasing $12.8 million compared to the balance of $146.9 million as of December 31, 2010.
At June 30, 2011, the Company had established a $8.1 million estimated liability on loans expected to be repurchased from loans sold to investors. 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. For more information regarding requests for indemnification on loans sold, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy.”
In addition, during the second quarter of 2011, the Company restructured certain loans by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At June 30, 2011, approximately $103.0 million in loans had terms modified, with $85.8 million of these modified loans in accruing status.
Trends in Our Three Operating Segments During the Second Quarter
Community Banking
Net interest income and margin. Net interest income totaled $108.7 million for the second quarter of 2011 compared to $109.6 million for the first quarter of 2011 and $104.3 million for the second quarter of 2010. The net interest margin for the second quarter of 2011 was 3.40% compared to 3.48% for the first quarter of 2011 and 3.43% for the second quarter of 2010. The decrease in net interest margin in the second quarter of 2011 compared to both the first quarter of 2011 and second quarter of 2010 resulted from a decrease in the accretable discount recognized as interest income on the purchased life insurance premium portfolio as prepayments declined, lowering income recognized on prepayments and reducing accretion on the remaining balance of the pool as the estimated remaining life extended.
Funding mix and related costs. Community banking 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 and growth in non-interest bearing deposits as a result of the Company’s commercial banking initiative.
Level of non-performing loans and other real estate owned. Given the current economic conditions, these costs, specifically problem loan expenses, have been at elevated levels in recent quarters. Non-performing loans increased in the second quarter of 2011 as compared to the first quarter of 2011 and second quarter of 2010 whereas other real-estate owned decreased in the second quarter of 2011 as compared to the first quarter of 2011 and second quarter of 2010.
Mortgage banking revenue. The second quarter of 2011 was characterized by the continuation of an industry wide decline in real-estate loan originations which resulted in a decrease in the Company’s real-estate loan originations in the second quarter of 2011 as compared to the first quarter of 2011 and the second quarter of 2010. The increase in mortgage banking revenue in the second quarter of 2011 as compared to the first quarter of 2011 and the second quarter of 2010 resulted primarily from estimations of fewer loss indemnification requests from investors as well as increased average pricing and fees in the second quarter of 2011.
For more information regarding our community banking business, please see “Overview and Strategy—Community Banking” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Specialty Finance
Financing of Commercial Insurance Premiums. FIFC originated approximately $902.8 million in commercial insurance premium finance loans in the second quarter of 2011 compared to $889.6 million in the first quarter of 2011 and $849.5 million in the second quarter of 2010. FIFC increased originations due to increased market penetration as a result of effective marketing efforts, despite operating in a market where the insurance premiums financed have remained low for a prolonged period of time.
Financing of Life Insurance Premiums. FIFC originated approximately $121.1 million in life insurance premium finance loans in the second quarter of 2011 compared to $106.2 million in the first quarter of 2011, and compared to $94.8 million in the second quarter of 2010. Despite the market conditions noted above, FIFC was able to increase originations as a result of its market position, experience and concerted marketing efforts.

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For more information regarding our specialty finance business, please see “Overview and Strategy—Specialty Finance” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Wealth Management Activities
The wealth management segment recorded higher revenues in the second quarter of 2011 compared to the second quarter of 2010 as a result of increased asset valuations due to equity market improvements and growth in the customer base. 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.
Acquisition Transactions
In response to market dislocations, during the second quarter and first six months of 2011, the Company continued to engage in a number of opportunistic acquisitions. These transactions, which are described below, included both FDIC-assisted and non-FDIC assisted acquisitions by the Company.
FDIC-Assisted Transactions
On February 4, 2011, the Company announced that its wholly-owned subsidiary bank, Northbrook Bank, acquired certain assets and liabilities and the banking operations of Community First Bank-Chicago (“CFBC”) in an FDIC-assisted transaction. CFBC operated one location in Chicago and had approximately $50.9 million in total assets and $48.7 million in total deposits as of the acquisition date. Northbrook Bank acquired substantially all of CFBC’s assets at a discount of approximately 8% and assumed all of the non-brokered deposits at a premium of approximately 0.5%.
On March 25, 2011, the Company announced that its wholly-owned subsidiary bank, Advantage National Bank Group (“Advantage”), acquired certain assets and liabilities and the banking operations of The Bank of Commerce (“TBOC”) in an FDIC-assisted transaction. TBOC operated one location in Wood Dale, Illlinois and had approximately $174.0 million in total assets and $164.7 million in total deposits as of the acquisition date. Advantage acquired substantially all of TBOC’s assets at a discount of approximately 14% and assumed all of the non-brokered deposits at a premium of approximately 0.1%.
Loans comprise the majority of the assets acquired in FDIC-assisted 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 loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At each acquisition date, the Company estimated the fair value of the reimbursable losses, which were approximately $6.7 million and $48.9 million related to the CFBC and TBOC acquisitions, respectively. 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 assets, 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. The FDIC-assisted transactions resulted in bargain purchase gains of $2.0 million for CFBC and $8.6 million for TBOC, which are shown as a component of non-interest income on the Company’s Consolidated Statements of Income.
Other Transactions
Acquisition of Woodfield Planning Corporation