e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
     
Illinois   36-3873352
     
(State of incorporation or organization)   (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
(Address of principal executive offices)
(847) 615-4096
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer 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, 24,163,068 shares, as of November 5, 2009
 
 

 


 

TABLE OF CONTENTS
             
        Page
PART I. — FINANCIAL INFORMATION
       
 
           
  Financial Statements     1-37  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     38-78  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     79-80  
 
           
  Controls and Procedures     81  
 
           
PART II. — OTHER INFORMATION
       
 
           
ITEM 1.
  Legal Proceedings   NA
 
           
  Risk Factors     82-89  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     89  
 
           
ITEM 3.
  Defaults Upon Senior Securities   NA
 
           
ITEM 4.
  Submission of Matters to a Vote of Security Holders   NA
 
           
ITEM 5.
  Other Information   NA
 
           
  Exhibits     89  
 
           
 
  Signatures     90  
 EX-31.1
 EX-31.2
 EX-32.1

 


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
                         
    (Unaudited)           (Unaudited)
    September 30,   December 31,   September 30,
(In thousands)   2009   2008   2008
 
Assets
                       
Cash and due from banks
  $ 128,898     $ 219,794     $ 158,201  
Federal funds sold and securities purchased under resale agreements
    22,863       226,110       35,181  
Interest bearing deposits with banks
    1,168,362       123,009       4,686  
Available-for-sale securities, at fair value
    1,434,248       784,673       1,469,500  
Trading account securities
    29,204       4,399       2,243  
Brokerage customer receivables
    19,441       17,901       19,436  
Loans held-for-sale, at fair value
    187,505       51,029       63,570  
Loans held-for-sale, at lower of cost or market
    5,750       10,087       4,828  
Loans, net of unearned income
    8,275,257       7,621,069       7,322,545  
Less: Allowance for loan losses
    95,096       69,767       66,327  
 
Net loans
    8,180,161       7,551,302       7,256,218  
Premises and equipment, net
    352,890       349,875       349,388  
Accrued interest receivable and other assets
    315,806       240,664       209,970  
Trade date securities receivable
          788,565        
Goodwill
    276,525       276,310       276,310  
Other intangible assets
    14,368       14,608       15,389  
 
Total assets
  $ 12,136,021     $ 10,658,326     $ 9,864,920  
 
Liabilities and Shareholders’ Equity
                       
Deposits:
                       
Non-interest bearing
  $ 841,668     $ 757,844     $ 717,587  
Interest bearing
    9,005,495       7,618,906       7,111,940  
 
Total deposits
    9,847,163       8,376,750       7,829,527  
Notes payable
    1,000       1,000       42,025  
Federal Home Loan Bank advances
    433,983       435,981       438,983  
Other borrowings
    252,071       336,764       296,391  
Subordinated notes
    65,000       70,000       75,000  
Junior subordinated debentures
    249,493       249,515       249,537  
Trade date securities payable
                2,000  
Accrued interest payable and other liabilities
    181,229       121,744       122,126  
 
Total liabilities
    11,029,939       9,591,754       9,055,589  
 
Shareholders’ equity:
                       
Preferred stock, no par value; 20,000,000 shares authorized:
                       
Series A — $1,000 liquidation value; 50,000 shares issued and outstanding at September 30, 2009, December 31, 2008 and September 30, 2008
    49,379       49,379       49,379  
Series B — $1,000 liquidation value; 250,000 shares issued and outstanding at September 30, 2009 and December 31, 2008; no shares issued and outstanding at September 30, 2008
    234,682       232,494        
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 26,965,411, 26,610,714 and 26,547,839 shares issued at September 30, 2009, December 31, 2008 and September 30, 2008, respectively
    26,965       26,611       26,548  
Surplus
    580,988       571,887       551,453  
Treasury stock, at cost, 2,862,343 at September 30, 2009 and 2,854,040 shares at December 31, 2008 and September 30, 2008
    (122,437 )     (122,290 )     (122,290 )
Retained earnings
    342,873       318,793       318,066  
Accumulated other comprehensive loss
    (6,368 )     (10,302 )     (13,825 )
 
Total shareholders’ equity
    1,106,082       1,066,572       809,331  
 
Total liabilities and shareholders’ equity
  $ 12,136,021     $ 10,658,326     $ 9,864,920  
 
See accompanying notes to unaudited consolidated financial statements

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Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except per share data)   2009   2008   2009   2008
 
Interest income
                               
Interest and fees on loans
  $ 126,448     $ 108,495     $ 343,637     $ 336,251  
Interest bearing deposits with banks
    778       27       2,205       215  
Federal funds sold and securities purchased under resale agreements
    106       197       233       1,303  
Securities
    14,106       17,599       44,252       50,233  
Trading account securities
    7       23       86       69  
Brokerage customer receivables
    132       228       372       834  
 
Total interest income
    141,577       126,569       390,785       388,905  
 
Interest expense
                               
Interest on deposits
    42,806       53,405       132,261       168,697  
Interest on Federal Home Loan Bank advances
    4,536       4,583       13,492       13,696  
Interest on notes payable and other borrowings
    1,779       2,661       5,401       8,331  
Interest on subordinated notes
    333       786       1,341       2,716  
Interest on junior subordinated debentures
    4,460       4,454       13,348       13,643  
 
Total interest expense
    53,914       65,889       165,843       207,083  
 
Net interest income
    87,663       60,680       224,942       181,822  
Provision for credit losses
    91,193       24,129       129,329       42,985  
 
Net interest income after provision for credit losses
    (3,530 )     36,551       95,613       138,837  
 
Non-interest income
                               
Wealth management
    7,501       7,044       20,310       22,680  
Mortgage banking
    13,204       4,488       52,032       18,120  
Service charges on deposit accounts
    3,447       2,674       9,600       7,612  
Gain on sales of premium finance receivables
    3,629       456       4,147       2,163  
(Losses) gains on available-for-sale securities, net
    (412 )     920       (910 )     (553 )
Gain on bargain purchase
    113,062             113,062        
Other
    10,249       6,548       34,318       30,283  
 
Total non-interest income
    150,680       22,130       232,559       80,305  
 
Non-interest expense
                               
Salaries and employee benefits
    48,088       35,823       138,923       109,471  
Equipment
    4,069       4,050       12,022       12,025  
Occupancy, net
    5,884       5,666       17,682       16,971  
Data processing
    3,226       2,850       9,578       8,566  
Advertising and marketing
    1,488       1,343       4,003       3,709  
Professional fees
    4,089       2,195       9,843       6,490  
Amortization of other intangible assets
    677       781       2,040       2,348  
Other
    25,042       10,491       59,679       31,648  
 
Total non-interest expense
    92,563       63,199       253,770       191,228  
 
Income (loss) before taxes
    54,587       (4,518 )     74,402       27,914  
Income tax expense (benefit)
    22,592       (2,070 )     29,500       9,381  
 
Net income (loss)
    31,995       (2,448 )     44,902       18,533  
Preferred stock dividends and discount accretion
    4,668       544       14,668       544  
 
Net income (loss) applicable to common shares
  $ 27,327     $ (2,992 )   $ 30,234     $ 17,989  
 
 
                               
Net income (loss) per common share — Basic
  $ 1.14     $ (0.13 )   $ 1.26     $ 0.76  
 
 
                               
Net income (loss) per common share — Diluted
  $ 1.07     $ (0.13 )   $ 1.25     $ 0.75  
 
 
                               
Cash dividends declared per common share
  $ 0.09     $ 0.18     $ 0.27     $ 0.36  
 
Weighted average common shares outstanding
    24,052       23,644       23,958       23,590  
Dilutive potential common shares
    2,493             323       525  
 
Average common shares and dilutive common shares
    26,545       23,644       24,281       24,115  
 
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
                                                         
                                            Accumulated        
                                            Other     Total  
    Preferred     Common             Treasury     Retained     Comprehensive     Shareholders’  
(In thousands)   Stock     Stock     Surplus     Stock     Earnings     Income (Loss)     Equity  
 
Balance at December 31, 2007
  $     $ 26,281     $ 539,586     $ (122,196 )   $ 309,556     $ (13,672 )   $ 739,555  
Comprehensive income:
                                                       
Net income
                            18,533             18,533  
Other comprehensive income, net of tax:
                                                       
Unrealized losses on securities, net of reclassification adjustment
                                  (212 )     (212 )
Unrealized gains on derivative Instruments
                                  59       59  
 
                                                     
Comprehensive income
                                                    18,380  
 
                                                     
Cash dividends declared on common stock
                            (8,487 )           (8,487 )
Dividends on preferred stock
                            (544 )           (544 )
Common stock repurchases
                      (94 )                 (94 )
Stock-based compensation
                7,612                         7,612  
Cumulative effect of change in accounting for split-dollar life insurance
                            (992 )           (992 )
Issuance of preferred stock, net of issuance costs
    49,379                                     49,379  
Common stock issued for:
                                                       
Exercise of stock options and warrants
          130       2,959                         3,089  
Restricted stock awards
          84       (629 )                       (545 )
Employee stock purchase plan
          23       795                         818  
Director compensation plan
          30       1,130                         1,160  
 
Balance at September 30, 2008
  $ 49,379     $ 26,548     $ 551,453     $ (122,290 )   $ 318,066     $ (13,825 )   $ 809,331  
 
 
Balance at December 31, 2008
  $ 281,873     $ 26,611     $ 571,887     $ (122,290 )   $ 318,793     $ (10,302 )   $ 1,066,572  
 
Comprehensive income:
                                                       
Net income
                            44,902             44,902  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  2,154       2,154  
Unrealized gains on derivative instruments
                                  2,089       2,089  
 
                                                     
Comprehensive income
                                                    49,145  
 
                                                     
Cash dividends declared on common stock
                            (6,463 )           (6,463 )
Dividends on preferred stock
                            (12,480 )           (12,480 )
Accretion on preferred stock
    2,188                         (2,188 )            
Common stock repurchases
                      (147 )                 (147 )
Stock-based compensation
                5,132                         5,132  
Cumulative effect of change in accounting for other-than-temporary impairment
                            309       (309 )      
Common stock issued for:
                                                       
Exercise of stock options and warrants
          175       2,482                         2,657  
Restricted stock awards
          73       (820 )                       (747 )
Employee stock purchase plan
          56       635                         691  
Director compensation plan
          50       1,672                         1,722  
 
Balance at September 30, 2009
  $ 284,061     $ 26,965     $ 580,988     $ (122,437 )   $ 342,873     $ (6,368 )   $ 1,106,082  
 
                 
    Nine Months Ended September 30,
    2009   2008
     
Other Comprehensive Income:
               
Unrealized gains (losses) on available-for-sale securities arising during the period, net
  $ 2,435     $ (1,246 )
Unrealized gains on derivative instruments arising during the period, net
    3,399       615  
Less: Reclassification adjustment for losses included in net income, net
    (910 )     (553 )
Less: Income tax expense (benefit)
    2,501       (75 )
     
Other Comprehensive income (loss)
  $ 4,243     $ (153 )
     
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Nine Months Ended
    September 30,
(In thousands)   2009   2008
 
Operating Activities:
               
Net income
  $ 44,902     $ 18,533  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for credit losses
    129,329       42,985  
Depreciation and amortization
    15,246       15,350  
Stock-based compensation expense
    5,132       7,612  
Tax (expense) benefit from stock-based compensation arrangements
    (140 )     558  
Excess tax benefits from stock-based compensation arrangements
    (724 )     (684 )
Net amortization (accretion) of premium on securities
    129       (1,164 )
Mortgage servicing rights fair value change and amortization, net
    2,057       1,053  
Originations and purchases of loans held-for-sale
    (3,713,883 )     (1,290,805 )
Originations of premium finance receivables held-for-sale
    (790,044 )      
Proceeds from sales and securitizations of premium finance receivables held-for-sale
    106,282        
Proceeds from sales of mortgage loans held-for-sale
    3,620,400       1,342,456  
Bank owned life insurance income, net of claims
    (1,403 )     (1,941 )
Gain on sales of premium finance receivables
    (4,147 )     (2,163 )
Increase in trading securities, net
    (24,805 )     (672 )
Net (increase) decrease in brokerage customer receivables
    (1,540 )     4,770  
Gain on mortgage loans sold
    (38,656 )     (10,497 )
Losses on available-for-sale securities, net
    910       553  
Loss on sales of premises and equipment, net
    366       84  
Bargain purchase gain
    (113,062 )      
(Increase) decrease in accrued interest receivable and other assets, net
    (34,073 )     (8,241 )
Increase (decrease) in accrued interest payable and other liabilities, net
    25,599       18,963  
 
Net Cash (Used for) Provided by Operating Activities
    (772,125 )     136,750  
 
 
               
Investing Activities:
               
Proceeds from maturities of available-for-sale securities
    1,146,564       687,323  
Proceeds from sales of available-for-sale securities
    1,145,137       744,488  
Purchases of available-for-sale securities
    (2,153,313 )     (1,503,619 )
Proceeds from sales and securitizations of premium finance receivables
    600,000       217,834  
Net cash paid for acquisition
    (685,456 )      
Net (increase) decrease in interest-bearing deposits with banks
    (1,045,353 )     5,724  
Net decrease (increase) in loans
    122,433       (781,956 )
Purchases of premises and equipment, net
    (16,404 )     (23,719 )
 
Net Cash Used for Investing Activities
    (886,392 )     (653,925 )
 
 
               
Financing Activities:
               
Increase in deposit accounts
    1,470,407       358,033  
(Decrease) increase in other borrowings, net
    (84,693 )     41,957  
Decrease in notes payable, net
          (18,675 )
(Decrease) increase in Federal Home Loan Bank advances, net
    (2,000 )     23,802  
Repayment of subordinated note
    (5,000 )      
Issuance of preferred stock, net of issuance costs
          49,379  
Excess tax benefits from stock—based compensation arrangements
    724       684  
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants
    2,741       2,804  
Common stock repurchases
    (147 )     (94 )
Dividends paid
    (17,658 )     (8,487 )
 
Net Cash Provided by Financing Activities
    1,364,374       449,403  
 
Net Decrease in Cash and Cash Equivalents
    (294,143 )     (67,772 )
Cash and Cash Equivalents at Beginning of Period
    445,904       261,154  
 
Cash and Cash Equivalents at End of Period
  $ 151,761     $ 193,382  
 
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 generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2008. 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. In preparing these financial statements, management has evaluated events and transactions for potential recognition and or disclosure through November 9, 2009, the date the financial statements were issued. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 (Summary of Significant Accounting Policies) of the Company’s 2008 Form 10-K.
(2) Recent Accounting Developments
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“The Codification”). The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setters into a single source of authoritative accounting principles arranged by topic. The Codification supersedes all existing U.S. accounting standards; all other accounting literature not included in the Codification (other than Securities and Exchange Commission guidance for publicly-traded companies) is considered non-authoritative. The Codification was effective on a prospective basis for interim and annual reporting periods ending after September 15, 2009. The adoption of the Codification changed the Company’s references to U.S. GAAP accounting standards but did not impact the Company’s financial statements.
Accounting for Transfers of Financial Assets and Variable Interest Entities
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” (“SFAS 166”) and SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167) which have not yet been adopted into Codification. The amendments will become effective for the Company on January 1, 2010. SFAS 166 amends SFAS 140 by removing the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets and requires additional disclosures about a

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transferor’s continuing involvement in transferred financial assets. As described more fully in Note 8 — Loan Securitization, the Company has transferred certain loans to a qualifying special purpose entity (“QSPE”) which is not currently subject to consolidation.
SFAS 167 amends FIN 46(R) “Consolidation of Variable Interest Entities” (“FIN 46R”) by significantly changing the criteria by which an enterprise determines whether it must consolidate a variable interest entity (“VIE”). A VIE is an entity, typically an SPE, which has insufficient equity at risk or which is not controlled through voting rights held by equity investors. FIN 46R currently requires that a VIE be consolidated by the enterprise that will absorb a majority of the expected losses or expected residual returns created by the assets of the VIE. SFAS 167 amends FIN 46R to require that a VIE be consolidated by the enterprise that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. SFAS 167 also requires that an enterprise continually reassess, based on current facts and circumstances, whether it should consolidate the VIEs with which it is involved.
The adoption of the amendments on January 1, 2010 will result in the consolidation of a QSPE that is not currently recorded on the Company’s Consolidated Statement of Condition. The consolidation will result in an increase in net assets, primarily loans and other borrowings, of approximately $600 million. The consolidation will also result in an increase in the provision for credit losses and will require a reversal of a portion of previously recognized securitization gains as a cumulative effect adjustment to retained earnings. See Note 8 — Loan Securitization, for additional information regarding the QSPE.
Subsequent Events
In May 2009, the FASB issued new guidance for the recognition and disclosure of subsequent events not addressed in other applicable generally accepted accounting principles. The new guidance, which is now part of Accounting Standards Codification (“ASC”) 855, “Subsequent Events”, requires entities to disclose the date through which subsequent events have been evaluated and the nature and estimated financial effects of certain subsequent events. This new guidance is effective for interim or annual financial periods ending after June 15, 2009, and will be applied prospectively. The adoption of this new guidance did not have a material impact on the Company’s financial statements. See Note 18 — Subsequent Events, for disclosures relating to subsequent events.
Disclosures about Fair Value of Financial Instruments
In April 2009, the FASB issued new guidance related to the disclosure of the fair value of financial instruments. The new guidance, which is now part of ASC 825, “Financial Instruments”, requires disclosure of the fair value of financial instruments whenever a publicly traded company issues financial information in interim reporting periods in addition to the annual disclosure required at year-end. The provisions of the new guidance were effective for interim periods ending after June 15, 2009. The Company adopted the new guidance in the second quarter of 2009. See Note 5 — Available-for-sale Securities, for the required disclosures in accordance with this guidance.
Other-Than-Temporary Impairments
In April 2009, the FASB issued new guidance for the accounting for other-than temporary impairments. The new guidance, which is now part of ASC 320 “Investments — Debt and Equity Securities” (“ASC 320”), amends the other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities and the presentation and disclosure requirements of OTTI on debt and equity securities in the financial statements. This new guidance does not amend existing recognition and measurement guidance related to OTTI of equity securities. The new guidance requires separate display of losses related to credit deterioration and losses related to other market factors. When an entity does not intend to sell the security and it is more likely than not that an entity will not have to sell the security before recovery of its cost basis, it must recognize the credit component of OTTI in earnings and the remaining portion in other comprehensive income. The new guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The Company adopted the new guidance in the second quarter of 2009. See Note 5 - Available-for-sale Securities, for a further discussion on the adoption of the new guidance.

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Additional Fair Value Measurement Guidance
In April 2009, the FASB issued new guidance for determining when a transaction is not orderly and for estimating fair value when there has been a significant decrease in the volume and level of activity for an asset or liability. The new guidance, which is now part of ASC 820, “Fair Value Measurements and Disclosures” (ASC 820), requires disclosure of the inputs and valuation techniques used, as well as any changes in valuation techniques and inputs used during the period, to measure fair value in interim and annual periods. In addition, the presentation of the fair value hierarchy is required to be presented by major security type as described in ASC 320. The provisions of the new guidance were effective for interim periods ending after June 15, 2009. The adoption of the new guidance in the second quarter of 2009 did not have a material effect on the Company’s financial statements.
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging activities. The new guidance, which is now a part of ASC 815, “Derivatives and Hedging Activities”, requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions of the new guidance were effective for financial statements issued for fiscal years beginning after November 15, 2008. See Note 14 — Derivative Financial Instruments, for the required disclosures in accordance with this new guidance.
Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB issued new guidance for the accounting for noncontrolling interests. The new guidance, which is now part of ASC 810, “Consolidation”, establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance is effective for fiscal years beginning after December 15, 2008. The adoption of the new guidance did not have a material impact on the Company’s financial statements.
Business Combinations
In April 2009, the FASB issued revised guidance for recognizing and measuring pre-acquisition contingencies in a business combination. The revised guidance, which is now part of ASC 805, “Business Combinations”, revises the definition of a business and amends and clarifies prior guidance to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The revised guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. The adoption of the revised guidance did not have a material impact on the Company’s financial statements.
In December 2007, the FASB issued revised guidance for the accounting for business combinations. The revised guidance, which is now part of ASC 805, “Business Combinations” (ASC 805), requires the acquiring entity in a business combination to recognize the full fair value of the assets acquired and liabilities assumed in a transaction at the acquisition date; the immediate expense recognition of transaction costs; and accounting for restructuring plans separately from the business combination. The application of ASC 805 eliminates separate recognition of the acquired allowance for loan losses on the acquirer’s balance sheet as credit related factors will be incorporated directly into the fair value of the loans recorded at the acquisition date. The application of ASC 805 is effective for business combinations occurring after December 15, 2008. The Company applied ASC 805 to its July 28, 2009 acquisition of a majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company, subsidiaries of American International Group, Inc. See Note 3 — Business Combinations, for more information on ASC 805.

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(3) Business Combinations
On July 28, 2009 First Insurance Funding Corporation (“FIFC”), a wholly-owned subsidiary of the Company, purchased the majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company (“the sellers”), subsidiaries of American International Group, Inc. After giving effect to post-closing adjustments, an aggregate unpaid principal loan balance of $949.3 million was purchased for $685.3 million in cash. At closing, a portion of the portfolio, with an aggregate unpaid principal loan balance of $321.1 million, and a corresponding portion of the purchase price of $232.8 million were placed in escrow, pending the receipt of required third party consents. To the extent any of the required consents are not obtained prior to October 28, 2010, the corresponding portion of the portfolio will be reassumed by the applicable seller, and the corresponding portion of the purchase price will be returned to FIFC. Also, as a part of the purchase, an aggregate of $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to the satisfaction of certain conditions. The majority of these conditions were satisfied in the fourth quarter of 2009, see Note 18 — Subsequent Events, for more details.
The purchase was accounted for under the acquisition method of accounting in accordance with ASC 805. Accordingly, the impact related to this transaction is included in the Company’s financial statements only since the effective date of acquisition. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Under ASC 805 a gain is recorded equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed and consideration paid. As such, the Company recognized a $113.1 million bargain purchase gain in the third quarter of 2009 relating to all of the loans it acquired which have all contingencies removed as of September 30, 2009. This gain is shown as a component of non-interest income on the Company’s Consolidated Statement of Income.
The difference between the fair value of the loans acquired and the outstanding principal balance of these loans represents a discount of $113.3 million and is comprised of two components, an accretable component totaling $74.8 million and a non-accretable component totaling $38.5 million. The accretable component will be recognized into interest income using the effective yield method over its estimated remaining life. The non-accretable portion will be evaluated each quarter and if the loans’ credit related conditions improve, a relative portion will be transferred to the accretable component and accreted over future periods. In the event of a prepayment, accretion of both the accretable and non-accretable component will be accelerated into the quarter in which a specific loan prepays in whole. Currently, the Company has not established an allowance for loan losses relating to the portfolio purchased in this transaction. If credit related conditions deteriorate, an allowance related to these loans will be established as part of the provision for loan losses.
The following table summarizes the net fair value of assets acquired and the resulting bargain purchase gain at the date of acquisition:
         
(Dollars in thousands)        
Assets:
       
Loans
  $ 835,952  
Customer list intangible
    1,800  
Other assets
    150  
 
     
Total assets
    837,902  
 
     
 
       
Cash paid
    685,456  
 
     
 
       
Total bargain purchase gain
  $ 152,446  
 
     
 
       
Bargain purchase gain recorded in third quarter 2009
    113,062  
Bargain purchase gain deferred pending third party consents
  $ 39,384  

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(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.
(5) Available-for-sale Securities
The following tables are a summary of the available-for-sale securities portfolio as of the dates shown:
                                 
    September 30, 2009  
            Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
(Dollars in thousands)   Cost     Gains     Losses     Value  
U.S. Treasury
  $ 121,597     $     $ (8,701 )   $ 112,896  
U.S. Government agencies
    655,161       1,403       (1,540 )     655,024  
Municipal
    64,790       2,400       (290 )     66,900  
Corporate notes and other:
                             
Financial issuers (1)
  42,948     1,170     (3,173 )   40,945  
Retained subordinated securities
  47,647     357         48,004  
Other
  11,205     622     (270 )   11,557  
Mortgage-backed: (2)
                             
Agency
  214,683     11,277     (8 )   225,952  
Non-agency CMOs
  106,285     5,053     (705 )   110,633  
Non-agency CMOs — Alt A
  54,840     900     (1,655 )   54,085  
Federal Reserve and FHLB stock
    71,889                   71,889  
Other equity securities
    36,415       90       (142 )     36,363  
 
                       
Total available-for-sale securities
  $ 1,427,460     $ 23,272     $ (16,484 )   $ 1,434,248  
 
                       
 
(1)   To the extent investments in trust-preferred securities are included, they are direct issues and do not include pooled trust-preferred securities.
 
(2)   Consisting entirely of residential mortgage-backed securities, none of which are subprime.
                                 
    December 31, 2008  
            Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
(Dollars in thousands)   Cost     Gains     Losses     Value  
U.S. Treasury
  $     $     $     $  
U.S. Government agencies
    297,191       1,539       (1 )     298,729  
Municipal
    59,471       563       (739 )     59,295  
Corporate notes and other debt
    36,157       223       (8,339 )     28,041  
Mortgage-backed
    272,492       12,859       (44 )     285,307  
Federal Reserve/FHLB stock and other equity securities
    115,414             (2,113 )     113,301  
 
                       
Total available-for-sale securities
  $ 780,725     $ 15,184     $ (11,236 )   $ 784,673  
 
                       

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recognition of other than temporary impairment for debt securities resulted in the recognition of a cumulative-effect adjustment to retained earnings with a corresponding charge to accumulated other comprehensive income of $309,000. No impairment charges were recorded in the second quarter of 2009. In the third quarter of 2009, the Company recognized a $472,000 impairment charge on a corporate note of a financial issuer.
The following tables present the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at September 30, 2009:
                                                 
    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
  $ 112,896       (8,701 )                 112,896       (8,701 )
U.S. Government agencies
    132,423       (1,540 )                 132,423       (1,540 )
Municipal
    13,992       (196 )     2,105       (94 )     16,097       (290 )
Corporate notes and other:
                                         
Financial issuers
  11,096     (698 )   3,462     (2,475 )   14,558     (3,173 )
Retained subordinated securities
                       
Other
          7,477     (270 )   7,477     (270 )
Mortgage-backed:
                                       
Agency
  390   (8 )           390     (8 )
Non-agency CMOs
  37,641     (699 )   157     (6 )   37,798     (705 )
Non-agency CMOs — Alt A
  34,107     (1,655 )           34,107     (1,655 )
Federal Reserve and FHLB stock
                                   
Other equity securities
            2,230       (142 )   2,230       (142 )
             
Total
  $ 342,545       (13,497 )   15,431       (2,987 )   357,976       (16,484 )
             
The Company does not consider these unrealized losses to be other-than-temporary at September 30, 2009. The Company does not intend to sell these investments and it is not more likely than not that the Company will 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 and market spreads subsequent to purchase. A substantial portion of the securities that have unrealized losses are either U.S. Treasury securities or corporate notes of financial issuers. The corporate notes of financial issuers with continuous losses existing for greater than 12 months represent three trust-preferred securities with unrealized losses totaling $2.5 million. These three securities represent financial issuers with high investment grade credit ratings. Most of these obligations were purchased in 1999, 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 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.
During the first quarter of 2009, the Company recorded $2.1 million of other than temporary impairment on certain corporate debt securities. Effective April 1, 2009, the Company adopted new guidance for the measurement and recognition of other than temporary impairment for debt securities, which is now part of ASC 320. If an entity does not intend to sell, and it is more likely than not that the entity will not be required to sell a debt security before recovery of its cost basis, impairment should be separated into (a) the amount representing credit loss and (b) the amount related to all other factors. The amount of impairment related to credit loss is recognized in earnings and the impairment related to other factors is recognized in other comprehensive income (loss). To determine the amount related to credit loss, the Company applied a method similar to that described by ASC 310, “Receivables”, using a single best estimate of expected cash flows. The Company’s adoption of new guidance for the measurement and
Changes in the amount of credit losses recognized in net income on these corporate debt securities are summarized as follows:
                 
    Three Months Ended   Nine Months Ended
(Dollars in thousands)   September 30, 2009   September 30, 2009
 
Balance at March 31, 2009
  $ (4,195 )   $ (6,181 )
Credit losses not previously recognized
    (472 )     (472 )
Reductions for securities sold during the period
    3,043       5,029  
     
Balance at end of period
  $ (1,624 )   $ (1,624 )
     

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The amortized cost and fair value of securities as of September 30, 2009, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalty:
                 
    September 30, 2009
    Amortized   Fair
(Dollars in thousands)   Cost   Value
Due in one year or less
  $ 102,362       102,801  
Due in one to five years
    325,697       336,407  
Due in five to ten years
    371,902       354,812  
Due after ten years
    143,387       141,306  
Mortgage-backed
    375,808       390,670  
Federal Reserve and FHLB stock
    71,889       71,889  
Other equity securities
    36,415       36,363  
     
Total available-for-sale securities
  $ 1,427,460       1,434,248  
     
The following table provides information as to the amount of gross gains and losses realized through the sales of available-for-sale investment securities:
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
(Dollars in thousands)   2009     2009  
Realized gains
  $ 1,601     $ 3,417  
Realized losses
    (1,541 )     (1,719 )
 
           
Net realized gains (losses)
  $ 60     $ (1,698 )
           
(6) Loans
The following table shows the Company’s loan portfolio by category as of September 30, 2009, as of December 31, 2008 and September 30, 2008:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2009     2008     2008  
Balance:
                       
Commercial and commercial real estate
  $ 5,035,859     $ 4,778,664     $ 4,673,682  
Home equity
    928,548       896,438       837,127  
Residential real estate
    281,151       262,908       247,203  
Premium finance receivables — commercial
    752,032       1,243,858       1,164,256  
Premium finance receivables — life insurance
    1,045,653       102,728       41,120  
Indirect consumer loans
    115,528       175,955       199,845  
Other loans
    116,486       160,518       159,312  
 
                 
Total loans, net of unearned income
  $ 8,275,257     $ 7,621,069     $ 7,322,545  
 
                 
 
                       
Mix:
                       
Commercial and commercial real estate
    61 %     63 %     64 %
Home equity
    11       12       11  
Residential real estate
    4       3       4  
Premium finance receivables — commercial
    9       16       16  
Premium finance receivables — life insurance
    13       2       1  
Indirect consumer loans
    1       2       3  
Other loans
    1       2       1  
 
                 
Total loans, net of unearned income
    100 %     100 %     100 %
 
                 

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Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $30.1 million at September 30, 2009, $27.1 million at December 31, 2008 and $23.4 million at September 30, 2008. Life insurance premium finance receivables are also recorded net of credit discounts attributable to the life insurance premium finance loan acquisition in the third quarter of 2009. The accretable component of the credit discount was $67.4 million and the non-accretable component of the credit discount was $36.2 million at September 30, 2009. The accretable component will be recognized into interest income using the effective yield method over its estimated remaining life. The non-accretable portion will be evaluated each quarter and if the loans’ credit related conditions improve, a relative portion will be transferred to the accretable component and accreted over future periods. In the event of a prepayment, accretion of both the accretable and non-accretable component will be accelerated into the quarter in which a specific loan prepays in whole.
Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $10.4 million at September 30, 2009, $9.4 million at December 31, 2008 and $9.3 million at September 30, 2008.
Commercial and commercial real estate loans. Our commercial and commercial real estate loan portfolios are comprised primarily of commercial real estate loans and lines of credit for working capital purposes. The table below sets forth information regarding the types, amounts and performance of our loans within these portfolios:
Commercial and Commercial Real Estate Loans
As of September 30, 2009
                                         
                            > 90 Days     Allowance  
            % of             Past Due     For Loan  
            Total     Non-     and Still     Losses  
(Dollars in thousands)   Balance     Loans     accrual     Accruing     Allocation  
Commercial:
                                       
Commercial and Industrial
  $ 1,345,111       16.3 %   $ 16,689     $ 605     $ 21,799  
Franchise
    107,447       1.3                   1,619  
Mortgage warehouse lines of credit
    73,816       0.9                   985  
Community Advantage — homeowner associations
    60,146       0.7                   145  
Aircraft
    41,606       0.5             153       164  
Other
    15,595       0.2       2,346             424  
 
                             
Total Commercial
  $ 1,643,721       19.9 %   $ 19,035     $ 758     $ 25,136  
 
                             
 
                                       
Commercial Real Estate:
                                       
Land and development
  $ 1,041,641       12.6 %   $ 103,573     $ 10,090     $ 22,102  
Office
    544,772       6.6       10,029             7,079  
Industrial
    466,725       5.6       8,476       355       7,012  
Retail
    570,589       6.9       10,698       12,161       7,846  
Mixed use and other
    768,411       9.3       14,915       13       10,686  
 
                             
Total Commercial Real Estate Loans
  $ 3,392,138       41.0 %   $ 147,691     $ 22,619     $ 54,725  
 
                             
 
                                       
Total Commercial and Commercial Real Estate
  $ 5,035,859       60.9 %   $ 166,726     $ 23,377     $ 79,861  
 
                             
 
                                       
Commercial Real Estate—collateral location by state:
                                       
Illinois
  $ 2,729,454       80.5 %                        
Wisconsin
    375,911       11.1                          
 
                                   
Total primary markets
  $ 3,105,365       91.6 %                        
 
                                   
Indiana
    48,300       1.4                          
Florida
    43,164       1.3                          
Arizona
    42,226       1.2                          
Other (no individual state greater than 0.6%)
    153,083       4.5                          
 
                                   
Total
  $ 3,392,138       100.0 %                        
 
                                   

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Our commercial real estate loan portfolio predominantly relates to owner-occupied real estate, and our loans are generally secured by a first mortgage lien and assignment of rents on the property. Since most of our bank branches are located in the Chicago, Illinois metropolitan area and southeastern Wisconsin, 91.6% of our commercial real estate loan portfolio is located in this region. Commercial real estate market conditions continued to be under stress in the third quarter of 2009, and we expect this trend to continue. These conditions have negatively affected our commercial real estate loan portfolio, and as of September 30, 2009, our allowance for loan losses related to this portfolio is $54.7 million.
We make commercial loans for many purposes, including: working capital lines, which are generally renewable annually and supported by business assets, personal guarantees and additional collateral; loans to condominium and homeowner associations originated through Barrington Bank’s Community Advantage program; small aircraft financing, an earning asset niche developed at Crystal Lake Bank; and franchise lending at Lake Forest Bank. Commercial business lending is generally considered to involve a higher degree of risk than traditional consumer bank lending, and as a result of the economic recession, allowance for loan losses in our commercial loan portfolio is $25.1 million as of September 30, 2009.
Our allowance for loan losses for commercial and commercial real estate loans in the aggregate has increased to $79.9 million as of September 30, 2009 from $57.0 million as of December 31, 2008 and $54.4 million as of September 30, 2008.
The Company also participates in mortgage warehouse lending by providing interim funding to unaffiliated mortgage bankers to finance residential mortgages originated by such bankers for sale into the secondary market. The Company’s loans to the mortgage bankers are secured by the business assets of the mortgage companies as well as the specific mortgage loans funded by the Company, after they have been pre-approved for purchase by third party end lenders. End lender re-payments are sent directly to the Company upon end-lenders’ acceptance of final loan documentation. The Company may also provide interim financing for packages of mortgage loans on a bulk basis in circumstances where the mortgage bankers desire to competitively bid on a number of mortgages for sale as a package in the secondary market. Typically, the Company will serve as sole funding source for its mortgage warehouse lending customers under short-term revolving credit agreements. Amounts advanced with respect to any particular mortgage loan are usually required to be repaid within 21 days.
Despite poor economic conditions generally, and the particularly difficult conditions in the U.S. residential real estate market experienced since 2008, our mortgage warehouse lending business has expanded during 2009 due to the high demand for mortgage re-financings given the historically low interest rate environment and the fact that many of our competitors exited the market in late 2008 and early 2009. The expansion of this business has caused our mortgage warehouse lines to increase to $73.8 million as of September 30, 2009 from $55.3 million as of December 31, 2008 and $44.4 million as of September 30, 2008. Additionally, our allowance for loan losses with respect to these loans is $985,000 as of September 30, 2009. Since the inception of this business, the Company has not suffered any related loan losses on these loans.

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(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans
The following table presents a summary of the activity in the allowance for credit losses for the periods presented:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands)   2009     2008     2009     2008  
Allowance for loan losses at beginning of period
  $ 85,113     $ 57,633     $ 69,767     $ 50,389  
Provision for credit losses
    91,193       24,129       129,329       42,985  
Reclassification (to)/from allowance for losses on lending-related commitments
    (1,543 )           (1,543 )      
Charge-offs
    (80,072 )     (15,816 )     (103,602 )     (28,067 )
Recoveries
    405       381       1,145       1,020  
 
                       
 
                               
Allowance for loan losses at period end
  $ 95,096     $ 66,327     $ 95,096     $ 66,327  
 
                               
Allowance for losses on lending-related commitments at period end
  $ 3,129     $ 493     $ 3,129     $ 493  
 
                       
Allowance for credit losses at period end
  $ 98,225     $ 66,820     $ 98,225     $ 66,820  
 
                       
A summary of non-accrual, impaired loans and loans past due greater than 90 days and still accruing interest are as follows:
                 
    September 30,     December 31,  
(Dollars in thousands)   2009     2008  
Non-performing loans:
               
Loans past due greater than 90 days and still accruing interest
  $ 36,937     $ 25,385  
Non-accrual loans
    194,722       110,709  
 
           
Total non-performing loans
  $ 231,659     $ 136,094  
 
           
Impaired loans (included in Non-performing loans):
               
Impaired loans with an allowance for loan loss required (1)
  $ 96,514     $ 73,849  
Impaired loans with no allowance for loan loss required
    51,494       39,860  
 
           
Total impaired loans
  $ 148,008     $ 113,709  
 
           
Allowance for loan losses related to impaired loans
  $ 16,485     $ 16,639  
 
           
Restructured loans
  $     $  
 
           
 
(1)   These impaired loans require an allowance for loan losses because the estimated fair value of the loans or related collateral is less than the recorded investment in the loans.
The average recorded investment in impaired loans was $125.8 million and $41.9 million for the nine months ended September 30, 2009 and 2008, respectively.

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(8) Loan Securitization
Servicing Portfolio
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, subject to credit recourse, to FIFC Premium Funding, LLC, a qualifying special purpose entity (the “QSPE”). 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 (e.g., subordinated securities, overcollateralization of loans, cash reserve accounts, a servicing asset, and an interest-only strip). Provided that certain coverage test criteria are met, principal collections will be used to subsequently transfer additional loans to the QSPE 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 QSPE. The maximum amount of risk related to these repurchase provisions and non performance by the underlying borrowers is approximately equal to the carrying value of the Company’s retained interests. As of September 30, 2009, no loans have been repurchased.
Instruments issued by the QSPE included $600 million Class A notes that bear an annual interest rate of LIBOR plus 1.45% (the “Notes”) and have an expected average term of 2.93 years with any unpaid balance due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (“TALF”). The Notes are rated Aaa by Moody’s and AAA by Standard & Poor’s. 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. These notes are rated A and BBB respectively by Standard and Poor’s.
The seller’s interest maintained by the Company is equal to the balance of all loans transferred to the QSPE plus the associated accrued interest receivable less the investors’ portion of those assets (securitized loans). Seller’s interest is carried at historical cost and reported as loans, net of unearned income on the Company’s Consolidated Statement of Condition.
The following table illustrates the activity in the QSPE for the quarter ended September 30, 2009:
         
(Dollars in thousands)   2009  
FIFC Premium Funding, LLC loan assets, June 30
  $  
Impact of issuance
    695,103  
Collections reinvested
    106,282  
Account activity, net
    (140,129 )
 
     
FIFC Premium Funding, LLC loan assets, September 30
  $ 661,256  
 
     
The following table details the securitized loans and seller’s interest components of the FIFC Premium Funding, LLC loan assets in the preceding table:
         
(Dollars in thousands)   2009  
Securitized loans, June 30
  $  
Impact of issuances, external
    600,000  
Impact of issuances, retained
    83,762  
Collections reinvested
    106,282  
Account activity, net
    (137,855 )
 
     
Securitized loans, September 30
  $ 652,189  
 
     
Seller’s interest, June 30
  $  
Impact of issuance
    11,341  
Account activity, net
    (2,274 )
 
     
Seller’s interest, September 30
  $ 9,067  
 
     
Securitization Income
At the time of a loan securitization, the Company records a gain/(loss) on sale, which is calculated as the difference between the proceeds from the sale and the book basis of the loans sold. The book basis is determined by allocating the carrying amount of the sold loans between the loans sold and the interests retained based on their relative fair values. Such fair values are based on market prices at the date of transfer for the sold loans and on the estimated present value of future cash flows for retained interests. Gains on sale from securitizations are reported in gain on sales of premium finance receivables in the Company’s Consolidated Statements of Income and were $3.4 million in the third quarter of 2009. The income component resulting from the release of credit reserves upon classification as held-for-sale is reported as a reduction of provision for credit losses.

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Also reported in gain on sales of premium finance receivables are changes in the fair value of the interest-only strip. This amount is the excess cash flow from interest collections allocated to the investors’ interests after deducting the interest paid on investor certificates, credit losses, contractual servicing fees, and other expenses. Changes in the fair value of the interest-only strip of $173,000 were reported in gain on sale of premium finance receivables in the third quarter of 2009.
The Company has retained servicing responsibilities for the transferred loans and earns a related fee. Servicing fee income was $712,000 for the quarter ended September 30, 2009 and is reported in other non-interest income in the Consolidated Statements of Income.
Retained Interests
The Company retained subordinated interests in the securitized loans. These interests include the Subordinated securities, overcollateralization of loans, cash reserves, a servicing asset, and an interest-only strip. The following table presents the Company’s retained interests at September 30, 2009:
         
(Dollars in thousands)   2009  
Subordinated securities (a)
  $ 48,004  
Residual interests held (b)
    42,622  
Servicing asset (b)
    1,336  
 
     
Total retained interests
  $ 91,962  
 
     
 
(a)   The subordinated securities are accounted for at fair value and are reported as available-for-sale securities on the Company’s Consolidated Statement of Condition with unrealized gains recorded in accumulated other comprehensive income. See Note 15 for further discussion on fair value.
 
(b)   The residual interests and servicing asset are accounted for at fair value and reported in other assets on the Company’s Consolidated Statement of Condition. Retained interests held includes overcollateralization of loans, cash reserve deposits, and an interest-only strip. See Note 15 for further discussion on fair value.
Key economic assumptions used in the measuring of fair value and the sensitivity of the current fair value to immediate adverse changes in those assumptions at September 30, 2009, for the Company’s servicing asset and other interests held related to securitized loans are presented in the following table:
                         
    Subordinated   Residual   Servicing
(Dollars in thousands)   Securities   Interests   Asset
Fair Value of interest held
  $ 48,004     $ 42,622     $ 1,336  
 
                       
Expected weighted-average life (in months)
    6.5       6.5       6.5  
Decrease in fair value from:
                       
1 month reduction
  $ 239     $ (1,206 )   $ (204 )
2 month reduction
  $ 479     $ (2,420 )   $ (403 )
 
                       
Discount rate assumptions
    5.97 %     8.75 %(a)     8.50 %
Decrease in fair value from:
                       
100 basis point increase
  $ (257 )   $ (200 )   $ (3 )
200 basis point increase
  $ (513 )   $ (399 )   $ (6 )
 
                       
Credit loss assumption
            0.40 %     0.40 %
Decrease in fair value from:
                       
10% higher loss
          $ (154 )   $  
20% higher loss
          $ (310 )   $  
 
(a)   Excludes the discount rate on cash reserve deposits deemed to be immaterial.
The sensitivities in the table above are hypothetical and caution should be exercised when relying on this data. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.

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The following table summarizes the changes in the fair value of the Company’s servicing asset for the quarter ended September 30, 2009:
         
(Dollars in thousands)   2009  
Balance at June 30
  $  
Fair value determined upon transfer of loans
    1,795  
Changes in fair value due to changes in inputs and assumptions
    (470 ) (a)
Other changes
    11  (b)
 
     
Balance at September 30
  $ 1,336  
 
     
 
(a)   The Company measures servicing assets at fair value at each reporting date and reports changes in other non-interest income
 
(b)   Represents accretable yield reported in other non-interest income.
The key economic assumptions used in measuring the fair value of the servicing asset include the prepayment speed and weighted-average life, the discount rate, and default rate. The primary risk of material changes in the value of the servicing asset resides in the potential volatility in the economic assumptions used, particularly the prepayment speed and weighted-average life.
Other Disclosures
The table below summarizes cash flows received from the QSPE for the quarter ended September 30, 2009:
         
(Dollars in thousands)   2009
Proceeds from new securitizations during the period
  $ 600,000  
Proceeds from collections reinvested in revolving securitizations
    106,282  
Servicing and other fees received
     
Excess spread received
     
The following table presents quantitative information about the premium finance receivables - commercial at September 30, 2009:
                         
            Amount of        
    Total     Loans 30 days or     Net Credit  
    Amount of     More Past Due     Write-offs during  
(Dollars in thousands)   Loans     or on Nonaccrual     the Quarter  
Premium finance receivables — commercial
  $ 1,404,221     $ 48,177     $ 2,317  
Less: Premium finance receivables — commercial securitized
    652,189       6,096        
 
                 
Premium finance receivables — commercial on-balance sheet
  $ 752,032     $ 42,081     $ 2,317  
 
                 
(9) Goodwill and Other Intangible Assets
A summary of the Company’s goodwill assets by business segment is presented in the following table:
                                 
    January 1,     Goodwill     Impairment     September 30,  
(Dollars in thousands)   2009     Acquired     Losses     2009  
Community banking
  $ 245,886     $ 215     $     $ 246,101  
Specialty finance
    16,095                   16,095  
Wealth management
    14,329                   14,329  
 
                       
Total
  $ 276,310     $ 215     $     $ 276,525  
 
                       
The increase in the Community banking segment’s goodwill in the first nine months of 2009 relates to additional contingent consideration paid to the former owners of Wintrust Mortgage Corporation (formerly known as WestAmerica Mortgage Company) and its affiliate, Guardian Real Estate Services, Inc., as a result of attaining certain performance measures. This was the final payment of contingent consideration due as a result of the Company’s 2004 acquisition of these companies.
Pursuant to the acquisition of PMP in December 2008, Wintrust could 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 September 30, 2009, December 31, 2008 and September 30, 2008 and the expected amortization as of September 30, 2009 is as follows:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2009     2008     2008  
Customer list intangibles:
                       
Gross carrying amount
  $ 5,052       3,252       3,252  
Accumulated amortization
    (3,202 )     (3,079 )     (3,011 )
 
                 
Net carrying amount
    1,850       173       241  
 
                 
 
                       
Core deposit intangibles:
                       
Core deposit intangibles
                       
Gross carrying amount
    27,918       27,918       27,918  
Accumulated amortization
    (15,400 )     (13,483 )     (12,770 )
 
                 
Net carrying amount
    12,518       14,435       15,148  
 
                 
 
                       
Total other intangible assets, net
  $ 14,368       14,608       15,389  
 
                 
         
Estimated amortization
Actual in 9 months ended September 30, 2009
  $ 2,040  
Estimated remaining in 2009
    712  
Estimated — 2010
    2,466  
Estimated — 2011
    2,339  
Estimated — 2012
    2,336  
Estimated — 2013
    2,320  
On July 28, 2009, the Company recorded $1.8 million in unamortized finite-lived intangible assets, classified on the Consolidated Statement of Condition as other intangible assets. These other intangible assets relate to the value of the customer lists in the acquisition of the life insurance premium finance portfolio and certain other assets related to the business and the assumption of certain related liabilities. The customer list intangible assets are amortized on an accelerated basis over an approximate six-year average life.
The $3.3 million of wealth management customer list intangibles recognized in connection with the acquisitions of Lake Forest Capital Management in 2003 and Wayne Hummer Asset Management Company in 2002 are being amortized over seven-year periods on an accelerated basis. The core deposit intangibles recognized in connection with the Company’s seven bank acquisitions between 2003 and 2006 are being amortized over ten-year periods on an accelerated basis. Amortization expense associated with finite-lived intangibles totaled approximately $2.0 million and $2.3 million for the nine months ended September 30, 2009 and 2008, respectively.

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(10) Deposits
The following table is a summary of deposits as of the dates shown:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2009     2008     2008  
Balance:
                       
Non-interest bearing deposits
  $ 841,668     $ 757,844     $ 717,587  
NOW accounts
    1,245,689       1,040,105       1,012,393  
Wealth management deposits
    935,740       716,178       583,715  
Money market accounts
    1,468,228       1,124,068       997,638  
Savings accounts
    513,239       337,808       317,108  
Time certificates of deposit
    4,842,599       4,400,747       4,201,086  
 
                 
Total deposits
  $ 9,847,163     $ 8,376,750     $ 7,829,527  
 
                 
 
                       
Mix:
                       
Non-interest bearing deposits
    9 %     9 %     9 %
NOW accounts
    13       12       13  
Wealth management deposits
    9       9       7  
Money market accounts
    15       13       13  
Savings accounts
    5       4       4  
Time certificates of deposit
    49       53       54  
 
                 
Total deposits
    100 %     100 %     100 %
 
                 
Wealth management deposits represent deposit balances at the Company’s subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of Wayne Hummer Trust Company and brokerage customers from unaffiliated companies.
(11) Notes Payable, Federal Home Loan Bank Advances, Other Borrowings and Subordinated Notes
The following table is a summary of notes payable, Federal Home Loan Bank advances, other borrowings and subordinated notes as of the dates shown:
                         
    September 30,     December 31,     September 30,  
(Dollars in thousands)   2009     2008     2008  
Notes payable
  $ 1,000     $ 1,000     $ 42,025  
Federal Home Loan Bank advances
    433,983       435,981       438,983  
 
                       
Other borrowings:
                       
Federal funds purchased
                34,000  
Securities sold under repurchase agreements
    250,263       334,925       260,542  
Other
    1,808       1,839       1,849  
 
                 
Total other borrowings
    252,071       336,764       296,391  
 
                 
 
                       
Subordinated notes
    65,000       70,000       75,000  
 
                 
 
                       
Total notes payable, Federal Home Loan Bank advances, other borrowings and subordinated notes
  $ 752,054     $ 843,745     $ 852,399  
 
                 
As of September 30, 2009, the Company had a $1.0 million outstanding balance under a $26.0 million loan agreement (“Agreement”) with an unaffiliated bank. The Agreement consisted of a $25.0 million revolving note, maturing on October 30, 2009, and a $1.0 million note that maturing on June 1, 2015. At September 30, 2009, there was no outstanding balance on the $25.0 million revolving note. Effective August 31, 2009, interest under the Agreement was calculated at a floating rate equal to the greater of: (1) 450 basis points or (2) at the Company’s option, either (a) LIBOR plus 350 basis points or (b) the prime rate plus 50 basis points. Prime rate means the highest of (a) the unaffiliated bank’s prime rate, (b) the federal funds rate plus 50 basis points and (c) the LIBOR rate that would be applicable for an interest period of one month plus 1.0%. Commencing August 2009, a commitment fee was payable quarterly under the Agreement of 0.50% of the actual daily amount by which the lenders’ commitment under the $25.0 million revolving note exceeded the amount outstanding under such facility. The Agreement was secured by the

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stock of some of the banks and contained several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. The Agreement was 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.
As more fully described in Note 18 — Subsequent Events, on October 30, 2009, the Company entered into an Amended and Restated Credit Agreement, which altered the terms of the Agreement, and which provides for a $1.0 million term loan and a $25 million revolving credit facility, which mature on October 29, 2010 and June 1, 2015, respectively.
Prior to September 1, 2009, the Company had a $101.0 million loan agreement with an unaffiliated bank which consisted of a $100.0 million revolving note, with a maturity date of August 31, 2009, and a $1.0 million note maturing on June 1, 2015. Interest was calculated, at the Company’s option, at a floating rate equal to either: (1) LIBOR plus 200 basis points or (2) the greater of the lender’s prime rate or the Federal Funds Rate plus 50 basis points. The Company had no outstanding balance under the revolving note during the nine months ended September 30, 2009.
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.
At September 30, 2009, securities sold under repurchase agreements represent $73.4 million of customer balances in sweep accounts in connection with master repurchase agreements at the banks and $176.9 million of short-term borrowings from brokers.
The subordinated notes represent three notes, issued in October 2002, April 2003 and October 2005 (funded in May 2006). The balances of the notes as of September 30, 2009 were $20.0 million, $20.0 million and $25.0 million, respectively. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year, with final maturities in the tenth year. The Company may redeem the subordinated notes at any time prior to maturity. Interest on each note is calculated at a rate equal to LIBOR plus 130 basis points.
(12) Junior Subordinated Debentures
As of September 30, 2009, 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.

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The following table provides a summary of the Company’s junior subordinated debentures as of September 30, 2009. The junior subordinated debentures represent the par value of the obligations owed to the Trusts and basis adjustments for unamortized fair value adjustments recognized at the respective acquisition dates for the Northview, Town and First Northwest obligations.
                                                         
            Junior                                     Earliest  
    Trust Preferred     Subordinated     Rate     Rate at     Issue     Maturity     Redemption  
(Dollars in thousands)   Securities     Debentures     Structure     9/30/09     Date     Date     Date  
Wintrust Capital Trust III
  $ 25,000     $ 25,774       L+3.25       3.76 %     04/2003       04/2033       04/2008  
Wintrust Statutory Trust IV
    20,000       20,619       L+2.80       3.08 %     12/2003       12/2033       12/2008  
Wintrust Statutory Trust V
    40,000       41,238       L+2.60       2.88 %     05/2004       05/2034       06/2009  
Wintrust Capital Trust VII
    50,000       51,550       L+1.95       2.25 %     12/2004       03/2035       03/2010  
Wintrust Capital Trust VIII
    40,000       41,238       L+1.45       1.73 %     08/2005       09/2035       09/2010  
Wintrust Capital Trust IX
    50,000       51,547     Fixed     6.84 %     09/2006       09/2036       09/2011  
Northview Capital Trust I
    6,000       6,186       L+3.00       3.48 %     08/2003       11/2033       08/2008  
Town Bankshares Capital Trust I
    6,000       6,186       L+3.00       3.48 %     08/2003       11/2033       08/2008  
First Northwest Capital Trust I
    5,000       5,155       L+3.00       3.28 %     05/2004       05/2034       05/2009  
 
                                                   
Total
          $ 249,493               3.52 %                        
 
                                                   
The junior subordinated debentures totaled $249.5 million at September 30, 2009, December 31, 2008 and September 30, 2008.
The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. The interest rate on the Wintrust Capital Trust IX junior subordinated debentures, currently fixed at 6.84%, changes to a variable rate equal to three-month LIBOR plus 1.63% effective September 15, 2011. At September 30, 2009, the weighted average contractual interest rate on the junior subordinated debentures was 3.52%. The Company entered into $175 million of interest rate swaps to hedge the variable cash flows on certain junior subordinated debentures. The hedge-adjusted rate on the junior subordinated debentures on September 30, 2009, was 7.11%. Distributions on all issues are payable on a quarterly basis.
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.

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(13) Segment Information
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 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. Inter-segment revenue and transfers are generally accounted for at current market prices. The parent and inter-segment eliminations reflect parent company information and inter-segment eliminations. Net revenue is a summation of net interest income and non-interest income. In the first quarter of 2009, the Company combined the premium finance and Tricom segments into the specialty finance segment. Prior period information has been restated to reflect this change.
The net interest income, net revenue and segment profit of the community banking segment includes income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations, thereby causing inter-segment eliminations. See Note 3 — Business Combinations, for more information on the life insurance premium finance loan acquisition in the third quarter of 2009. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates 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 following tables present a summary of certain operating information for each reportable segment for the three and nine months ended for the periods shown:
                                 
    Three Months Ended              
    September 30,     $ Change in     % Change in  
(Dollars in thousands)   2009     2008     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 84,462     $ 59,001     $ 25,461       43 %
Specialty finance
    33,731       17,019       16,712       98  
Wealth management
    7,769       4,481       3,288       73  
Parent and inter-segment eliminations
    (38,299 )     (19,821 )     (18,478 )     93  
 
                       
Total net interest income
  $ 87,663     $ 60,680     $ 26,983       44 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 18,931     $ 14,325     $ 4,606       32 %
Specialty finance
    114,292       1,258       113,034       N/M  
Wealth management
    10,418       8,781       1,637       19  
Parent and inter-segment eliminations
    7,039       (2,449 )     9,488       N/M  
 
                       
Total non-interest income
  $ 150,680     $ 21,915     $ 128,765       N/M %
 
                       
 
                               
Net Revenue (loss):
                               
Community banking
  $ 103,393     $ 73,326     $ 30,067       41 %
Specialty finance
    148,023       18,277       129,746       N/M  
Wealth management
    18,187       13,262       4,925       37  
Parent and inter-segment eliminations
    (31,260 )     (22,270 )     (8,990 )     40  
 
                       
Total net revenue
  $ 238,343     $ 82,595     $ 155,748       189 %
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ (35,372 )   $ 1,364     $ (36,736 )     N/M %
Specialty finance
    120,428       7,881       112,547       N/M  
Wealth management
    4,357       2,408       1,949       81  
Parent and inter-segment eliminations
    (57,418 )     (14,101 )     (43,317 )     N/M  
 
                       
Total segment profit (loss)
  $ 31,995     $ (2,448 )   $ 34,443       N/M %
 
                       
 
                               
Segment assets:
                               
Community banking
  $ 11,871,595     $ 9,782,483     $ 2,089,112       21 %
Specialty finance
    2,069,415       1,321,968       747,447       57  
Wealth management
    60,990       56,614       4,376       8  
Parent and inter-segment eliminations
    (1,865,979 )     (1,296,145 )     (569,834 )     44  
 
                       
Total segment assets
  $ 12,136,021     $ 9,864,920     $ 2,271,101       23 %
 
                       

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    Nine Months Ended              
    September 30,     $ Change in     % Change in  
(Dollars in thousands)   2009     2008     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 215,877     $ 177,649     $ 38,228       22 %
Specialty finance
    71,950       51,698       20,252       39  
Wealth management
    21,271       13,771       7,500       54  
Parent and inter-segment eliminations
    (84,156 )     (61,296 )     (22,860 )     37  
 
                       
Total net interest income
  $ 224,942     $ 181,822     $ 43,120       24 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 70,614     $ 55,442     $ 15,172       27 %
Specialty finance
    115,746       4,434       111,312       N/M  
Wealth management
    27,975       28,543       (568 )     (2 )
Parent and inter-segment eliminations
    18,224       (8,940 )     27,164       N/M  
 
                       
Total non-interest income
  $ 232,559     $ 79,479     $ 153,080       193 %
 
                       
 
                               
Net Revenue (loss):
                               
Community banking
  $ 286,491     $ 233,091     $ 53,400       23 %
Specialty finance
    187,696       56,132       131,564       N/M  
Wealth management
    49,246       42,314       6,932       16  
Parent and inter-segment eliminations
    (65,932 )     (70,236 )     4,304       6  
 
                       
Total net revenue
  $ 457,501     $ 261,301     $ 196,200       75 %
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ (24,865 )   $ 30,869     $ (55,734 )     (181 )%
Specialty finance
    136,713       24,502       112,211       N/M  
Wealth management
    11,207       8,053       3,154       39  
Parent and inter-segment eliminations
    (78,153 )     (44,891 )     (33,262 )     74  
 
                       
Total segment profit
  $ 44,902     $ 18,533     $ 26,369       142 %
 
                       
 
N/M =   Not Meaningful
(14) Derivative Financial Instruments
Management uses derivative financial instruments to manage the Company’s exposure to interest rate risk. The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate swaps to manage the interest rate risk of certain variable rate liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market; (3) forward commitments for the future delivery of such 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 their respective 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 all 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 periodically 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. Changes in fair values of derivative financial instruments not qualifying as hedges pursuant to ASC 815 are reported in non-interest income. Interest rate derivative contracts are valued by a third party and are periodically validated by comparison with valuations provided by

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the respective counterparties. Fair values of mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans) are estimated based on changes in mortgage interest rates from the date of the loan commitment.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Condition as of September 30, 2009 and December 31, 2008 (dollars in thousands):
                                                 
    Derivative Assets   Derivative Liabilities
            Fair Value           Fair Value
         
    Balance   September   December   Balance   September   December
    Sheet   30,   31,   Sheet   30,   31,
  Location   2009   2008   Location   2009   2008
Derivatives designated as hedging instruments under ASC 815:
                                               
 
                                               
Interest rate swaps designated as Cash Flow Hedges
  Other assets               Other liabilities   $ 16,252     $ 19,314  
                             
 
                                               
Derivatives not designated as hedging instruments underASC 815:
                                               
 
                                               
Interest rate derivatives
  Other assets   $ 8,914     $ 9,115     Other liabilities   $ 9,262     $ 9,294  
Interest rate lock commitments
  Other assets   $ 2,473     $ 56     Other liabilities   $ 29     $ 386  
Forward commitments to sell mortgage loans
  Other assets   $ 42     $ 401     Other liabilities   $ 4,255     $ 191  
                             
 
                                               
Total derivatives not designated as hedging instruments under ASC 815
          $ 11,429     $ 9,572             $ 13,546     $ 9,871  
                             
 
                                               
Total derivatives
          $ 11,429     $ 9,572             $ 29,798     $ 29,185  
                         
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2009, the Company had five interest rate swaps with an aggregate notional amount of $175.0 million that were designated as cash flow hedges of interest rate risk.

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The table below provides details on each of these five interest rate swaps as of September 30, 2009 (dollars in thousands):
                                         
September 30, 2009
    Notional   Fair Value   Receive Rate   Pay Rate   Type of Hedging
Maturity Date   Amount   Gain (Loss)   (LIBOR)   (Fixed)   Relationship
 
Pay Fixed, Receive Variable:
                                       
September 2011
  $ 20,000     $ (1,588 )     0.28 %     5.25 %   Cash Flow
September 2011
    40,000       (3,173 )     0.28 %     5.25 %   Cash Flow
October 2011
    25,000       (1,063 )     0.51 %     3.39 %   Cash Flow
September 2013
    50,000       (5,785 )     0.30 %     5.30 %   Cash Flow
September 2013
    40,000       (4,643 )     0.28 %     5.30 %   Cash Flow
                             
Total
  $ 175,000     $ (16,252 )                        
                               
During 2009, these interest rate swaps were used to hedge the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures. The effective portion of changes in the fair value of these cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate junior subordinated debentures. The changes in fair value (net of tax) are separately disclosed in the statement of changes in shareholders’ equity as a component of comprehensive income. The ineffective portion of the change in fair value of these derivatives is recognized directly in earnings; however, no hedge ineffectiveness was recognized during the three and nine months ended September 30, 2009 or September 30, 2008. The Company uses the hypothetical derivative method to assess and measure effectiveness.
In September 2008, the Company terminated an interest rate swap with a notional amount of $25.0 million (maturing in October 2011) that was designated in a cash flow hedge and entered into a new interest rate swap with another counterparty to effectively replace the terminated swap. The interest rate swap was terminated by the Company in accordance with the default provisions in the swap agreement. The unrealized loss on the interest rate swap at the date of termination is being amortized out of other comprehensive income to interest expense over the remaining term of the terminated swap. At September 30, 2009, accumulated other comprehensive income (loss) includes $898,000 of unrealized loss ($552,000 net of tax) related to this terminated interest rate swap.
A rollforward of the amounts in accumulated other comprehensive income related to interest rate swaps designated as cash flow hedges follows (dollars in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September     September     September     September  
    30, 2009     30, 2008     30, 2009     30, 2008  
           
Unrealized gain (loss) at beginning of period
  $ (15,982 )   $ (8,158 )   $ (20,549 )   $ (9,067 )
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures
    2,090       1,007       5,492       2,383  
Amount of gain (loss) recognized in other comprehensive income
    (3,258 )     (1,820 )     (2,093 )     (2,287 )
             
Unrealized gain (loss) at end of period
  $ (17,150 )   $ (8,971 )   $ (17,150 )   $ (8,971 )
             
As of September 30, 2009, the Company estimates that during the next twelve months, $8.3 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.

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Interest Rate Derivatives — The Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, doing so allows the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At September 30, 2009, the Company had 90 derivative transactions (45 with customers and 45 with third parties) with an aggregate notional amount of approximately $372.8 million ($367.8 million of interest rate swaps and $5.0 million of interest rate options) related to this program. These interest rate derivatives had maturity dates ranging from August 2010 to March 2019.
Mortgage Banking Derivatives — These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At September 30, 2009 the Company had interest rate lock commitments with an aggregate notional amount of $381.6 million and forward commitments to sell mortgage loans with an aggregate notional amount of $569.1 million. The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.
Other Derivatives — Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the Banks’ investment portfolios (covered call options). These option transactions are designed primarily to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of September 30, 2009, December 31, 2008 or September 30, 2008.
Amounts included in the consolidated statement of income related to derivative instruments not designated in hedge relationships were as follows (dollars in thousands):
                                     
        Three Months Ended   Nine Months Ended
        September   September   September   September
Derivative   Location in income statement   30, 2009   30, 2008   30, 2009   30, 2008
Interest rate swaps and floors
  Other income   $ (415 )   $ 96     $ (169 )   $ 117  
Mortgage banking derivatives
  Mortgage banking revenue     (3,836 )     (352 )     (1,649 )     126  
Covered call options
  Other income           2,723       1,998       21,586  
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,

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appropriate types and amounts of collateral are obtained to minimize credit exposure.
The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counter party to terminate the derivative positions if the Company fails to maintain its status as a well / adequate capitalized institution, which would require the Company to settle its obligations under the agreements. As of September 30, 2009, the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $26.4 million. As of September 30, 2009 the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral consisting of $6.7 million of cash and $6.8 million of securities. If the Company had breached any of these provisions at September 30, 2009 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.
(15) Fair Values of Assets and Liabilities
Effective January 1, 2008, upon adoption of SFAS No. 157, “Fair Value Measurement”, which is now part of ASC 820, the Company began to group financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:
    Level 1 unadjusted quoted prices in active markets for identical assets or liabilities.
 
    Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
    Level 3 — significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. Following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.
Available-for-sale and trading account securities — Fair values for available-for-sale and trading account securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing or indicators from market makers.
Mortgage loans held-for-sale — Mortgage loans originated by Wintrust Mortgage Company on or after January 1, 2008 are carried at fair value. The fair value of mortgage loans held-for-sale is determined by reference to investor price sheets for loan products with similar characteristics.
Mortgage servicing rights — Fair value for mortgage servicing rights is determined utilizing a third party valuation model which stratifies the servicing rights into pools based on product type and interest rate. The fair value of each servicing rights pool is calculated based on the present value of estimated future cash flows using a discount rate commensurate with the risk associated with that pool, given current market conditions. Estimates of fair value include assumptions about prepayment speeds, interest rates and other factors which are subject to change over time.
Derivative instruments — The Company’s derivative instruments include interest rate swaps, commitments to fund

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mortgages for sale into the secondary market (interest rate locks) and forward commitments to end investors for the sale of mortgage loans. Interest rate swaps are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. The fair value for mortgage derivatives is based on changes in mortgage rates from the date of the commitments.
Nonqualified deferred compensation assets — The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service.
Retained interests from the sale or securitization of premium finance receivables — The fair value of retained interests, which include overcollateralization of loans, cash reserves, servicing rights and interest only strips, from the sale or securitization of premium finance receivables are based on certain observable inputs such as interest rates and credits spreads, as well as unobservable inputs such as prepayments, late payments and estimated net charge-offs.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented.
                                 
    September 30, 2009  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 112,896     $     $ 112,896     $  
U.S. Government agencies
    655,024             655,024        
Municipal
    66,900             49,257       17,643  
Corporate notes and other
    100,506             48,120       52,386  
Mortgage-backed
    390,670             226,931       163,739  
Equity securities (1)
    28,870             3,181       25,689  
Trading account securities
    29,204       208       1,432       27,564  
Mortgage loans held-for-sale
    187,505             187,505        
Mortgage servicing rights
    6,030                   6,030  
Nonqualified deferred compensation assets
    2,660             2,660        
Derivative assets
    11,429             11,429        
Retained interests from the sale/securitization of premium finance receivables
    43,958                   43,958  
 
                       
Total
  $ 1,635,652     $ 208     $ 1,298,435     $ 337,009  
 
                       
 
                               
Derivative liabilities
  $ 29,799     $     $ 29,798     $  
 
                       
                                 
    September 30, 2008  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities (1)
  $ 1,391,526     $     $ 1,342,814     $ 48,712  
Trading account securities
    2,243       92       1,976       175  
Mortgage loans held-for-sale
    63,570             63,570        
Mortgage servicing rights
    4,854                   4,854  
Nonqualified deferred compensation assets
    2,996             2,996        
Derivative assets
    2,532             2,532        
Retained interests from the sale of premium finance receivables
    2,987                   2,987  
 
                       
Total
  $ 1,470,708     $ 92     $ 1,413,888     $ 56,728  
 
                       
 
                               
Derivative liabilities
  $ 9,919     $     $ 9,919     $  
 
                       
 
(1)   Excludes Federal Reserve and FHLB stock and the common securities issued by trusts formed by the Company in conjunction with Trust Preferred Securities offerings.

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The aggregate remaining contractual principal balance outstanding as of September 30, 2009 and 2008 for mortgage loans held-for-sale measured at fair value under ASC 825 was $182.0 million and $61.9 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $187.5 million and $63.6 million, respectively, as shown in the above tables. There were no nonaccrual loans or loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio measured at fair value as of September 30, 2009 and 2008.
The changes in Level 3 available-for-sale securities measured at fair value on a recurring basis during the three months and nine months ended September 30, 2009 are summarized as follows:
                                         
                    Corporate              
    U.S. Govt.             notes and     Mortgage-     Equity  
(Dollars in thousands)   agencies     Municipal     other debt     backed     securities  
Balance at June 30, 2009
  $     $ 8,355     $ 4,378     $ 167,376     $ 25,681  
Total net gains (losses) included in:
                                       
Net income (1)
          (112 )     4              
Other comprehensive income
                      5,045        
Purchases, issuances and settlements, net
          9,400       48,004       (8,682 )     8  
Net transfers into/(out) of Level 3
                             
 
                             
Balance at September 30, 2009
  $     $ 17,643     $ 52,386     $ 163,739     $ 25,689  
 
                             
 
                                       
Balance at January 1, 2009
  $ 110     $ 9,373     $ 1,395     $ 4,010     $ 26,104  
Total net gains included in:
                                       
Net income (1)
          (112     8              
Other comprehensive income
    (1 )                 3,598        
Purchases, issuances and settlements, net
          10,531       50,983       156,131       43  
Net transfers into/(out) of Level 3
    (109 )     (2,149 )                 (458 )
 
                             
Balance at September 30, 2009
  $     $ 17,643     $ 52,386     $ 163,739     $ 25,689  
 
                             
 
(1)   Income for Municipal and Corporate notes and other is recognized as a component of interest income on securities.
The changes in Level 3 for assets and liabilities not including in the preceding table measured at fair value on a recurring basis during the three months and nine months ended September 30, 2009 are summarized as follows:
                         
    Trading     Mortgage        
    account     servicing     Retained  
(Dollars in thousands)   securities     rights     Interests  
Balance at June 30, 2009
  $ 21,422     $ 6,278     $  
Total net gains (losses) included in:
                       
Net income (1)
    5,992       (248 )     59  
Other comprehensive income
                 
Purchases, issuances and settlements, net
    150             43,899  
Net transfers into/(out) of Level 3
                 
 
                 
Balance at September 30, 2009
  $ 27,564     $ 6,030     $ 43,958  
 
                 
 
                       
Balance at January 1, 2009
  $ 3,075     $ 3,990     $ 1,229  
Total net gains included in:
                       
Net income (1)
    22,293       2,040       59  
Other comprehensive income
                 
Purchases, issuances and settlements, net
    2,196             42,670  
Net transfers into/(out) of Level 3
                 
 
                 
Balance at September 30, 2009
  $ 27,564     $ 6,030     $ 43,958  
 
                 
 
(1)   Income for trading account securities is recognized as a component of trading income in non-interest income and changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income. Income for retained interests is recorded as a component of gain on sales of premium finance receivables or miscellaneous income in non-interest income.

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The changes in Level 3 for assets and liabilities measured at fair value on a recurring basis during the three months and nine months ended September 30, 2008 are summarized as follows:
                                 
    Available-     Trading     Mortgage        
    for-sale     account     servicing     Retained  
(Dollars in thousands)   securities     securities     rights     Interests  
Balance at June 30, 2008
  $ 149,188     $ 125     $ 4,896     $ 5,264  
Total net gains (losses) included in:
                               
Net income (1)
                (42 )     875  
Other comprehensive income
                       
Purchases, issuances and settlements, net
    9,593       50             (3,152 )
Net transfers into/(out) of Level 3
    (110,069 )                  
 
                       
Balance at September 30, 2008
  $ 48,712     $ 175     $ 4,854     $ 2,987  
 
                       
 
                               
Balance at January 1, 2008
  $ 95,514     $ 25     $ 4,730     $ 4,480  
Total net gains included in:
                               
Net income (1)
                124       5,728  
Other comprehensive income
                       
Purchases, issuances and settlements, net
    220,307       150             (7,221 )
Net transfers into/(out) of Level 3
    (267,109 )                  
 
                       
Balance at September 30, 2008
  $ 48,712     $ 175     $ 4,854     $ 2,987  
 
                       
 
(1)   Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income while gains for retained interests are recorded as a component of gain on sales of premium finance receivables in non-interest income.
Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at September 30, 2009.
                                                 
                                    Three Months     Nine Months  
                                    Ended     Ended  
                                    September 30,     September 30,  
                                    2009     2009  
                                    Fair Value     Fair Value  
    September 30, 2009     Losses     Losses  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3     Recognized     Recognized  
Impaired loans
  $ 148,008     $     $     $ 148,008     $ 67,971     $ 77,982  
Other real estate owned
    40,639                   40,639       7,527       7,879  
 
                                   
Total
  $ 188,647     $     $     $ 188,647     $ 75,498     $ 85,861  
 
                                   
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. 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. As stated in ASC 820 , 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.

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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.
In accordance with ASC 825, on a quarterly basis the Company is now required to report the fair value of all financial instruments on the consolidated statement of condition, including those financial instruments carried at cost. The fair value estimates, methods and assumptions set forth below for the Company’s financial instruments are made solely to comply with the requirements of ASC 825 and should be read in conjunction with the financial statements and notes included in this quarterly report. The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2009 and December 31, 2008 were as follows:
                                 
    At September 30, 2009   At December 31, 2008
    Carrying   Fair   Carrying   Fair
(Dollars in thousands)   Value   Value   Value   Value
             
Financial Assets:
                               
Cash and cash equivalents
  $ 151,761       151,761       445,904       445,904  
Interest bearing deposits with banks
    1,168,362       1,168,362       123,009       123,009  
Available-for-sale securities
    1,434,248       1,434,248       784,673       784,673  
Trading account securities
    29,204       29,204       4,399       4,399  
Brokerage customer receivables
    19,441       19,441       17,901       17,901  
Mortgage loans held-for-sale, at fair value
    187,505       187,505       51,029       51,029  
Loans held-for-sale, at lower of cost or market
    5,750       5,808       10,087       10,207  
Loans, net of unearned income
    8,275,257       8,503,841       7,621,069       7,988,028  
Mortgage servicing rights
    6,030       6,030       3,990       3,990  
Nonqualified deferred compensation assets
    2,660       2,660       2,279       2,279  
Retained interests from the sale/securitization of premium finance receivables
    43,958       43,958       1,229       1,229  
Derivative assets
    11,429       11,429       9,572       9,572  
Accrued interest receivable and other
    134,807       134,807       114,737       114,737  
           
Total financial assets
  $ 11,470,412       11,699,054       9,189,878       9,556,957  
             
 
                               
Financial Liabilities:
                               
Non-maturity deposits
  $ 5,004,564       5,004,564       3,976,003       3,976,003  
Deposits with stated maturities
    4,842,599       4,897,407       4,400,747       4,432,388  
Notes payable
    1,000       1,000       1,000       1,000  
Federal Home Loan Bank advances
    433,983       450,038       435,981       484,528  
Subordinated notes
    65,000       65,000       70,000       70,000  
Other borrowings
    252,071       252,071       336,764       336,764  
Junior subordinated debentures
    249,493       248,448       249,515       205,252  
Derivative liabilities
    29,798       29,798       29,185       29,185  
Accrued interest payable
    20,246       20,246       18,533       18,533  
           
Total financial liabilities
  $ 10,898,754       10,968,572       9,517,728       9,553,653  
           
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.

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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 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.
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.

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(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 stock, as well as the conversion of outstanding options of acquired companies to Wintrust options. The 2007 Plan initially provided for the issuance of up to 500,000 shares of common stock, and in May 2009 the Company’s shareholders approved an additional 325,000 shares of common stock that may be offered under the 2007 Plan. All grants made in 2007, 2008 and 2009 were made pursuant to the 2007 Plan. As of September 30, 2009, 409,470 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 typically provide the holder the option 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 shares entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted shares generally vest over periods of one to five years from the date of grant. Holders of the restricted shares 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.
Compensation cost charged to income for stock options was $830,000 and $1.2 million in the third quarters of 2009 and 2008, respectively, and $2.6 million and $3.6 million for the year-to-date periods of 2009 and 2008, respectively. Compensation cost charged to income for restricted shares was $872,000 in the third quarter of 2009 and $1.5 million in the third quarter of 2008, and $2.6 million and $4.0 million for the year-to-date periods of 2009 and 2008, respectively.
Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest. As a result, recognized compensation expense 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.
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 shares 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. The following table presents the weighted average assumptions used to determine the fair value of options granted in the nine months ending September 30, 2009 and 2008:
                 
    For the Nine Months Ended
    September 30, 2009   September 30, 2008
Expected dividend yield
    2.0 %     1.1 %
Expected volatility
    45.7 %     32.4 %
Risk-free rate
    2.4 %     3.3 %
Expected option life (in years)
    5.9       6.7  

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A summary of stock option activity under the Plans for the nine months ended September 30, 2009 and September 30, 2008 is presented below:
                                 
            Weighted   Remaining   Intrinsic
    Common   Average   Contractual   Value (2)
Stock Options   Shares   Strike Price   Term (1)   ($000)
 
Outstanding at January 1, 2009
    2,388,174     $ 35.61                  
Granted
    43,500       17.85                  
Exercised
    (174,863 )     11.72                  
Forfeited or canceled
    (72,879 )     34.72                  
 
Outstanding at September 30, 2009
    2,183,932       37.20       4.1     $ 7,491  
 
Exercisable at September 30, 2009
    1,833,581       36.44       3.8     $ 7,029  
 
 
Outstanding at January 1, 2008
    2,505,181     $ 34.76                  
Granted
    57,450       31.83                  
Exercised
    (129,435 )     15.34                  
Forfeited or canceled
    (27,595 )     48.68                  
 
Outstanding at September 30, 2008
    2,405,601       35.57       4.7     $ 11,493  
 
Exercisable at September 30, 2008
    1,832,550       32.08       4.2     $ 11,493  
 
 
(1)   Represents the weighted average contractual life remaining in years.
 
(2)   Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s average of the high and low stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. This amount will change based on the fair market value of the Company’s stock.
The weighted average grant date fair value per share of options granted during the nine months ended September 30, 2009 and 2008 was $6.92 and $10.98, respectively. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2009 and 2008, was $1.9 million and $2.2 million, respectively.
A summary of restricted share award activity under the Plans for the nine months ended September 30, 2009 and September 30, 2008, is presented below:
                                 
    Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008
            Weighted           Weighted
            Average           Average
    Common   Grant-Date   Common   Grant-Date
Restricted Shares   Shares   Fair Value   Shares   Fair Value
 
Outstanding at January 1
    262,997     $ 44.09       308,627     $ 48.16  
Granted
    18,550       20.01       60,556       29.78  
Vested (shares issued)
    (73,798 )     40.64       (83,761 )     49.18  
Forfeited
    (1,625 )     30.56       (4,984 )     40.25  
 
Outstanding at September 30
    206,124       43.37       280,438       44.04  
 
In the third quarter of 2009, the Company began paying a portion of the base pay of certain executives in the Company’s stock. Shares issued under this arrangement are granted under the Plan. As of September 30, 2009, 1,588 shares were granted under this arrangement at an average stock price of $27.55 per share. The number of shares granted as of each payroll date is based on the average of the high and low price of Wintrust’s common stock on such date.
As of September 30, 2009, there was $6.4 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.

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(17) Shareholders’ Equity and Earnings Per Share
Series A Preferred Stock
In August 2008, the Company issued and sold 50,000 shares of non-cumulative perpetual convertible preferred stock, Series A, liquidation preference $1,000 per share (the “Series A Preferred Stock”) for $50 million in a private transaction. If declared, dividends on the Series A Preferred Stock are payable quarterly in arrears at a rate of 8.00% per annum. The Series A Preferred Stock is convertible into common stock at the option of the holder at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. On and after August 26, 2010, the Series A Preferred Stock will be subject to mandatory conversion into common stock in connection with a fundamental transaction, or on and after August 26, 2013 if the closing price of the Company’s common stock exceeds a certain amount.
Series B Preferred Stock
Pursuant to the U.S. Department of the Treasury’s (the “U.S. Treasury”) Capital Purchase Program, on December 19, 2008, the Company issued to the U.S. Treasury, in exchange for aggregate consideration of $250 million, (i) 250,000 shares of the Company’s fixed rate cumulative perpetual preferred Stock, Series B, liquidation preference $1,000 per share (the “Series B Preferred Stock”), and (ii) a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and with a term of 10 years. The Series B Preferred Stock will pay a cumulative dividend at a coupon rate of 5% for the first five years and 9% thereafter. The Series B Preferred Stock can, with the approval of the Federal Reserve, be redeemed.
The relative fair values of the preferred stock and the warrant issued to the U.S. Treasury in conjunction with the Company’s participation in the Capital Purchase Program were determined through an analysis, as of the valuation date of December 19, 2008, of the fair value of the warrants and the fair value of the preferred stock, and an allocation of the relative fair value of each to the $250 million of total proceeds.
The fair value of the warrant was determined using a binomial lattice valuation model. The assumptions used in arriving at the fair value of the warrant using that valuation method, derived as of the valuation date, were as follows:
         
Company stock price as of the valuation date
  $ 20.06  
Contractual strike price of warrant
  $ 22.82  
Expected term based on contractual term
  10 years  
Expected volatility based on 10-year historical volatility of the Company’s stock
    37 %
Expected annual dividend yield
    1 %
Risk-free rate based on 10-year U.S. Treasury strip rate
    2.72 %
Using that model, each of the 1,643,295 shares underlying the warrant was valued at $8.33 and, correspondingly, the aggregate fair value of the warrant was $13.7 million.
The fair value of the preferred stock was determined using a discounted cash flow model which discounted the contractual principal balance of $250 million and the contractual dividend payment of 5% for the first five years at a 13% discount rate. The discount rate was derived from the average and median yields on existing fixed rate preferred stock issuances of eleven different commercial banks in the central United States, which average and median results approximated 13% on the date of valuation. Using this methodology, the fair value of the preferred stock was estimated to be $181.8 million.
In relative terms, a summary of the above valuation is as follows:
                 
            Relative  
    Amount   Fair Value  
Fair value of preferred stock
  $181.8 million     93.0 %
Fair value of warrants
  $  13.7 million     7.0 %
 
         
Total fair value
  $195.5 million     100.0 %

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Applying the relative value percentages of 93% for the preferred stock and 7% for the warrants to the total proceeds of $250 million, the resulting valuation of the preferred stock and warrants is as follows:
         
Proceeds allocated to Preferred Stock ($250 million multiplied by 93%)
  $232.5 million
Proceeds allocated to Warrants ($250 million multiplied by 7%)
  $17.5 million
For as long as any shares of Series B Preferred Stock are outstanding, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its common stock or other securities, including trust preferred securities, will be subject to restrictions. The U.S. Treasury’s consent is required for any increase in common dividends per share from the amount of the Company’s semiannual cash dividend of $0.18 per share, until the third anniversary of the purchase agreement with the U.S. Treasury unless prior to such third anniversary the Series B Preferred Stock is redeemed in whole or the U.S. Treasury has transferred all of the Series B Preferred Stock to third parties.
Earnings per Share
The following table shows the computation of basic and diluted earnings per share for the periods indicated:
                                         
            For the Three Months     For the Nine Months  
            Ended September 30,     Ended September 30,  
(In thousands, except per share data)           2009     2008     2009     2008  
Net income (loss)
          $ 31,995     $ (2,448 )   $ 44,902     $ 18,533  
Less: Preferred stock dividends and discount accretion
            4,668       544       14,668       544  
 
                               
Net income applicable to common shares — Basic
    (A )     27,327       (2,992 )     30,234       17,989  
Add: Dividends on convertible preferred stock
            1,000                    
 
                               
Net income applicable to common shares — Diluted
    (B )     28,327       (2,992 )     30,234       17,989  
 
                               
 
                                       
Average common shares outstanding
    (C )     24,052       23,644       23,958       23,590  
Effect of dilutive potential common shares
            2,493             323       525  
 
                               
Weighted average common shares and effect of dilutive potential common shares
    (D )     26,545       23,644       24,281       24,115  
 
                               
 
                                       
Net income per common share:
                                       
Basic
    (A/C )   $ 1.14     $ (0.13 )   $ 1.26     $ 0.76  
 
                               
Diluted
    (B/D )   $ 1.07     $ (0.13 )   $ 1.25     $ 0.75  
 
                               
Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants (including the warrants issued to the U.S. Treasury), the Company’s convertible preferred stock and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share, net income applicable to common shares is adjusted by the associated preferred dividends.

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(18) Subsequent Events
As discussed in Note 3 — Business Combinations, on July 28, 2009, FIFC purchased of a majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company, subsidiaries of American International Group, Inc. At that time, an aggregate of $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to satisfying certain conditions. On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets which were available for purchase and FIFC purchased $83.4 million of the $84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million. The Company anticipates recording an additional $14.5 million bargain purchase gain relating to this additional purchase, all of which will be immediately recognizable in the fourth quarter. The difference between the fair value of these loans acquired on October 2, 2009 and the outstanding principal balance of theses loans represents a discount of $8.4 million and is comprised of two components, an accretable component totaling $5.7 million and a non-accretable component totaling $2.7 million. The impact related to this transaction will be included in Wintrust’s consolidated financial results only since the effective date of acquisition.
On October 30, 2009, the Company established a $25 million revolving credit facility and a $1 million term facility, the terms of which are set forth in an Amended and Restated Credit Agreement dated as of October 30, 2009 (the “Credit Agreement”) among Wintrust, the lenders named therein, and an unaffiliated bank as administrative agent. The Credit Agreement replaces Wintrust’s prior credit agreement with an unaffiliated bank. All borrowings under the revolving credit facility must be repaid by October 29, 2010. All borrowings under the term facility must be repaid by June 1, 2015. As of the date hereof, Wintrust has no outstanding balance under the revolving credit facility and has $1 million outstanding under the term facility. Borrowings under the Credit Agreement are available for general corporate purposes and are secured by pledges of and first priority perfected security interests in the Company’s equity interest in certain of its bank subsidiaries.

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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of September 30, 2009, compared with December 31, 2008 and September 30, 2008, and the results of operations for the nine month periods ended September 30, 2009 and 2008, should be read in conjunction with the our unaudited consolidated financial statements and notes contained in this report. 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
Community Banking
As of September 30, 2009, our community banking franchise consisted of 15 community banks (the “banks”) with 78 locations. Through these banks, we provide banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the banks’ local service areas. These services include traditional deposit products such as demand, NOW, money market, savings and time deposit accounts, as well as a number of unique deposit products targeted to specific market segments. The banks also offer home equity, home mortgage, consumer, real estate and commercial loans, safe deposit facilities, ATMs, internet banking and other innovative and traditional services specially tailored to meet the needs of customers in their market areas.
Profitability of our community banking franchise is primarily driven by our net interest income and margin, our funding mix and related costs, the level of non-performing loans and other real estate owned, the amount of mortgage banking revenue and our history of establishing de novo banks.
Net interest income and margin. The primary source of the our revenue is net interest income. Net interest income is the difference between interest income and fees on earning assets, such as loans and securities, and interest expense on liabilities to fund those assets, including deposits and other borrowings. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings.
Funding mix and related costs. Our most significant source of funding is core deposits, which are comprised of non-interest-bearing deposits, non-brokered interest-bearing transaction accounts, savings deposits and domestic time deposits. Our branch network is our principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Our profitability has been bolstered in recent quarters as fixed term certificates of deposit have been renewing at lower rates given the historically low interest rate levels in place recently and particularly since the fourth quarter of 2008.
Level of non-performing loans and other real estate owned. The level of non-performing loans and other real estate owned can significantly impact our profitability as these loans do not accrue any income, can be subject to charge-offs and write-downs due to deteriorating market conditions and generally result in additional legal and collections expenses. Given the current economic conditions, these costs have been trending higher in recent quarters.

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Mortgage banking revenue. Our community banking franchise is also influenced by the level of fees generated by the origination of residential mortgages and the sale of such mortgages into the secondary market. This revenue is significantly impacted by the level of interest rates associated with home mortgages. Recently, such interest rates have been historically low and customer refinancings have been high, resulting in increased fee revenue. Additionally, in December 2008, we acquired certain assets and assumed certain liabilities of the mortgage banking business of Professional Mortgage Partners (“PMP”) for an initial cash purchase price of $1.4 million, plus potential contingent consideration of up to $1.5 million per year in each of the following three years dependent upon reaching certain earnings thresholds. As a result of the acquisition, we significantly increased the capacity of our mortgage-origination operations, primarily in the Chicago metropolitan market. The PMP transaction also changed the mix of our mortgage origination business in the Chicago market, resulting in a relatively greater portion of that business being retail, rather than wholesale, oriented. The primary risk of the PMP acquisition transaction relates to the integration of a significant number of locations and staff members into our existing mortgage operation during a period of increased mortgage refinancing activity. Costs in the mortgage business are variable as they primarily relate to commissions paid to originators.
Establishment of de novo operations. Our historical financial performance has been affected by costs associated with growing market share in deposits and loans, establishing and acquiring banks, opening new branch facilities and building an experienced management team. Our financial performance generally reflects the improved profitability of our banking subsidiaries as they mature, offset by the costs of establishing and acquiring banks and opening new branch facilities. From our experience, it generally takes over 13 months for new banks to achieve operational profitability depending on the number and timing of branch facilities added.
In determining the timing of the formation of de novo banks, the opening of additional branches of existing banks, and the acquisition of additional banks, we consider many factors, particularly our perceived ability to obtain an adequate return on our invested capital driven largely by the then existing cost of funds and lending margins, the general economic climate and the level of competition in a given market. We began to slow the rate of growth of new locations in 2007 due to tightening net interest margins on new business which, in the opinion of management, did not provide enough net interest spread to be able to garner a sufficient return on our invested capital. Since the second quarter of 2008, we have not established a new banking location either through a de novo opening or through an acquisition, due to the financial system crisis and recessionary economy and our decision to utilize our capital to support our existing franchise rather than deploy our capital for expansion through new locations which tend to operate at a loss in the early months of operation. Thus, while expansion activity during the past three years has been at a level below earlier periods in our history, we expect to resume de novo bank openings, formation of additional branches and acquisitions of additional banks when favorable market conditions return.
In addition to the factors considered above, before we engage in expansion through de novo branches or banks we must first make a determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions, expansion through de novo growth is a better long-term investment than acquiring banks because the cost to bring a de novo location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each opportunity to expand is unique from a cost and benefit perspective. Factors including the valuation of our stock, other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all influence the decision to expand via de novo growth or through acquisition.
Specialty Finance
Through our specialty finance segment, we offer financing of insurance premiums for businesses and individuals; accounts receivable financing, value-added, out-sourced administrative services; and other specialty finance businesses. We conduct our specialty finance businesses through indirect non-bank subsidiaries. Our wholly owned subsidiary, First Insurance Funding Corporation (“FIFC”) engages in the premium finance receivables business, our most significant specialized lending niche, including commercial insurance premium finance and life insurance premium finance.

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Financing of Commercial Insurance Premiums
FIFC originated approximately $900 million in commercial insurance premium finance receivables during the third quarter of 2009. FIFC makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by FIFC working through independent medium and large insurance agents and brokers located throughout the United States. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance.
This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending and because the borrowers are located nationwide, this segment may be more susceptible to third party fraud than relationship lending; however, management has established various control procedures to mitigate the risks associated with this lending. The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. Historically, FIFC originations that were not purchased by the banks were sold to unrelated third parties with servicing retained. However, during the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such premium finance receivables in a securitization transaction sponsored by FIFC.
The primary driver of profitability related to the financing of commercial insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit. The commercial insurance premium finance business is a competitive industry and yields on loans are influenced by the market rates offered by our competitors. We fund these loans either through the securitization facility described above or through our deposits, the cost of which is influenced by competitors in the retail banking markets in the Chicago and Milwaukee metropolitan areas.
Financing of Life Insurance Premiums
In 2007, FIFC began financing life insurance policy premiums generally for high net-worth individuals. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, FIFC may make a loan that has a partially unsecured position. In July 2009, FIFC expanded this niche lending business segment when it purchased a portfolio of domestic life insurance premium finance loans from certain affiliates of American International Group for an aggregate purchase price of $685.3 million. At closing, a portion of the portfolio, with an aggregate unpaid principal balance of approximately $321.1 million, and a corresponding portion of the purchase price of approximately $232.8 million were placed in escrow, pending the receipt of required third party consents.
As with the commercial premium finance business, the primary driver of profitability related to the financing of life insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit.
Profitability of financing both commercial and life insurance premiums is also meaningfully impacted by leveraging information technology systems, maintaining operational efficiency and increasing average loan size, each of which allows us to expand our loan volume without significant capital investment.
Wealth Management
We currently offer a full range of wealth management services through three separate subsidiaries, including trust and investment services, asset management and securities brokerage services, marketed primarily under the Wayne Hummer name.

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The primary influences on the profitability of the wealth management business can be associated with the level of commission received related to the trading performed by the brokerage customers for their accounts; and the amount of assets under management for which asset management and trust units receive a management fee for advisory, administrative and custodial services. As such, revenues are influenced by a rise or fall in the debt and equity markets and the resultant increase or decrease in the value of our client accounts on which are fees are based. The commissions received by the brokerage unit are not as directly influenced by the directionality of the debt and equity markets but rather the desire of our customers to engage in trading based on their particular situations and outlooks of the market or particular stocks and bonds. Profitability in the brokerage business is impacted by commissions which fluctuate over time.
Federal Government, Federal Reserve and FDIC Programs
Since October of 2008, the federal government, the Federal Reserve Bank of New York (the “New York Fed”) and the Federal Deposit Insurance Corporation (the “FDIC”) have made a number of programs available to banks and other financial institutions in an effort to ensure a well-functioning U.S. financial system. We participate in three of these programs: the Capital Purchase Program, administered by the U.S. Department of the Treasury (“Treasury”), the Term Asset-Backed Securities Loan Facility (“TALF”), created by the New York Fed, and the Temporary Liquidity Guarantee Program (“TLGP”), created by the FDIC.
Participation in Capital Purchase Program. In October 2008, the Treasury announced that it intended to use a portion of the initial funds allocated to it pursuant to the Troubled Asset Relief Program (“TARP”), created by the Emergency Economic Stabilization Act of 2008, to invest directly in financial institutions through the newly-created Capital Purchase Program (“CPP”). At that time, U.S. Treasury Secretary Henry Paulson stated that the program was “designed to attract broad participation by healthy institutions” which “have plenty of capital to get through this period, but are not positioned to lend as widely as is necessary to support our economy.”
Our management believed at the time of the CPP investment, as it does now, that Treasury’s CPP investment was not necessary for the Company’s short or long-term health. However, the CPP investment presented an opportunity for us. By providing us with a significant source of relatively inexpensive capital, the Treasury’s CPP investment allows us to accelerate our growth cycle and expand lending.
Consequently, we applied for CPP funds and our application was accepted by Treasury. As a result, on December 19, 2008, we entered into an agreement with the U.S. Department of the Treasury to participate in Treasury’s CPP, pursuant to which we issued and sold preferred stock and a warrant to Treasury in exchange for aggregate consideration of $250 million (the “CPP investment”). As a result of the CPP investment, our total risk-based capital ratio as of December 31, 2008 increased from 10.3% to 13.1%. To be considered “well capitalized,” we must maintain a total risk-based capital ratio in excess of 10%.
The terms of our agreement with Treasury impose significant restrictions upon us, including increased scrutiny by Treasury, banking regulators and Congress, additional corporate governance requirements, restrictions upon our ability to repurchase stock and pay dividends and, as a result of increasingly stringent regulations issued by Treasury following the closing of the CPP investment, significant restrictions upon executive compensation. Pursuant to the terms of the agreement between Treasury and us, Treasury is permitted to amend the agreement unilaterally in order to comply with any changes in applicable federal statutes.
The CPP investment provided the Company with additional capital resources which in turn permitted the expansion of the flow of credit to U.S. consumers and businesses beyond what we would have done without the CPP funding. The capital itself is not loaned to our borrowers but represents additional shareholders’ equity that has been leveraged by the Company to permit it to provide new loans to qualified borrowers and raise deposits to fund the additional lending without incurring excessive risk.

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Due to the combination of our prior decisions in appropriately managing our risks, the capital support provided from the August 2008 private issuance of $50 million of convertible preferred stock and the additional capital support from the CPP, we have been able to take advantage of opportunities when they have arisen and our banks continue to be active lenders within their communities. Without the additional funds from the CPP, our prudent management philosophy and strict underwriting standards likely would have required us to continue to restrain lending due to the need to preserve capital during these uncertain economic conditions. While many other banks saw 2009 as a year of retraction or stagnation as it relates to lending activities, the capital from the CPP positioned Wintrust to make 2009 a year in which we expanded our lending. Specifically, since the receipt of the CPP funds, we have funded in excess of $7.8 billion of loans, including funding of new loans, advances on prior commitments and renewals of maturing loans, consisting of over 146,000 individual credits. These loans are to a wide variety of businesses and we consider such loans to be essential to assisting growth in the economy. On a net basis, the CPP capital helped enable us to increase our total loans from $7.6 billion as of December 31, 2008 to $8.3 billion as of September 30, 2009 and to increase deposits to fund those loans from $8.4 billion as of December 31, 2008 to $9.8 billion as of September 30, 2009.
In connection with our participation in the CPP, we have committed to expand the flow of credit to U.S. consumers and businesses on competitive terms, and to work to modify the terms of residential mortgages as appropriate. The following tables set forth quarterly information regarding our efforts to comply with these commitments since we received the CPP investment on December 19, 2008:
                         
    Quarter ended        
    September 30,   Quarter ended   Quarter ended
(Dollars in thousands)   2009   June 30, 2009   March 31, 2009
Consumer Loans
                       
Number of new and renewed loans originated
    1,940       1,676       2,649  
Aggregate amount of loans originated
  $ 61,806     $ 92,833     $ 54,002  
Commercial and Commercial Real Estate Loans
                       
Number of new and renewed loans originated
    830       945       1,896  
Aggregate amount of loans originated
  $ 305,865     $ 414,179     $ 551,500  
Residential Real Estate Loans
                       
Number of new and renewed loans originated
    4,655       6,735       5,230  
Aggregate amount of loans originated
  $ 984,985     $ 1,552,442     $ 1,284,465  
Commercial premium Finance Loans
                       
Number of new and renewed loans originated
    40,995       40,663       38,173  
Aggregate amount of loans originated
  $ 910,923     $ 930,921     $ 892,127  
To date, Wintrust generally has not modified the terms of residential mortgages.
We have no present plans to repay the CPP investment, but believe that we have the ability to conduct an equity offering that would allow us to make such repayment. Accordingly, we intend to remain focused on investing the proceeds of the CPP investment, and will only seek to repay such investment when we believe doing so is in the best interests of our shareholders.
For additional information on the terms of the preferred stock and the warrant, see Note 17 of the Financial Statements presented under Item 1 of this report.
TALF-Eligible Issuance. In September 2009, our indirect subsidiary, FIFC Premium Funding I, LLC, sold $600 million in aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the “Notes”), which were issued in a securitization transaction sponsored by FIFC. FIFC Premium Funding I, LLC’s obligations under the Notes are secured by revolving loans made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies.

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At the time of issuance, the Notes were eligible collateral under TALF and certain investors therefore received non-recourse funding from the New York Fed in order to purchase the Notes. As a result, FIFC believes it received greater proceeds at lower interest rates from the securitization than it otherwise would have received in non-TALF-eligible transactions. As a result, if TALF is not renewed or is allowed to expire, it is possible that funding our growth will be more costly if we pursue similar transactions in the future. However, as is true in the case of the CPP investment, management views the TALF-eligible securitization as a funding mechanism offering us the ability to accelerate our growth plan, rather than one essential to the maintenance of our “well capitalized” status.
TLGP Guarantee. In November 2008, the FDIC adopted a final rule establishing the TLGP. The TLGP provided two limited guarantee programs: One, the Debt Guarantee Program, that guaranteed newly-issued senior unsecured debt, and another, the Transaction Account Guarantee program (“TAG”) that guaranteed certain non-interest-bearing transaction accounts at insured depository institutions. All insured depository institutions that offer non-interest-bearing transaction accounts had the option to participate in either program. We did not participate in the Debt Guarantee Program.
In December 2008, each of our subsidiary banks elected to participate in the TAG, which provides unlimited FDIC insurance coverage for the entire account balance in exchange for an additional insurance premium to be paid by the depository institution for accounts with balances in excess of the current FDIC insurance limit of $250,000. This additional insurance coverage would continue through December 31, 2009. In October 2009, the FDIC notified depository institutions that it was extending the TAG program for an additional six months until June 30, 2010 at the option of participating banks. Our subsidiary banks have determined that it is in their best interest to continue participation in the TAG program and have opted to participate for the additional six-month period.
Business Outlook
Recent Performance
We recorded net income of $32.0 million, or $1.07 per diluted share, for the quarter ended September 30, 2009, compared to $6.5 million of net income, or $0.06 per diluted common share, recorded in the second quarter of 2009. Compared to the third quarter of 2008, earnings per diluted common share increased $1.20 per share, on a $34.4 million increase in net income. Earnings per diluted common share in the third quarter of 2009 compared to the third quarter of 2008 were reduced by preferred stock dividends including discount accretion, related to our issuances of preferred stock in the second half of 2008, reducing net income available to common shareholders by $4.1 million, or $0.15 per diluted common share.
Management believes it made good progress on many strategic initiatives during a very active quarter. The acquisition of the life insurance premium finance portfolio was accounted for as a business combination and resulted in a bargain purchase gain of which $113.1 million was recognized in the third quarter of 2009. Management anticipates the Company will recognize additional bargain purchase gains on this portfolio in subsequent quarters to the extent that third party consents are obtained with respect to certain loans in the portfolio. The securitization of a portion of our commercial premium finance loan portfolio enhanced our regulatory capital position, balance sheet liquidity and earnings.
Our net interest margin for the quarter increased to 3.25% from 2.91% in the second quarter and 2.74% in the third quarter of 2008 reflecting positive results from both deposit and asset re-pricing and solid balance sheet growth at reasonable and commensurate pricing levels. Fee and other income remained relatively strong while expenses, other than credit related expenses, were in line with expectations.

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In regard to credit quality trends, we recorded a provision for credit losses of approximately $91 million to accommodate net charge-offs of approximately $80 million during the quarter. In addition to these charge-offs, we also recorded approximately $10 million of expense related to write downs of other real estate owned (“OREO”). Approximately $29 million of the quarter’s charge-offs relate to loans where specific reserves had previously been established. Approximately $12 million of the charge-offs related to either dispositions or new problem assets. The remaining $39 million related to continued downward revaluation of collateral values primarily related to real estate development. This revaluation, along with the $10 million OREO charge, can be attributed to our commitment to liquidate problem assets in a very aggressive manner and, more importantly, to very recent changes in overall market conditions. As an increasing amount of troubled assets are being liquidated in the market as a whole, the appraised values are dropping accordingly, reflecting the adverse impact of the additional supply. These reduced valuations are further supported by liquidation bids which we have received on our portfolio of non-performing assets.
Our allowance for loan losses increased to $95.1 million or 1.15% of total loans. Adding our reserve for lending-related commitments and credit discount on purchased assets brings total credit reserves and discounts to $134.4 million or 1.62% of total loans. Management believes the allowance for loan losses is adequate given existing knowledge of our loan portfolio. However, if the valuation of real estate declines further, we may need to provide for additional potential losses in future quarters.
Total non-performing assets decreased $7.4 million from the prior quarter end. Quarter-end non-performing loans include approximately $17 million of administrative past due loans that were subsequently cleared in October 2009. Management plans to continue its aggressive disposition of problem assets in the fourth quarter.
We continue to focus on increasing core earnings and clearing the balance sheet of problem assets. Core earning opportunities remain in the areas of deposit re-pricing, core franchise growth and liquidity redeployment. At quarter end, we had in excess of $1 billion in liquid assets and were operating at an 84% loan to deposit ratio—just below the low end of our desired 85% to 90% range.

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RESULTS OF OPERATIONS
Earnings Summary
The Company’s key operating measures for 2009, as compared to the same period last year, are shown below:
                         
    Three Months   Three Months   Percentage (%) or
    Ended   Ended   Basis Point (bp)
(Dollars in thousands, except per share data)   September 30, 2009   September 30, 2008   Change
Net income
  $ 31,995     $ (2,448 )     1,407 %
Net income per common share – Diluted
    1.07       (0.13 )     923  
 
                       
Net revenue (1)
    238,343       82,810       188  
Net interest income
    87,663       60,680       44  
 
                       
Net interest margin (2)
    3.25 %     2.74 %     51 bp 
Net overhead ratio (3)
    (1.95 )     1.65       (360 )
Efficiency ratio (2) (4)
    38.69       76.64       (3,795 )
Return on average assets
    1.08       (0.10 )     118  
Return on average common equity
    13.79       (1.59 )     1,538  
 
    Nine Months   Nine Months   Percentage (%) or
    Ended   Ended   Basis Point (bp)
    September 30, 2009   September 30, 2008   Change
Net income
  $ 44,902     $ 18,533       142 %
Net income per common share – Diluted
    1.25       0.75       67  
 
                       
Net revenue (1)
    457,501       262,127       75  
Net interest income
    224,942       181,822       24  
 
                       
Net interest margin (2)
    2.98 %     2.83 %     15 bp 
Net overhead ratio (3)
    0.25       1.54       (129 )
Efficiency ratio (2) (4)
    55.15       72.28       (1,713 )
Return on average assets
    0.54       0.26       28  
Return on average common equity
    5.16       3.20       196  
 
                       
At end of period
                       
Total assets
  $ 12,136,021     $ 9,864,920       23 %
Total loans, net of unearned income
    8,275,257       7,322,545       13  
Total loans, including loans held-for-sale
    8,468,512       7,390,943       2  
Total deposits
    9,847,163       7,829,527       26  
Junior subordinated debentures
    249,493       249,537        
Total shareholders’ equity
    1,106,082       809,331       37  
 
                       
Book value per common share
    34.10       32.07       6  
Market price per common share
    27.96       29.35       (5 )
 
                       
Allowance for credit losses to total loans (5)
    1.19 %     0.91 %     28 bp
Total credit reserves to total loans (6)
    1.62 %     0.91 %     71  
Non-performing loans to total loans
    2.80       1.54       126  
 
(1)   Net revenue is net interest income plus non-interest income.
 
(2)   See following section titled, “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.
 
(3)   The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
 
(4)   The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net revenue (less securities gains or losses). A lower ratio indicates more efficient revenue generation.
 
(5)   The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments.
 
(6)   The sum of allowance for credit losses and credit discounts on purchased loans divided by total loans outstanding plus the credit discounts on purchased loans.
Certain returns, yields, performance ratios, and quarterly growth rates are “annualized” in this presentation and throughout this report to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, balance sheet growth rates are most often expressed in terms of an annual rate. As such, 5% growth during a quarter would represent an annualized growth rate of 20%.

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Supplemental Financial Measures/Ratios
The accounting and reporting polices of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components) and the efficiency ratio. Management believes that these measures and ratios provide users of the Company’s financial information with a more meaningful view of the performance of interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses.
A reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is shown below:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(Dollars in thousands)   2009   2008   2009   2008
 
(A) Interest income (GAAP)
  $ 141,577     $ 126,569     $ 390,785     $ 388,905  
Taxable-equivalent adjustment:
                               
– Loans
    93       142       360       499  
– Liquidity management assets
    413       423       1,314       1,362  
– Other earning assets
    9       12       30       31  
     
Interest income – FTE
  $ 142,092     $ 127,146     $ 392,489     $ 390,797  
(B) Interest expense (GAAP)
    53,914       65,889       165,843       207,083  
     
Net interest income – FTE
  $ 88,178     $ 61,257     $ 226,646     $ 183,714  
     
(C) Net interest income (GAAP) (A minus B)
  $ 87,663     $ 60,680     $ 224,942     $ 181,822  
     
(D) Net interest margin (GAAP)
    3.23 %     2.71 %     2.95 %     2.80 %
Net interest margin – FTE
    3.25 %     2.74 %     2.98 %     2.83 %
(E) Efficiency ratio (GAAP)
    38.77 %     77.18 %     55.36 %     72.80 %
Efficiency ratio – FTE
    38.69 %     76.64 %     55.15 %     72.28 %

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Critical Accounting Policies
The Company’s Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater possibility that changes in those estimates and assumptions could produce financial results that are materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event, are based on information available as of the date of the financial statements; accordingly, as information changes, the financial statements could reflect different estimates and assumptions. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views critical accounting policies to include the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes available. For a more detailed discussion on these critical accounting policies, see “Summary of Critical Accounting Policies” beginning on page 36 of the Company’s 2008 Form 10-K.
Net Income
Net income for the quarter ended September 30, 2009 totaled $32.0 million, an increase of $34.4 million compared to the third quarter of 2008, and an increase of approximately $25.4 compared to the second quarter of 2009. On a per share basis, net income for the third quarter of 2009 totaled $1.07 per diluted common share, an increase of $1.20 per share as compared to the 2008 third quarter net loss of $0.13 per diluted common share. Compared to the second quarter of 2009, net income per diluted share in the third quarter of 2009 increased by $1.01.
The most significant factors affecting net income for the third quarter of 2009 as compared to the same period in the prior year include a gain on bargain purchase as a result of the acquisition of the A.I. Credit life insurance premium finance portfolio and an increase in the provision for credit losses. Other items affecting the third quarter of 2009 results as compared to the same period in the prior year include increased net interest income, higher mortgage banking revenues, the increase in market value of collateralized mortgage obligations held in the Company’s trading portfolio and the gain on the sale of premium finance receivables, partially offset by an increase in other real estate expenses, higher levels of mortgage banking commissions and lower levels of option income. A higher level of preferred share dividends also contributed to lower diluted earnings per share. The return on average equity for the third quarter of 2009 was 13.79%, compared to (1.59)% for the prior year third quarter and 0.79% for the second quarter of 2009.
Net income for the first nine months of 2009 totaled $44.9 million, an increase of $26.4 million, or 142%, compared to $18.5 million for the same period in 2008. On a per share basis, net income per diluted common share was $1.25 for the first nine months of 2009, an increase of $0.50 per share, or 67%, compared to $0.75 for the first nine months of 2008. Return on average equity for the first nine months of 2009 was 5.16% versus 3.20% for the same period of 2008.

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Net Interest Income
Net interest income, which represents the difference between interest income and fees on earning assets and interest expense on deposits and borrowings, is the major source of earnings for the Company. Interest rate fluctuations and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period.
The following table presents a summary of the Company’s net interest income and related net interest margins, calculated on a fully taxable equivalent basis, for the third quarter of 2009 as compared to the third quarter of 2008 (linked quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    September 30, 2009     September 30, 2008  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 2,078,330     $ 15,403       2.94 %   $ 1,544,465     $ 18,247       4.70 %
Other earning assets (2) (3) (7)
    24,874       148       2.36       21,687       262       4.81  
Loans, net of unearned income (2) (4) (7)
    8,665,281       126,541       5.79       7,343,845       108,637       5.89  
         
Total earning assets (7)
  $ 10,768,485     $ 142,092       5.24 %   $ 8,909,997     $ 127,146       5.68 %
         
Allowance for loan losses
    (85,300 )                     (57,751 )                
Cash and due from banks
    109,645                       133,527                  
Other assets
    1,004,690                       895,781                  
 
                                           
Total assets
  $ 11,797,520                     $ 9,881,554                  
 
                                           
 
                                               
Interest-bearing deposits
  $ 8,799,578     $ 42,806       1.93 %   $ 7,127,065     $ 53,405       2.98 %
Federal Home Loan Bank advances
    434,134       4,536       4.14       438,983       4,583       4.15  
Notes payable and other borrowings
    245,352       1,779       2.88       398,911       2,661       2.65  
Subordinated notes
    65,000       333       2.01       75,000       786       4.10  
Junior subordinated debentures
    249,493       4,460       6.99       249,552       4,454       6.98  
         
Total interest-bearing liabilities
  $ 9,793,557     $ 53,914       2.18 %   $ 8,289,511     $ 65,889       3.16 %
         
Non-interest bearing deposits
    775,202                       678,651                  
Other liabilities
    158,666                       147,500                  
Equity
    1,070,095                       765,892                  
 
                                           
Total liabilities and shareholders’ equity
  $ 11,797,520                     $ 9,881,554                  
 
                                           
 
                                               
Interest rate spread (5) (7)
                    3.06 %                     2.52 %
Net free funds/contribution (6)
  $ 974,928               0.19     $ 620,486               0.22  
 
                                       
Net interest income/Net interest margin (7)
          $ 88,178       3.25 %           $ 61,257       2.74 %
                         -
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended September 30, 2009 and 2008 were $515,000 and $576,000, respectively.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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Quarter Ended September 30, 2009 compared to the Quarter Ended September 30, 2008
Tax-equivalent net interest income for the quarter ended September 30, 2009 totaled $88.2 million, an increase of $26.9 million, or 44%, as compared to the $61.3 million recorded in the same quarter of 2008. For the third quarter of 2009, the net interest margin was 3.25%, up 51 basis points when compared to the net interest margin of 2.74% in the same quarter of 2008.
The yield on total earning assets was 5.24% for the third quarter of 2009 and 5.68% in the third quarter of 2008. The third quarter 2009 yield on loans was 5.79%, a 10 basis point decrease when compared to the prior year third quarter yield of 5.89%. The yield on liquidity management assets in the third quarter of 2009 was 2.94% compared to 4.70% in the third quarter of 2008.
The rate paid on interest-bearing liabilities was 2.18% in the third quarter of 2009 and 3.16% in the third quarter of 2008. The interest-bearing deposit rate in the third quarter of 2009 declined 105 basis points to 1.93% from a rate of 2.98% in the same quarter in 2008.
The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, increased to 4.41% in the third quarter of 2009 compared to 4.24% in the third quarter of 2008. The Company utilizes certain borrowing sources to fund the additional capital requirements of the banks, manage capital, manage its interest rate risk position and for general corporate purposes.
The higher level of net interest income recorded in the third quarter of 2009 compared to the third quarter of 2008 was attributable to the impact of the life insurance premium finance loan purchase and the ability to raise and retain interest-bearing deposits at lower rates. Average earning asset growth of $1.9 billion in the third quarter of 2009 compared to the third quarter of 2008 was comprised of $1.3 billion of loan growth and $533.9 million of liquid management asset growth. The $1.9 billion of earning asset growth was primarily funded by a $1.5 billion increase in the average balances of interest-bearing liabilities.
In the third quarter of 2009, the yield on loans decreased 10 basis points and the rate on interest-bearing deposits decreased 105 basis points compared to the third quarter of 2008. The bulk of the small decrease in yield on loans is attributable to the low interest rate environment, partially offset by higher yields from the purchase of the life insurance premium finance receivables. Management believes opportunities remain for the increasing credit spreads in commercial and commercial real estate loan portfolios and for lower rates from the re-pricing of maturing retail certificates of deposits, both of which should contribute to continued net interest margin expansion.

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The following table presents a summary of the Company’s net interest income and related net interest margins, calculated on a fully taxable equivalent basis, for the third quarter of 2009 as compared to the second quarter of 2009 (sequential quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    September 30, 2009     June 30, 2009  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 2,078,330     $ 15,403       2.94 %   $ 1,851,179     $ 17,102       3.71 %
Other earning assets (2) (3) (7)
    24,874       148       2.36       22,694       185       3.27  
Loans, net of unearned income (2) (4) (7)
    8,665,281       126,541       5.79       8,212,572       110,412       5.39  
         
Total earning assets (7)
  $ 10,768,485     $ 142,092       5.24 %   $ 10,086,445     $ 127,699       5.08 %
         
Allowance for loan losses
    (85,300 )                     (72,990 )                
Cash and due from banks
    109,645                       118,402                  
Other assets
    1,004,690                       905,611                  
 
                                           
Total assets
  $ 11,797,520                     $ 11,037,468                  
 
                                           
Interest-bearing deposits
  $ 8,799,578     $ 42,806       1.93 %   $ 8,097,096     $ 43,502       2.15 %
Federal Home Loan Bank advances
    434,134       4,536       4.14       435,983       4,503       4.14  
Notes payable and other borrowings
    245,352       1,779       2.88       249,123       1,752       2.82  
Subordinated notes
    65,000       333       2.01       66,648       428       2.54  
Junior subordinated debentures
    249,493       4,460       6.99       249,494       4,447       7.05  
         
Total interest-bearing liabilities
  $ 9,793,557     $ 53,914       2.18 %   $ 9,098,344     $ 54,632       2.41 %
         
Non-interest bearing deposits
    775,202                       754,479                  
Other liabilities
    158,666                       117,250                  
Equity
    1,070,095                       1,067,395                  
 
                                           
Total liabilities and shareholders’ equity
  $ 11,797,520                     $ 11,037,468                  
 
                                           
Interest rate spread (5) (7)
                    3.06 %                     2.67 %
Net free funds/contribution (6)
  $ 974,928               0.19     $ 988,101               0.24  
 
                                       
Net interest income/Net interest margin (7)
          $ 88,178       3.25 %           $ 73,067       2.91 %
                         
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended September 30, 2009 was $515,000 and for the three months ended June 30, 2009 was $570,000.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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Quarter Ended September 30, 2009 compared to the Quarter Ended June 30, 2009
Tax-equivalent net interest income for the quarter ended September 30, 2009 totaled $88.2 million, an increase of $15.1 million, or 21%, as compared to the $73.1 million recorded in the second quarter of 2009. For the third quarter of 2009, the net interest margin was 3.25%, up 34 basis points when compared to the 2.91% recorded in the second quarter of 2009.
The yield on total earning assets for the third quarter of 2009 was 5.24% and 5.08% in the second quarter of 2009. The third quarter of 2009 yield on loans was 5.79%, a 40 basis point increase when compared to the second quarter 2009 yield of 5.39%. The liquidity management assets yield in the third quarter of 2009 was 2.94% compared to 3.71% in the second quarter of 2009.
The rate paid on interest-bearing liabilities decreased to 2.18% in the third quarter of 2009 as compared to 2.41% in the second quarter of 2009. The cost of interest-bearing deposits decreased in the third quarter of 2009 to 1.93% compared to 2.15% in the second quarter of 2009.
The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, decreased to 4.41% in the third quarter of 2009 compared to 4.43% in the second quarter of 2009. The Company utilizes certain borrowing sources to fund the additional capital requirements of the banks, manage capital, manage interest rate risk position and for general corporate purposes.
The higher level of net interest income recorded in the third quarter of 2009 compared to the second quarter of 2009 was attributable to the impact of the life insurance premium finance loan purchase and the ability to raise and retain interest-bearing deposits at lower rates. Average earning asset growth of $682.0 million in the third quarter of 2009 compared to the second quarter of 2009 was comprised of $452.7 million of loan growth and $227.2 million of liquid management asset growth. The $682.0 million of earning asset growth was funded by a $695.2 million increase in the average balances of interest-bearing liabilities.
In the third quarter of 2009, the yield on loans increased 40 basis points and the rate on interest-bearing deposits decreased 22 basis points compared to the second quarter of 2009. The bulk of the increase in yield on loans is attributable to the purchase of the life insurance premium finance receivables. Management believes opportunities remain for the increasing credit spreads in commercial and commercial real estate loan portfolios and for lower rates from the re-pricing of maturing retail certificates of deposits, both of which should contribute to continued net interest margin expansion.

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The following table presents a summary of the Company’s net interest income and related net interest margins, calculated on a fully taxable equivalent basis, for the first nine months of 2009 as compared to the first nine months of 2008:
                                                 
    For the Nine Months Ended     For the Nine Months Ended  
    September 30, 2009     September 30, 2008  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 1,923,869     $ 48,004       3.34 %   $ 1,493,511     $ 53,114       4.75 %
Other earning assets (2) (3) (7)
    23,242       488       2.81       23,530       933       5.30  
Loans, net of unearned income (2) (4) (7)
    8,244,336       343,997       5.58       7,171,467       336,750       6.27  
         
Total earning assets (7)
  $ 10,191,447     $ 392,489       5.15 %   $ 8,688,508     $ 390,797       6.01 %
         
Allowance for loan losses
    (76,886 )                     (54,352 )                
Cash and due from banks
    103,164                       128,045                  
Other assets
    936,468                       883,859                  
 
                                           
Total assets
  $ 11,154,193                     $ 9,646,060                  
 
                                           
Interest-bearing deposits
  $ 8,217,631     $ 132,261       2.15 %   $ 6,927,829     $ 168,697       3.25 %
Federal Home Loan Bank advances
    435,359       13,492       4.14       434,528       13,696       4.21  
Notes payable and other borrowings
    266,264       5,401       2.71       389,882       8,331       2.85  
Subordinated notes
    67,198       1,341       2.63       75,000       2,716       4.76  
Junior subordinated debentures
    249,498       13,348       7.05       249,594       13,643       7.18  
         
Total interest-bearing liabilities
  $ 9,235,950     $ 165,843       2.40 %   $ 8,076,833     $ 207,083       3.42 %
         
Non-interest bearing deposits
    754,666                       661,787                  
Other liabilities
    97,130                       150,639                  
Equity
    1,066,447                       756,801                  
 
                                           
Total liabilities and shareholders’ equity
  $ 11,154,193                     $ 9,646,060                  
 
                                           
Interest rate spread (5) (7)
                    2.75 %                     2.59 %
Net free funds/contribution (6)
  $ 955,497               0.23     $ 611,675               0.24  
 
                                       
Net interest income/Net interest margin (7)
          $ 226,646       2.98 %           $ 183,714       2.83 %
                         
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the nine months ended September 30, 2009 and 2008 were $1.7 million and $1.9 million, respectively.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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Nine Months Ended September 30, 2009 compared to the Nine Months Ended September 30, 2008
Tax-equivalent net interest income for the nine months ended September 30, 2009 totaled $226.6 million, an increase of $42.9 million, or 23%, as compared to the $183.7 million recorded in the first nine months of 2008. For the first nine months of 2009, the net interest margin was 2.98%, up 15 basis points when compared to 2.83% in the first nine months of 2008.
The yield on total earning assets for the first nine months of 2009 was 5.15% as compared to the 6.01% in the first nine months of 2008. The first nine months of 2009 yield on loans was 5.58%, a 69 basis point decrease when compared to the first nine months of 2008 yield of 6.27%. The yield on liquidity management assets in the first nine months of 2009 was 3.34% compared to 4.75% in the first nine months of 2008.
The rate paid on interest-bearing liabilities decreased to 2.40% in the first nine months of 2009 as compared to 3.42% in the first nine months of 2008. The cost of interest-bearing deposits decreased in the first nine months of 2009 to 2.15% compared to 3.25% in the first nine months of 2008.
The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, decreased to 4.38% in the first nine months of 2009 compared to 4.43% in the first nine months of 2008. The Company utilizes certain borrowing sources to fund the additional capital requirements of the banks, manage capital, manage interest rate risk position and for general corporate purposes.
The higher level of net interest income recorded in the first nine months of 2009 compared to the first nine months of 2008 was primarily attributable to a $36.4 million decrease in interest expense on interest-bearing deposits as the Company was able to raise and retain interest-bearing deposits at lower rates. Average earning asset growth of $1.5 billion in the first nine months of 2009 compared to the same period of 2008 was comprised of $1.1 billion of loan growth and $430.4 million of liquid management asset growth. This growth was primarily funded by a $1.2 billion increase in the average balances of interest-bearing liabilities and an increase in the average balance of net free funds of $343.8 million. Management believes opportunities remain for increasing credit spreads in commercial and commercial real estate loan portfolios and for lower rates from the re-pricing of maturing retail certificates of deposits, both of which should contribute to continued net interest margin expansion.
Analysis of Changes in Tax-equivalent Net Interest Income
The following table presents an analysis of the changes in the Company’s tax-equivalent net interest income comparing the three-month periods ended September 30, 2009 and June 30, 2009, the nine-month periods ended September 30, 2009 and September 30, 2008 and the three-month periods ended September 30, 2009 and September 30, 2008. The reconciliations set forth the changes in the tax-equivalent net interest income as a result of changes in volumes, changes in rates and differing number of days in each period:
                         
    Third Quarter   First Nine Months   Third Quarter
    of 2009   of 2009   of 2009
    Compared to   Compared to   Compared to
    Second Quarter   First Nine Months   Third Quarter
(Dollars in thousands)   of 2009   of 2008   of 2008
Tax-equivalent net interest income for comparative period
  $ 73,067     $ 183,714     $ 61,257  
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)
    4,849       37,065       16,013  
Change due to interest rate fluctuations (rate)
    9,468       6,541       10,908  
Change due to number of days in each period
    794       (674 )      
     
Tax-equivalent net interest income for the period ended September 30, 2009
  $ 88,178     $ 226,646     $ 88,178  
     

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Non-interest Income
For the third quarter of 2009, non-interest income totaled $150.7 million, an increase of $128.6 million compared to the third quarter of 2008. The increase was primarily attributable to the bargain purchase gain recognized on the life insurance premium finance loan acquisition, the securitization transaction sponsored by FIFC, an increase in mortgage banking revenue and trading income offset by lower levels of fees from covered call options. For the first nine months of 2009, non-interest income totaled $232.6 million, an increase of $152.3 million compared to the first nine months of 2008.
The following table presents non-interest income by category for the periods presented:
                                 
    Three Months Ended              
    September 30,     $     %  
(Dollars in thousands)   2009     2008     Change     Change  
Brokerage
  $ 4,593     $ 4,354       239       5  
Trust and asset management
    2,908       2,690       218       8  
 
                       
Total wealth management
    7,501       7,044       457       6  
 
                       
 
Mortgage banking
    13,204       4,488       8,716       194  
Service charges on deposit accounts
    3,447       2,674       773       29  
Gain on sales of premium finance receivables
    3,629       456       3,173       NM  
(Losses) gains on available-for-sale securities, net
    (412 )     920       (1,332 )     (145 )
Gain on bargain purchase
    113,062             113,062       NM  
Other:
                               
Fees from covered call options
          2,723       (2,723 )     (100 )
Bank Owned Life Insurance
    552       478       74       15  
Trading income
    6,236       286       5,950       NM  
Administrative services
    527       803       (276 )     (34 )
Miscellaneous
    2,934       2,258       676       30  
 
                       
Total other
    10,249       6,548       3,701       57  
 
                       
 
                               
Total non-interest income
  $ 150,680     $ 22,130       128,550       NM  
 
                       
                                 
    Nine Months Ended              
    September 30,     $     %  
(Dollars in thousands)   2009     2008     Change     Change  
Brokerage
  $ 12,693     $ 14,339       (1,646 )     (11 )
Trust and asset management
    7,617       8,341       (724 )     (9 )
 
                       
Total wealth management
    20,310       22,680       (2,370 )     (10 )
 
                       
 
                               
Mortgage banking
    52,032       18,120       33,912       187  
Service charges on deposit accounts
    9,600       7,612       1,988       26  
Gain on sales of premium finance receivables
    4,147       2,163       1,984       92  
Losses on available-for-sale securities, net
    (910)     (553 )     (357 )     65  
Gain on bargain purchase
    113,062             113,062       NM  
Other:
                               
Fees from covered call options
    1,998       21,586       (19,588 )     (91 )
Bank Owned Life Insurance
    1,403       1,941       (538 )     (28 )
Trading income
    23,254       396       22,858       NM  
Administrative services
    1,463       2,271       (808 )     (36 )
Miscellaneous
    6,200       4,089       2,111       52  
 
                       
Total other
    34,318       30,283       4,035       13  
 
                       
 
                               
Total non-interest income
  $ 232,559     $ 80,305       152,254       189  
 
                       
 
NM = Not Meaningful

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Wealth management is comprised of the trust and asset management revenue of Wayne Hummer Trust Company and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and Wayne Hummer Asset Management Company. Wealth management totaled $7.5 million in the third quarter of 2009 and $7.0 million in the third quarter of 2008. Increased asset valuations due to the recent equity market improvements have helped revenue growth from trust and asset management activities. With equity markets improving in the third quarter of 2009, wealth management revenue increased $618,000, or 36% on an annualized basis, over the second quarter of 2009. On a year-to-date basis, wealth management revenue totaled $20.3 million, down $2.4 million, or 10% when compared to the same period in 2008.
Mortgage banking includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. For the quarter ended September 30, 2009, this revenue source totaled $13.2 million, an increase of $8.7 million when compared to the third quarter of 2008. The increase was primarily attributable to $9.3 million from gains recognized on loans sold to the secondary market offset by $601,000 from changes in the fair market value of mortgage servicing rights, valuation fluctuations of mortgage banking derivatives, fair value accounting for certain residential mortgage loans held for sale and increased recourse obligation reserves for loans previously sold. Future growth of mortgage banking is impacted by the interest rate environment and current residential housing conditions and will continue to be dependent upon both. Mortgages originated and sold totaled over $960 million in the third quarter of 2009 compared to $1.5 billion in the second quarter of 2009 and $344 million in the third quarter of 2008. The positive impact of the PMP transaction, completed at the end of 2008, contributed to mortgage banking revenue growth in all quarters of 2009. On a year-to-date basis, mortgage banking revenue totaled $52.0 million, increasing $33.9 million when compared to the same period in 2008. Mortgages originated and sold totaled over $3.7 billion in the first nine months of 2009 compared to over $1.3 billion in the first nine months of 2008.
Service charges on deposit accounts totaled $3.4 million for the third quarter of 2009, an increase of $773,000, or 29%, when compared to the same quarter of 2008. On a year-to-date basis, service charges on deposit accounts totaled $9.6 million, an increase of $2.0 million, or 26%, when compared to the same period of 2008. The majority of deposit service charges relates to customary fees on overdrawn accounts and returned items and has increased in 2009 as a result of the growth of the Company’s deposit base. The level of service charges received is substantially below peer group levels, as management believes in the philosophy of providing high quality service without encumbering that service with numerous activity charges.
Wintrust recognized $3.6 million of gains on the sale and securitization of premium finance receivables in the third quarter of 2009. See the “Overview – Specialty Finance” section of this report and Note 8 of the Financial Statements presented under Item 1 of this report for details on the securitization of premium finance receivables. FIFC sold $33.6 million of premium finance receivables in the third quarter of 2008, recognizing $456,000 of net gains. As a result of paydowns of loans in the revolving securitization facility, the Company anticipates transferring over $300 million of property and casualty premium finance receivables to the securitization facility during the fourth quarter of 2009 and additional gains related thereto may be recognized.
The Company recognized $412,000 of net losses on available-for-sale securities in the third quarter of 2009 compared to net gains of $920,000 in the prior year quarter. For the nine months ended September 30, 2009 and 2008, the Company recognized net losses on available-for-sale securities of $910,000 and $553,000, respectively. Net gains (losses) on available-for-sale securities include other-than-temporary (“OTTI”) charges recognized in income. In the third quarter of 2009, the Company recognized $472,000 of OTTI charges on a corporate note of a financial issuer. For the nine months ended September 30, 2009, the Company recognized $2.6 million of OTTI charges. For the quarter and nine months ended September 30, 2008, the Company recognized $2.1 and $4.2 million, respectively, of OTTI charges on certain corporate debt investment securities. See Note 5 of the Financial Statements presented under Item 1 of this report for details of OTTI charges and the adoption of a new accounting standard related the presentation and disclosure of OTTI charges.

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The bargain purchase gain resulted from the acquisition of the life insurance premium finance receivable portfolio. See the “Overview – Specialty Finance” section of this report and Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of the transaction. The following table summarizes the components of this transaction:
Purchased Loan Portfolio
Summary of Acquisition
                                                 
                                            Credit  
                                            discounts -  
    Gross     Net             Bargain             non-  
    loan     purchase     Total     purchase     Accretable     accretable  
(Dollars in thousands)   balance     price     discounts     gain (1)     discounts     discounts  
Loans purchased on July 28, 2009
  $ 949,322     $ 685,306     $ (264,016 )   $ (150,646 )   $ (74,837 )   $ (38,533 )
- Initial bargain purchase gain
                            99,949              
- Accretion (effective yield method)
                                  3,530        
- Impact of accounts clearing escrow (2)
                            11,313              
- Impact of accounts prepaid
                                  3,925       2,338  
- Non-accretable transfer to accretable
                                         
Remaining balances at September 30, 2009(3)
                          $ (39,384 )   $ (67,382 )   $ (36,195 )
 
                                         
 
                                               
Loans purchased on October 2, 2009 (4)
  $ 83,393     $ 60,460     $ (22,933 )   $ (14,461 )   $ (5,742 )   $ (2,730 )
 
                                   
 
(1)   An additional $1.8 million of gain was recognized in conjunction with the establishment of a customer list intangible asset. .
 
(2)   Third party consents were received and funds were released from escrow.
 
(3)   The remaining unrecognized bargain purchase gain is recognizable subject to the receipt of required third party consents. .
 
(4)   None of the purchase price proceeds from the October 2, 2009 purchase are held in escrow. The bargain purchase gain is fully recognizable in the fourth quarter of 2009.
Other non-interest income for the third quarter of 2009 totaled $10.2 million, an increase of $3.7 million, compared to $6.5 million in the third quarter of 2008. Trading income increased $6.0 million as the Company recognized $6.2 million in trading income resulting primarily from the increase in fair value of certain collateralized mortgage obligations. The Company purchased these securities at a significant discount to par value during the first quarter of 2009. These securities have increased in value since their purchase due to market spreads tightening, increased mortgage prepayments due to favorable mortgage rate environment and the resultant refinancing activity taking place in the market, and lower than projected default rates. Partially offsetting the increase in trading income were fees from certain covered call option transactions decreasing by $2.7 million, as no income was recorded from this activity in the third quarter of 2009. Historically, compression in the net interest margin was effectively offset, as has consistently been the case, by the Company’s covered call strategy. In the third quarter of 2009, as the Company’s net interest margin expanded, management chose to not engage in covered call option activity due to lower than acceptable security yields which resulted in the elimination of revenue from the Company’s covered call strategy. On a year-to-date basis, other non-interest income totaled $34.3 million, an increase of $4.0 million, or 13%, when compared to the same period of 2008. Trading income increased $22.9 million in the first nine months of 2009 when compared to the same period in 2008 primarily from the increase in market value of certain collateralized mortgage obligations discussed above. Offsetting this increase were lower fees from certain covered call option transactions of $19.6 million in the first nine months of 2009 when compared to the same period in 2008 as a result of lower than acceptable security yields in 2009.

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Non-interest Expense
Non-interest expense for the third quarter of 2009 totaled $92.6 million and increased approximately $29.4 million, or 46%, from the third quarter 2008 total of $63.2 million. On a year-to-date basis, non-interest expense for 2009 totaled $253.8 million and increased $62.5 million, or 33% over the same period in 2008.
The following table presents non-interest expense by category for the periods presented:
                                 
    Three Months Ended              
    September 30,     $     %  
(Dollars in thousands)   2009     2008     Change     Change  
Salaries and employee benefits
  $ 48,088     $ 35,823       12,265       34  
Equipment
    4,069       4,050       19       1  
Occupancy, net
    5,884       5,666       218       4  
Data processing
    3,226       2,850       376       13  
Advertising and marketing
    1,488       1,343       145       11  
Professional fees
    4,089       2,195       1,894       86  
Amortization of other intangible assets
    677       781       (104 )     (13 )
Other:
                               
Commissions – 3rd party brokers
    843       985       (142 )     (14 )
Postage
    1,139       1,067       72       7  
Stationery and supplies
    769       750       19       3  
FDIC insurance
    4,334       1,344       2,990       NM  
OREO expenses, net
    10,243       487       9,756       NM  
Miscellaneous
    7,714       5,858       1,856       32  
 
                       
Total other
    25,042       10,491       14,551       139  
 
                       
 
                               
Total non-interest expense
  $ 92,563     $ 63,199       29,364       46  
 
                       
                                 
    Nine Months Ended              
    September 30,     $     %  
(Dollars in thousands)   2009     2008     Change     Change  
Salaries and employee benefits
  $ 138,923     $ 109,471       29,452       27  
Equipment
    12,022       12,025       (3 )      
Occupancy, net
    17,682       16,971       711       4  
Data processing
    9,578       8,566       1,012       12  
Advertising and marketing
    4,003       3,709       294       8  
Professional fees
    9,843       6,490       3,353       52  
Amortization of other intangible assets
    2,040       2,348       (308 )     (13 )
Other:
                             
Commissions – 3rd party brokers
    2,338       2,967       (629 )     (21 )
Postage
    3,466       3,108       358       12  
Stationery and supplies
    2,330       2,247       83       4  
FDIC Insurance
    16,468       3,919       12,549       NM  
OREO expenses, net
    13,671       1,382       12,289       NM  
Miscellaneous
    21,406       18,025       3,381       19  
 
                       
Total other
    59,679       31,648       28,031       89  
 
                       
 
                               
Total non-interest expense
  $ 253,770     $ 191,228       62,542       33  
 
                       
 
NM = Not Meaningful
Salaries and employee benefits comprised 52% of total non-interest expense in the third quarter of 2009 and 57% in the third quarter of 2008. Salaries and employee benefits expense increased $12.3 million, or 34%, in the third quarter of 2009 compared to the third quarter of 2008 primarily as a result of higher commission and incentive compensation expenses related to mortgage banking activities and the incremental costs of the PMP staff. The higher commission and incentive compensation expense is primarily attributable to an increase in variable pay (commissions) of $4.7 million as a result of the higher mortgage loan origination volumes. On a year-to-date basis, salaries and employee benefits increased $29.5 million, or 27%, compared to the same period in 2008. Of this increase, $15.6 million was attributable to an increase in variable pay (commissions) as a result of the higher

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mortgage loan origination volumes, $11.6 million primarily related to acquisitions and the remainder being generally related to increases in base salaries.
The combined equipment and occupancy expense for the third quarter of 2009 was $10.0 million, an increase of $237,000, or 2%, compared to the same period of 2008. On a year-to-date basis, the combined equipment and occupancy expense was $29.7 million in 2009, an increase of $708,000, or 2%, compared to the same period of 2008.
Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the third quarter of 2009 were $4.1 million, an increase of $1.9 million, or 86%, compared to the same period in 2008. On a year-to-date basis, professional fees were $9.8 million, an increase of $3.4 million, or 52%, compared to the same period in 2008. These increases are primarily a result of increased legal costs related to non-performing assets and acquisition related activities.
FDIC insurance totaled $4.3 million in the third quarter of 2009, an increase of $3.0 million compared to $1.3 million in the third quarter of 2008. On a year-to-date basis, FDIC insurance totaled $16.5 million in 2009, an increase of $12.5 million compared to $3.9 million in 2008. The increase in FDIC insurance rates at the beginning of 2009 and growth in the assessable deposit base contributed to the significant increases in FDIC insurance costs for the third quarter of 2009 while the first nine months of 2009 were also negatively impacted by the industry-wide special assessment on financial institutions in the second quarter of 2009
OREO expenses include all costs related with obtaining, maintaining and selling of other real estate owned properties. This expense totaled $10.2 million in the third quarter of 2009, an increase of $9.8 million compared to $487,000 in the third quarter of 2008. On a year-to-date basis, OREO expenses totaled $13.7 million in 2009, an increase of $12.3 million compared to $1.4 million in 2008. These increases are primarily due to the higher number of OREO properties and losses on sales of OREO properties in 2009.
Miscellaneous expense includes expenses such as ATM expenses, correspondent bank charges, directors’ fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions and lending origination costs that are not deferred. Miscellaneous expenses in the third quarter of 2009 increased $1.9 million, or 32%, compared to the same period in the prior year. On year-to-date basis, miscellaneous expenses increased $3.4 million, or 19%, compared to the same period in the prior year. The quarter and year-to-date increases are attributable to the general growth in the Company’s business.
Income Taxes
The Company recorded income tax expense of $22.6 million for the three months ended September 30, 2009, compared to a tax benefit of $2.1 million for same period of 2008. For the nine months ended September 30, income tax expense totaled $29.5 million for 2009 and $9.4 million for 2008. The effective tax rate was 39.6% and 33.6% for the first nine months of 2009 and 2008, respectively. The higher effective tax rate in the 2009 year-to-date period is primarily a result of a higher level of pretax net income in the period relative to tax-advantaged income than in the 2008 year-to-date period.
Operating Segment Results
As described in Note 13 to the Consolidated Financial Statements, the Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. The net interest income of the community banking segment includes interest income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. (See “wealth management deposits” discussion in Deposits section of this report for more information on these deposits.)

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The community banking segment’s net interest income for the quarter ended September 30, 2009 totaled $84.5 million as compared to $59.0 million for the same period in 2008, an increase of $25.5 million, or 43%. On a year-to-date basis, net interest income totaled $215.9 million for the first nine months of 2009, an increase of $38.3 million, or 22%, as compared to the $177.6 million recorded last year. These increases were primarily attributable to the acquisition of the life insurance premium finance portfolio and lower costs of interest-bearing deposits. The community banking segment’s non-interest income totaled $18.9 million in the third quarter of 2009, an increase of $4.6 million, or 32%, when compared to the third quarter of 2008 total of $14.3 million. Non-interest income increased 27% to $70.6 million in the first nine months of 2009 compared to the third quarter of 2008. These increases were primarily attributable to an increase in mortgage banking revenue offset by lower levels of fees from covered call options. The community banking segment’s net loss for the quarter ended September 30, 2009 totaled $35.4 million, a decrease of $36.7 million, as compared to the third quarter of 2008 net income of $1.4 million. The net loss for the nine months ended September 30, 2009, totaled $24.9 million, a decrease of $55.8 million, or 181%, as compared to the prior year total net income of $30.9 million. The decrease is primarily due to recording an additional provision for loan losses to accommodate for the additional net charge-offs during the quarter and the expense related to write downs of other real estate owned.
Net interest income for the specialty finance segment totaled $33.7 million for the quarter ended September 30, 2009, compared to $17.1 million for the same period in 2008, an increase of $16.7 million or 98%. On a year-to-date basis, net interest income totaled $71.9 million for the first nine months of 2009, an increase of $20.2 million, or 39%, as compared to the $51.7 million recorded last year. These increases are attributable to the impact of the life insurance premium finance loan purchase and the ability to raise and retain interest-bearing deposits at lower rates. The specialty finance segment’s non-interest income totaled $114.3 million for the quarter ended September 30, 2009, compared to $1.3 million for the same period in 2008, an increase of $113.0 million. Non-interest income increased $111.3 million to $115.8 million in the first nine months of 2009 as compared to the same period in the prior year. The increase in non-interest income in 2009 is a result of the bargain purchase gain from the acquisition of the life insurance premium finance receivable portfolio. See the “Overview – Specialty Finance” section of this report and Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of the bargain purchase. Net after-tax profit of the specialty finance segment totaled $120.4 million and $7.9 million for the quarters ended September 30, 2009 and 2008 respectively. The specialty finance segment’s after-tax profit for the nine months ended September 30, 2009, totaled $136.7 million, a increase of $112.2 million, or 458%, as compared to the prior year total of $24.5 million.
The wealth management segment reported net interest income of $7.8 million for the third quarter of 2009 compared to $4.5 million in the same quarter of 2008. Net interest income is comprised of the net interest earned on brokerage customer receivables at WHI and an allocation of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks (“wealth management deposits”). The allocated net interest income included in this segment’s profitability was $7.6 million ($4.7 million after tax) in the third quarter of 2009 compared to $4.2 million ($2.6 million after tax) in the third quarter of 2008. The increase is mainly due to the recent equity market improvements that have helped revenue growth from trust and asset management activities. This segment recorded non-interest income of $10.4 million for the third quarter of 2009 compared to $8.8 million for the third quarter of 2008. The wealth management segment’s net income totaled $4.4 million for the third quarter of 2009 compared to net income of $2.4 million for the third quarter of 2008. This increase is a result of the improvement of equity markets in the third quarter of 2009, coupled with the purchase of certain assets and liabilities of Advanced Investment Partners, LLC during the second quarter of 2009. On a year-to-date basis, net interest income totaled $21.3 million for the first nine months of 2009, an increase of $7.5 million or 54%, as compared to the $13.8 million recorded last year. The allocated net interest income included in this segment’s profitability was $20.9 million ($12.8 million after tax) in the first nine months of 2009 and $13.0 million ($8.0 million after tax) in the first nine months of 2008. Non-interest income decreased $568,000 to $27.9 million in the first nine months of 2009 compared to the same period in the prior year. This segment’s after-tax net income for the nine months ended September 30, 2009 totaled $11.2 million compared to the prior year $8.1 million, an increase of $3.1 million.

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FINANCIAL CONDITION
Total assets were $12.1 billion at September 30, 2009, representing an increase of $2.3 billion, or 23%, when compared to September 30, 2008 and $776.5 million, or 27% on an annualized basis, when compared to June 30, 2009. Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $10.6 billion at September 30, 2009, $8.9 billion at September 30, 2008 and $10.2 billion at June 30, 2009. See Notes 5, 6, 10, 11 and 12 of the Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.
Interest-Earning Assets
The following table sets forth, by category, the composition of average earning asset balances and the relative percentage of total average earning assets for the periods presented:
                                                 
    Three Months Ended  
    September 30, 2009     June 30, 2009     September 30, 2008  
(Dollars in thousands)   Balance     Percent     Balance     Percent     Balance     Percent  
Loans:
                                               
Commercial and commercial real estate
  $ 5,070,811       47 %   $ 4,987,587       49 %   $ 4,612,881       52 %
Home equity
    918,576       9       919,667       9       799,595       9  
Residential real estate (1)
    499,708       5       493,546       5       341,106       4  
Premium finance receivables (2)
    1,938,645       18       1,521,373       15       1,216,153       14  
Indirect consumer loans
    124,552       1       143,516       1       212,614       2  
Other loans
    112,989       1       146,883       2       161,496       2  
 
                                   
Total loans, net of unearned income (3)
  $ 8,665,281       81 %   $ 8,212,572       81 %   $ 7,343,845       83 %
Liquidity management assets (4)
    2,078,330       19       1,851,179       19       1,544,465       17  
Other earning assets (5)
    24,874             22,694             21,687        
 
                                   
Total average earning assets
  $ 10,768,485       100 %   $ 10,086,445       100 %   $ 8,909,997       100 %
 
                                   
Total average assets
  $ 11,797,520             $ 11,037,468             $ 9,881,554          
 
                                         
Total average earning assets to total average assets
            91 %             91 %             90 %
 
                                         
 
(1)   Residential real estate loans include mortgage loans held-for-sale.
 
(2)   Premium finance receivables include loans held-for-sale
 
(3)   Total loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(4)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(5)   Other earning assets include brokerage customer receivables and trading account securities.
Total average earning assets for the third quarter of 2009 increased $1.9 billion, or 21%, to $10.8 billion, compared to the third quarter of 2008, and increased $695.3 million, or 27% on an annualized basis, compared to the second quarter of 2009. The ratio of total average earning assets as a percent of total average assets was 91% at September 30, 2009 and June 30, 2009, up slightly from 90% in the third quarter of 2008.
Total average loans during the third quarter of 2009 increased $1.3 billion, or 18%, over the previous year third quarter. Average premium finance receivables increased 59%, residential real estate loans increased 47%, home equity loans increased 15%, and commercial and commercial real estate loans increased 10% in the third quarter of 2009 compared to the average balances in the third quarter of 2008. The increase in average residential real estate loans is a result of higher mortgage loan originations. As a result of economic conditions, the Company has been actively managing its home equity portfolio to ensure that diligent pricing, appraisal and other underwriting activities continue to exist. The Company has not sacrificed asset quality or pricing standards to grow outstanding loan balances.
The increase in the average balance of premium finance receivables is a result of FIFC’s purchase of a portfolio of domestic life insurance premium finance loans in July 2009. After giving effect to post-closing adjustments, an aggregate unpaid principal loan balance of $949.3 million was purchased for $685.3 million in cash.

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Additionally, the majority of premium finance receivables, commercial and life insurance, are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. Historically, FIFC originations of commercial premium finance receivables that were not purchased by the banks were sold to unrelated third parties with servicing retained. However, during the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such commercial premium finance receivables in a securitization transaction sponsored by FIFC. The Company sold $69.5 million of commercial premium finance receivables to an unrelated third party in the second quarter of 2008.
Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes.
Other earning assets include brokerage customer receivables and trading account securities at WHI. Trading securities are also held at the Wintrust corporate level. In the normal course of business, WHI activities involve the execution, settlement, and financing of various securities transactions. WHI’s customer securities activities are transacted on either a cash or margin basis. In margin transactions, WHI, under an agreement with the out-sourced securities firm, extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in customer’s accounts. In connection with these activities, WHI executes and the out-sourced firm clears customer transactions relating to the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose WHI to off-balance-sheet risk, particularly in volatile trading markets, in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event a customer fails to satisfy its obligations, WHI under an agreement with the outsourced securities firm, may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligations. WHI seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. WHI monitors required margin levels daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
                                 
    Average Balances for the  
    Nine Months Ended  
    September 30, 2009     September 30, 2008  
(Dollars in thousands)   Balance     Percent     Balance     Percent  
Loans:
                               
Commercial and commercial real estate
  $ 4,962,504       49 %   $ 4,544,182       52 %
Home equity
    916,095       9       739,717       9  
Residential real estate (1)
    490,263       5       342,615       4  
Premium finance receivables (2)
    1,590,961       16       1,157,557       13  
Indirect consumer loans
    144,255       1       224,846       3  
Other loans
    140,258       1       162,550       2  
 
                       
Total loans, net of unearned income (3)
    8,244,336       81       7,171,467       83  
Liquidity management assets (4)
    1,923,869       19       1,493,511       17  
Other earning assets (5)
    23,242             23,530        
 
                       
Total average earning assets
  $ 10,191,447       100 %   $ 8,688,508       100 %
 
                       
Total average assets
  $ 11,154,193             $ 9,646,060          
 
                           
Total average earning assets to total average assets
            91 %             90 %
 
                           
 
(1)   Residential real estate loans include mortgage loans held-for-sale.
 
(2)   Premium finance receivables include loans held-for-sale.
 
(3)   Total loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(4)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(5)   Other earning assets include brokerage customer receivables and trading account securities.

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Average earning assets for the nine months ended September 30, 2009 increased $1.5 billion, or 17%, over the first nine months of 2008. The ratio of total average earning assets as a percent of total average assets for the nine months ended September 30, 2009 increased slightly to 91% from 90% in the prior year period. Total average loans increased by $1.1 billion, or 15%, in the first nine months of 2009 compared to the same period of 2008. The growth of loans in 2009 is the result of the Company’s continued business development efforts on its core loan portfolios, higher mortgage originations and the purchase of a portfolio of domestic life insurance premium finance loans in July 2009. Average liquidity management assets for the nine months ended September 30, 2009 increased $430.4 million, or 29%, over the first nine months of 2008. The balances of these assets fluctuate frequently based on deposit inflows, the level of other funding sources and loan demand.
Deposits
Total deposits at September 30, 2009, were $9.8 billion and increased $2.0 billion, or 26%, compared to total deposits at September 30, 2008. See Note 10 to the financial statements of Item 1 of this report for a summary of period end deposit balances.
Deposit Maturity Analysis
As of September 30, 2009
                                                 
                                            Weighted-  
    Non-                                     Average  
    Interest     Savings                             Rate of  
    Bearing     And             Time             Maturing Time  
(Dollars in   And     Money     Wealth     Certificates     Total     Certificates  
thousands)   NOW (1)     Market (1)     Mgt (1) (2)     of Deposit     Deposits     of Deposit  
1 – 3 months
  $ 2,087,357     $ 1,981,467     $ 615,898     $ 1,392,088     $ 6,076,810       2.38 %
4 – 6 months
                121,294       851,034       972,328       2.46  
7 – 9 months
                      720,427       720,427       2.61  
10 – 12 months
                      605,530       605,530       2.39  
13 – 18 months
                198,548       668,256       866,804       2.67  
19 – 24 months
                      284,965       284,965       3.54  
24+ months
                      320,299       320,299       3.57  
 
                                   
Total
  $ 2,087,357     $ 1,981,467     $ 935,740     $ 4,842,599     $ 9,847,163       2.62 %
 
                                   
 
(1)   Balances of non-contractual maturity deposits are shown as maturing in the earliest time frame. These deposits do not have contractual maturities and re-price in varying degrees to changes in overall interest rates.
 
(2)   Wealth management deposit balances from unaffiliated companies are shown maturing in the period in which the current contractual obligation to hold these funds matures.
The following table sets forth, by category, the composition of average deposit balances and the relative percentage of total average deposits for the periods presented:
                                                 
    Three Months Ended  
    September 30, 2009     June 30, 2009     September 30, 2008  
(Dollars in thousands)   Balance     Percent     Balance     Percent     Balance     Percent  
Non-interest bearing
  $ 775,202       8 %   $ 754,479       9 %   $ 678,651       9 %
NOW accounts
    1,120,567       12       1,052,901       12       1,029,800       13  
Wealth management deposits
    935,968       10       930,855       10       599,945       8  
Money market accounts
    1,422,085       15       1,336,147       15       947,033       12  
Savings accounts
    487,437       5       433,859       5       325,383       4  
Time certificates of deposit
    4,833,522       50       4,343,334       49       4,224,904       54  
 
                                   
Total average deposits
  $ 9,574,781        100 %   $ 8,851,575       100 %   $ 7,805,716       100 %
 
                                   
Total average deposits for the third quarter of 2009 were $9.6 billion, an increase of $1.8 billion, or 23%, from the third quarter of 2008. Each deposit category increased, but the largest increases, in terms of average balances and percentage increases, were in the money market accounts and wealth management deposits. The average money market accounts increased $475.0 million, or 50%, from 2008. The increase was due to the continued success of the MaxSafe money market account product which essentially spreads the banks’ customer account balances across the Company’s 15 bank charters and provides them with 15 times the FDIC insurance of a single bank.

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Wealth management deposits are funds from the brokerage customers of Wayne Hummer Investments , the trust and asset management customers of Wayne Hummer Trust Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks (“wealth management deposits” in the table above). Consistent with reasonable interest rate risk parameters, the funds have generally been invested in loan production of the banks as well as other investments suitable for banks. The average balance of the wealth management deposits increased $336.0 million, or 56%, in the third quarter of 2009 compared to the third quarter of 2008 primarily a result of the introduction of the Wholesale wealth management money market product, which essentially spreads third party customer account balances across the Company’s 15 bank charters and provides them with 15 times the FDIC insurance of a single bank.
Other Funding Sources
Although deposits are the Company’s primary source of funding its interest-earning assets, the Company’s ability to manage the types and terms of deposits is somewhat limited by customer preferences and market competition. As a result, in addition to deposits and the issuance of equity securities and the retention of earnings, the Company uses several other sources to fund its asset base. These sources include short-term borrowings, notes payable, Federal Home Loan Bank advances, subordinated debt and junior subordinated debentures. The Company evaluates the terms and unique characteristics of each source, as well as its asset-liability management position, in determining the use of such funding sources.
Average total interest-bearing funding, from sources other than deposits and including junior subordinated debentures, totaled $1.0 billion in the third quarter of 2009 compared to $1.2 billion in the third quarter of 2008.
The following table sets forth, by category, the composition of average other funding sources for the periods presented:
                         
    Three Months Ended  
    September 30,     June 30,     September 30,  
(Dollars in thousands)   2009     2009     2008  
Notes payable
  $ 1,000     $ 1,000     $ 41,835  
Federal Home Loan Bank advances
    434,134       435,983       438,983  
 
                       
Other borrowings:
                       
Federal funds purchased
                7,853  
Securities sold under repurchase agreements and other
    244,351       248,123       349,223  
 
                 
Total other borrowings
    244,351       248,123       357,076  
 
                 
 
                       
Subordinated notes
    65,000       66,648       75,000  
Junior subordinated debentures
    249,493       249,494       249,552  
 
                       
 
                 
Total other funding sources
  $ 993,978     $ 1,001,248     $ 1,162,446  
 
                 
Notes payable balances represent the balances on a credit agreement with an unaffiliated bank. This credit facility is available for corporate purposes such as to provide capital to fund growth at existing bank subsidiaries, possible future acquisitions and for other general corporate matters.
FHLB advances provide the banks with access to fixed rate funds which are useful in mitigating interest rate risk and achieving an acceptable interest rate spread on fixed rate loans or securities.
Securities sold under repurchase agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks and short-term borrowings from brokers. This funding category fluctuates based on customer preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries.

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The Company borrowed funds under three separate subordinated note agreements. The balances of the notes as of September 30, 2009 were $20.0 million, $20.0 million and $25.0 million with maturity dates in 2012, 2013 and 2015, respectively. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year of the note and has terms of ten years. These notes qualify as Tier II regulatory capital.
Junior subordinated debentures were issued to nine trusts by the Company and equal the amount of the preferred and common securities issued by the trusts. Junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. Interest expense on these debentures is deductible for tax purposes, resulting in a cost-efficient form of regulatory capital.
See Notes 11, 12 and 18 of the Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. There were no material changes outside the ordinary course of business in the Company’s contractual obligations during the third quarter of 2009 as compared to December 31, 2008.
Shareholders’ Equity
Total shareholders’ equity was $1.1 billion at September 30, 2009, reflecting an increase of $296.5 million since September 30, 2008 and $39.5 million since the end of 2008. The increase from December 31, 2008, was the result of net income of $44.9 million less common stock dividends of $6.5 million and preferred stock dividends of $14.7 million offset by $2.2 million of accretion on the preferred stock, $5.1 million credited to surplus for stock-based compensation costs, a $4.3 million increase in equity from the issuance of shares of the Company’s common stock (and related tax benefit) pursuant to various stock compensation plans, and $4.2 million in higher net unrealized gains from available-for-sale securities and the fair value adjustment on cash flow hedges, net of tax.
The following tables reflect various consolidated measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve Bank for a bank holding company:
                         
    September 30,   June 30,   September 30,
    2009   2009   2008
Leverage ratio
    7.7 %     7.9 %     8.1 %
Tier 1 capital to risk-weighted assets
  9.0       8.9       9.2  
Total capital to risk-weighted assets
  12.3       12.4       10.7  
Total average equity-to-total average assets *
  9.1       9.7       7.8  
 
* based on quarterly average balances
                         
    Minimum        
    Capital   Adequately   Well
    Requirements   Capitalized   Capitalized
Leverage ratio
    4.0 %     4.0 %     5.0 %
Tier 1 capital to risk-weighted assets
    4.0       4.0       6.0  
Total capital to risk-weighted assets
    8.0       8.0       10.0  
The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with an unaffiliated bank and proceeds from the issuances of subordinated debt, junior subordinated debentures and additional equity. Refer to Notes 11, 12 and 17 of the Financial Statements presented under Item 1 of this report for further information on these various funding sources. The issuances of subordinated debt, junior subordinated debentures, preferred stock and additional common stock are the primary forms of regulatory capital that are considered as the Company evaluates increasing its capital position. Management is committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the Federal Reserve for bank holding companies.

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The Company’s Board of Directors approved the first semi-annual dividend on the Company’s common stock in January 2000 and has continued to approve semi-annual dividends since that time; however, our ability to declare a dividend is limited by our financial condition, the terms of our 8.00% non-cumulative perpetual convertible preferred stock, Series A, the terms of our fixed rate cumulative perpetual preferred stock, Series B (the “Series B Preferred Stock”) and by the terms of our credit agreement. In January and July 2009, Wintrust declared semi-annual cash dividends of $0.18 and $0.09 per common share, respectively. In January and July 2008, Wintrust declared semi-annual cash dividends of $0.18 per common share.
See Note 17 of the Financial Statements presented under Item 1 of this report for details on the Company’s issuance of preferred stock in August 2008 through a private transaction and also in December 2008 under the CPP.
Participation in the CPP creates restrictions upon the Company’s ability to increase dividends on its common stock or to repurchase its common stock until three years have elapsed, unless (i) all of the preferred stock issued to the Treasury are redeemed, (ii) all of the preferred stock issued to the Treasury have been transferred to third parties, or (iii) the Company receives the consent of the Treasury. In addition, the Treasury has the right to appoint two additional directors to the Wintrust board if the Company misses dividend payments for six dividend periods, whether or not consecutive, on the Series B Preferred Stock. Pursuant to the terms of the certificate of designations creating the CPP preferred stock, the Company’s board will be automatically expanded to include such directors, upon the occurrence of the foregoing conditions.
Taking into account the limitation on the payment of dividends in connection with the Series B Preferred Stock, the final determination of timing, amount and payment of dividends is at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, financial condition, capital requirements and other relevant factors. Additionally, the payment of dividends is also subject to statutory restrictions and restrictions arising under the terms of the Company’s Trust Preferred Securities offerings and under certain financial covenants in the Company’s revolving line of credit. Under the terms of the Company’s revolving credit facility entered into on October 30, 2009, the Company is prohibited from paying dividends on any equity interests, including its common stock and preferred stock, if such payments would cause the Company to be in default under its credit facility.

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ASSET QUALITY
Past Due Loans and Non-Performing Assets
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 to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 9 with higher scores indicating higher risk. The credit risk rating structure used is shown below:
     
1 Rating —
  Minimal Risk (Loss Potential – none or extremely low) (Superior asset quality, excellent liquidity, minimal leverage)
 
   
2 Rating —
  Modest Risk (Loss Potential demonstrably low) (Very good asset quality and liquidity, strong leverage capacity)
 
   
3 Rating —
  Average Risk (Loss Potential low but no longer refutable) (Mostly satisfactory asset quality and liquidity, good leverage capacity)
 
   
4 Rating —
  Above Average Risk (Loss Potential variable, but some potential for deterioration) (Acceptable asset quality, little excess liquidity, modest leverage capacity)
 
   
5 Rating —
  Management Attention Risk (Loss Potential moderate if corrective action not taken) (Generally acceptable asset quality, somewhat strained liquidity, minimal leverage capacity)
 
   
6 Rating —
  Special Mention (Loss Potential moderate if corrective action not taken) (Assets in this category are currently protected, potentially weak, but not to the point of substandard classification)
 
   
7 Rating —
  Substandard (Loss Potential distinct possibility that the bank may sustain some loss) (Must have well defined weaknesses that jeopardize the liquidation of the debt)
 
   
8 Rating —
  Doubtful (Loss Potential extremely high) (These assets have all the weaknesses in those classified “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly improbable)
 
   
9 Rating —
  Loss (fully charged-off) (Loans in this category are considered full uncollectible.)
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. A third party loan review firm independently reviews a significant portion of the loan portfolio at each of the Company’s subsidiary banks to evaluate the appropriateness of the management-assigned credit risk ratings. These ratings are subject to further review at each of our bank subsidiaries by the applicable regulatory authority, including the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, the State of Illinois and the State of Wisconsin and our internal audit staff.
The Company’s Problem Loan Reporting system automatically includes all loans with credit risk ratings of 6, 7 or 8. 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, the valuation methodology 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 often by independent third party valuation experts and may be adjusted depending upon market conditions. An appraisal is ordered at least once a year for these loans, or

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more often if market conditions dictate. In the event that the underlying value of the collateral cannot be easily determined, a detailed valuation methodology is prepared by the Managed Asset Division. A summary of this analysis is provided to the directors’ loan committee of the bank which originated the credit for approval of a charge-off, if necessary.
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. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If we determine that a loan amount or portion thereof, is uncollectible the loan’s credit risk rating is immediately downgraded to an 8 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 for the duration of time that a balance remains outstanding. The Managed Asset Division 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. As a result of the loan-by-loan nature of the Company’s review process, no significant time lapses have occurred during the review process.

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The following table sets forth Wintrust’s non-performing assets at the dates indicated:
Non-performing Loans
                                 
    September 30,     June 30,     December 31,     September 30,  
(Dollars in thousands)   2009     2009     2008     2008  
Loans past due greater than 90 days and still accruing:
                               
Residential real estate and home equity
  $ 1,272     $ 1,447     $ 617     $ 1,084  
Commercial, consumer and other
    23,402       7,860       14,750       6,100  
Premium finance receivables – commercial
    11,714       14,301       9,339       5,903  
Premium finance receivables – life insurance
                       
Indirect consumer loans
    549       695       679       877  
 
                       
Total past due greater than 90 days and still accruing
    36,937       24,303       25,385       13,964  
 
                       
 
                               
Non-accrual loans:
                               
Residential real estate and home equity
    10,885       11,925       6,528       6,214  
Commercial, consumer and other
    167,008       184,960       91,814       81,997  
Premium finance receivables – commercial
    16,093       15,806       11,454       10,239  
Premium finance receivables – life insurance
                       
Indirect consumer loans
    736       1,225       913       627  
 
                       
Total non-accrual
    194,722       213,916       110,709       99,077  
 
                       
 
                               
Total non-performing loans:
                               
Residential real estate and home equity
    12,157       13,372       7,145       7,298  
Commercial, consumer and other
    190,410       192,820       106,564       88,097  
Premium finance receivables – commercial
    27,807       30,107       20,793       16,142  
Premium finance receivables – life insurance
                       
Indirect consumer loans
    1,285       1,920       1,592       1,504  
 
                       
Total non-performing loans
  $ 231,659       238,219     $ 136,094     $ 113,041  
 
                       
 
                               
Total non-performing loans by category as a percent of its own respective category’s period-end balance:
                               
Residential real estate and home equity
    1.00 %     1.12 %     0.62 %     0.67 %
Commercial, consumer and other
    3.70       3.71       2.16       1.82  
Premium finance receivables – commercial
    3.70       3.39       1.67       1.39  
Premium finance receivables – life insurance
                       
Indirect consumer loans
    1.11       1.44       0.90       0.75  
 
                       
Total non-performing loans
    2.80 %     3.14 %     1.79 %     1.54 %
 
                       
Allowance for loan losses as a percentage of non-performing loans
    41.05 %     35.73 %     51.26 %     58.67 %
 
                       
As the above table reflects, the Company’s allowance for loan losses (which are discussed below under “Allowance for Loan Losses”) as a percentage of non-performing loans has generally declined in recent years. For example, at September&nb