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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35077

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Illinois		36-3873352
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

727 North Bank Lane
Lake Forest, Illinois 60045

(Address of principal executive offices)

(847) 615-4096

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   þ No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   þ No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   þ		Accelerated filer   o		Non-accelerated filer   o		Smaller reporting company   o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   o No   þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock — no par value, 34,962,816 shares, as of May 3, 2011

 

 

TABLE OF CONTENTS

		Page
PART I. — FINANCIAL INFORMATION
ITEM 1. Financial Statements			1-40
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41-79
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			80-81
ITEM 4. Controls and Procedures			82
PART II. — OTHER INFORMATION
ITEM 1. Legal Proceedings		NA
ITEM 1A. Risk Factors			82
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			82
ITEM 3. Defaults Upon Senior Securities		NA
ITEM 4. Removed and Reserved		NA
ITEM 5. Other Information		NA
ITEM 6. Exhibits			83
Signatures			84
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

		(Unaudited)								(Unaudited)
		March 31,				December 31,				March 31,
(In thousands, except share data)		2011				2010				2010
Assets
Cash and due from banks		$	140,919			$	153,690			$	106,501
Federal funds sold and securities purchased under resale agreements			33,575				18,890				15,393
Interest-bearing deposits with other banks (balance restricted for securitization investors of $35,630 at March 31, 2011, $36,620 at December 31, 2010, and $114,925 at March 31, 2010)			946,193				865,575				1,222,323
Available-for-sale securities, at fair value			1,710,321				1,496,302				1,205,919
Trading account securities			2,229				4,879				39,938
Federal Home Loan Bank and Federal Reserve Bank stock			85,144				82,407				74,001
Brokerage customer receivables			25,361				24,549				20,978
Mortgage loans held-for-sale, at fair value			92,151				356,662				149,897
Mortgage loans held-for-sale, at lower of cost or market			2,335				14,785				6,152
Loans, net of unearned income, excluding covered loans			9,561,802				9,599,886				9,070,562
Covered loans			431,299				334,353				—
Total loans			9,993,101				9,934,239				9,070,562
Less: Allowance for loan losses			115,049				113,903				102,397
Less: Allowance for covered loan losses			4,844				—				—
Net Loans (balance restricted for securitization investors of $647,793 at March 31, 2011, $646,268 at December 31, 2010, and $565,185 at March 31, 2010)			9,873,208				9,820,336				8,968,165
Premises and equipment, net			369,785				363,696				348,182
FDIC indemnification asset			124,785				118,182				—
Accrued interest receivable and other assets			394,292				366,438				363,676
Trade date securities receivable			—				—				27,850
Goodwill			281,940				281,190				278,025
Other intangible assets			12,056				12,575				12,978
Total assets		$	14,094,294			$	13,980,156			$	12,839,978
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing		$	1,279,256			$	1,201,194			$	871,830
Interest bearing			9,635,913				9,602,479				8,853,040
Total deposits			10,915,169				10,803,673				9,724,870
Notes payable			1,000				1,000				1,000
Federal Home Loan Bank advances			423,500				423,500				421,775
Other borrowings			250,032				260,620				218,079
Secured borrowings — owed to securitization investors			600,000				600,000				600,000
Surbordinated notes			50,000				50,000				60,000
Junior subordinated debentures			249,493				249,493				249,493
Trade date securities payable			10,000				—				62,017
Accrued interest payable and other liabilities			141,847				155,321				137,912
Total liabilities			12,641,041				12,543,607				11,475,146
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 March 31, 2011, December 31, 2010 and March 31, 2010			49,672				49,640				49,379
Series B — $1,000 liquidation value; no shares issued and outstanding at March 31, 2011 and December 31, 2010, and 250,000 shares issued and outstanding at March 31, 2010			—				—				236,263
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 34,947,251 shares issued at March 31, 2011, 34,864,068 shares issued at December 31, 2010, and 31,044,449 shares issued at March 31, 2010			34,947				34,864				31,044
Surplus			967,587				965,203				677,090
Treasury stock, at cost, 1,069 shares at March 31, 2011 and no shares at December 31, 2010 and March 31, 2010, respectively			(74	)			—				—
Retained earnings			404,580				392,354				373,903
Accumulated other comprehensive loss			(3,459	)			(5,512	)			(2,847	)
Total shareholders’ equity			1,453,253				1,436,549				1,364,832
Total liabilities and shareholders’ equity		$	14,094,294			$	13,980,156			$	12,839,978

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three Months Ended
		March 31,
(In thousands, except per share data)		2011				2010
Interest income
Interest and fees on loans		$	136,543			$	129,542
Interest bearing deposits with banks			936				1,274
Federal funds sold and securities purchased under resale agreements			32				49
Securities			9,540				11,012
Trading account securities			13				21
Federal Home Loan Bank and Federal Reserve Bank stock			550				459
Brokerage customer receivables			166				139
Total interest income			147,780				142,496
Interest expense
Interest on deposits			23,956				33,212
Interest on Federal Home Loan Bank advances			3,958				4,346
Interest on notes payable and other borrowings			2,630				1,462
Interest on secured borrowings — owed to securitization investors			3,040				2,995
Interest on subordinated notes			212				241
Interest on junior subordinated debentures			4,370				4,375
Total interest expense			38,166				46,631
Net interest income			109,614				95,865
Provision for credit losses			25,344				29,044
Net interest income after provision for credit losses			84,270				66,821
Non-interest income
Wealth management			10,236				8,667
Mortgage banking			11,631				9,727
Service charges on deposit accounts			3,311				3,332
Gains on available-for-sale securities, net			106				392
Gain on bargain purchases			9,838				10,894
Trading (losses) gains			(440	)			5,961
Other			6,205				3,634
Total non-interest income			40,887				42,607
Non-interest expense
Salaries and employee benefits			56,099				49,072
Equipment			4,264				3,896
Occupancy, net			6,505				6,230
Data processing			3,523				3,407
Advertising and marketing			1,614				1,314
Professional fees			3,546				3,107
Amortization of other intangible assets			689				645
FDIC insurance			4,518				3,809
OREO expenses, net			5,808				1,337
Other			11,543				11,121
Total non-interest expense			98,109				83,938
Income before taxes			27,048				25,490
Income tax expense			10,646				9,473
Net income		$	16,402			$	16,017
Preferred stock dividends and discount accretion		$	1,031			$	4,943
Net income applicable to common shares		$	15,371			$	11,074
Net income per common share — Basic		$	0.44			$	0.43
Net income per common share — Diluted		$	0.36			$	0.41
Cash dividends declared per common share		$	0.09			$	0.09
Weighted average common shares outstanding			34,928				25,942
Dilutive potential common shares			7,794				1,139
Average common shares and dilutive common shares			42,722				27,081

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

																						Accumulated
																						other				Total
		Preferred				Common								Treasury				Retained				comprehensive				shareholder’s
(In thousands)		stock				stock				Surplus				stock				earnings				income (loss)				equity
Balance at December 31, 2009		$	284,824			$	27,079			$	589,939			$	(122,733	)		$	366,152			$	(6,622	)		$	1,138,639
Comprehensive income:
Net income			—				—				—				—				16,017				—				16,017
Other comprehensive income, net of tax:
Unrealized gains on securities, net of reclassification adjustment			—				—				—				—				—				4,095				4,095
Unrealized losses on derivative instruments			—				—				—				—				—				(164	)			(164	)
Comprehensive income																											19,948
Cash dividends declared on common stock			—				—				—				—				(2,191	)			—				(2,191	)
Dividends on preferred stock			—				—				—				—				(4,125	)			—				(4,125	)
Accretion on preferred stock			818				—				—				—				(818	)			—				—
Common stock repurchases			—				—				—				(98	)			—				—				(98	)
Stock-based compensation			—				—				1,414				—				—				—				1,414
Cumulative effect of change in accounting for loan securitizations			—				—				—				—				(1,132	)			(156	)			(1,288	)
Common stock issued for:
New issuance, net of costs			—				3,795				83,919				122,831				—				—				210,545
Exercise of stock options and warrants			—				78				1,621				—				—				—				1,699
Restricted stock awards			—				31				(237	)			—				—				—				(206	)
Employee stock purchase plan			—				13				482				—				—				—				495
Director compensation plan			—				48				(48	)			—				—				—				—
Balance at March 31, 2010		$	285,642			$	31,044			$	677,090			$	—			$	373,903			$	(2,847	)		$	1,364,832
Balance at December 31, 2010		$	49,640			$	34,864			$	965,203			$	—			$	392,354			$	(5,512	)		$	1,436,549
Comprehensive income:
Net income			—				—				—				—				16,402				—				16,402
Other comprehensive income, net of tax:
Unrealized gains on securities, net of reclassification adjustment			—				—				—				—				—				749				749
Unrealized gains on derivative instruments			—				—				—				—				—				1,304				1,304
Comprehensive income			—				—				—				—				—				—				18,455
Cash dividends declared on common stock			—				—				—				—				(3,145	)			—				(3,145	)
Dividends on preferred stock			—				—				—				—				(999	)			—				(999	)
Accretion on preferred stock			32				—				—				—				(32	)			—				—
Common stock repurchases			—				—				—				(74	)			—				—				(74	)
Stock-based compensation			—				—				1,094				—				—				—				1,094
Common stock issued for:
Exercise of stock options and warrants			—				33				546				—				—				—				579
Restricted stock awards			—				12				(16	)			—				—				—				(4	)
Employee stock purchase plan			—				13				423				—				—				—				436
Director compensation plan			—				25				337				—				—				—				362
Balance at March 31, 2011		$	49,672			$	34,947			$	967,587			$	(74	)		$	404,580			$	(3,459	)		$	1,453,253

		Three Months Ended March 31,
		2011				2010
Other comprehensive income (loss)
Unrealized gains (losses) on available-for-sale securities arising during the period, net		$	1,370			$	6,798
Unrealized gains (losses) on derivative instruments arising during the period, net			2,121				(267	)
Less: Reclassification adjustment for gains included in net income, net			106				392
Less: Income tax expense			1,332				2,364
Other comprehensive income		$	2,053			$	3,775

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Three Months Ended March 31,
(In thousands)		2011				2010
Operating Activities:
Net income		$	16,402			$	16,017
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses			25,344				29,044
Depreciation and amortization			5,551				5,130
Stock-based compensation expense			1,094				1,414
Tax benefit from stock-based compensation arrangements			235				396
Excess tax benefits from stock-based compensation arrangements			(194	)			(570	)
Net amortization of premium on securities			4,176				413
Mortgage servicing rights fair value change and amortization, net			(140	)			538
Originations and purchases of mortgage loans held-for-sale			(562,088	)			(686,679	)
Proceeds from sales of mortgage loans held-for-sale			843,209				816,427
Bank owned life insurance income, net of claims			(876	)			(623	)
Decrease (increase) in trading securities, net			2,650				(6,164	)
Net increase in brokerage customer receivables			(812	)			(107	)
Gain on mortgage loans sold			(4,160	)			(10,081	)
Gain on available-for-sale securities, net			(106	)			(392	)
Gain on bargain purchases			(9,838	)			(10,894	)
Decrease in accrued interest receivable and other assets, net			47,043				31,080
Decrease in accrued interest payable and other liabilities, net			(16,406	)			(23,813	)
Net Cash Provided by Operating Activities			351,084				161,136
Investing Activities:
Proceeds from maturities of available-for-sale securities			284,469				364,778
Proceeds from sales of available-for-sale securities			50,142				184,515
Purchases of available-for-sale securities			(541,199	)			(507,544	)
Net cash received for acquisitions			21,371				—
Net increase in interest-bearing deposits with banks			(56,222	)			(81,735	)
Net decrease (increase) in loans			17,691				(131,153	)
Purchases of premises and equipment, net			(10,557	)			(2,148	)
Net Cash Used for Investing Activities			(234,305	)			(173,287	)
Financing Activities:
Decrease in deposit accounts			(100,938	)			(192,207	)
Decrease in other borrowings, net			(10,808	)			(29,358	)
Decrease in Federal Home Loan Bank advances, net			—				(9,300	)
Excess tax benefits from stock-based compensation arrangements			194				570
Issuance of common stock, net of issuance costs			—				210,545
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants			905				1,593
Common stock repurchases			(74	)			(98	)
Dividends paid			(4,144	)			(6,316	)
Net Cash Used for Financing Activities			(114,865	)			(24,571	)
Net Increase (Decrease) in Cash and Cash Equivalents			1,914				(36,722	)
Cash and Cash Equivalents at Beginning of Period			172,580				158,616
Cash and Cash Equivalents at End of Period		$	174,494			$	121,894

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The consolidated financial statements of Wintrust Financial Corporation and Subsidiaries (“Wintrust” or “the Company”) presented herein are unaudited, but in the opinion of management reflect all necessary adjustments of a normal or recurring nature for a fair presentation of results as of the dates and for the periods covered by the consolidated financial statements.

The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”). Operating results reported for the three-month period are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, covered loan losses, and losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 “Summary of Significant Accounting Policies” of the Company’s 2010 Form 10-K.

(2) Recent Accounting Developments

Disclosures about Fair Value of Financial Instruments

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which amended the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance required new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance required a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the Company with the reporting period beginning January 1, 2010, except for the disclosure of the roll forward activities for Level 3 fair value measurements, which became effective for the Company with the reporting period beginning January 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Note 15 — Fair Value of Assets and Liabilities.

Credit Quality Disclosures of Financing Receivables and Allowance for Credit Losses

In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which required more information in disclosures related to the credit quality of financing receivables and the credit reserves held against them. This guidance required the Company to provide a greater level of disaggregated information about the credit quality of the Company’s loans and the allowance for loan losses as well as to disclose additional information related to credit quality indicators, past due information, and impaired loans. This ASU also included disclosure requirements for information related to loans modified in a troubled debt restructuring, however these disclosures were deferred in January 2011 upon FASB’s issuance of ASU No. 2011-01 “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in update No. 2010-20” to become effective for reporting periods beginning on or after June 15, 2011. All other provisions of ASU 2010-20, except for the summary of activity in the allowance for credit losses by loan portfolio, were effective for the Company’s reporting period ending on or after December 15, 2010. Although not required, the Company disclosed the summary of activity in the allowance for credit losses for the year ending December 31, 2010. Additional credit quality disclosures are included in our consolidated financial statements to provide disaggregated information with respect to the Company’s loan portfolio and the allowance for loan losses. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Item 2 — Loan Portfolio and Asset Quality for further detail.

Determination of a Troubled Debt Restructuring

In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which seeks to clarify guidance used to evaluate troubled debt restructurings resulting in consistent application of U.S. GAAP. The update provides guidance to evaluate what is considered to be an economic concession as well as circumstances which indicate that a debtor is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company does not expect adoption of this new guidance to significantly change its troubled debt restructuring determination process or have a material impact on its consolidated financial statements.

(3) Business Combinations

FDIC-Assisted Transactions

Since April 2010, the Company has acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of five financial institutions in FDIC-assisted transactions.

The following table presents details related to these transactions:

														Community First				The Bank of
(Dollars in thousands)		Lincoln Park				Wheatland				Ravenswood				Bank - Chicago				Commerce
Date of acquisition		April 23, 2010				April 23, 2010				August 6, 2010				February 4, 2011				March 25, 2011
Fair value of assets acquired, at the acquisition date		$	157,078			$	343,870			$	173,919			$	50,763			$	172,956
Fair value of loans acquired, at the acquisition date			103,420				175,277				97,956				27,332				83,276
Fair value of liabilities assumed, at the acquisition date			192,018				415,560				122,943				49,687				168,152

Loans comprise the majority of the assets acquired in these transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. The Company refers to the loans subject to these loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $41.6 million for The Bank of Commerce (“TBOC”) acquisition and $6.5 million for the Community First Bank-Chicago (“CFBC”) acquisitions. In 2010, the Company estimated the fair value of the reimbursable losses to be approximately $44.0 million for the Ravenswood acquisition, and $113.8 million for the Lincoln Park and Wheatland acquisitions. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses. Certain purchase price allocations for TBOC and CFBC, such as the fair valuation of loans, are preliminary. The final allocation is not expected to result in material changes.

The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as an FDIC indemnification asset in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date. Therefore, the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration. These transactions resulted in bargain purchase gains of $9.8 million in the first quarter 2011, $7.9 million for TBOC and $1.9 million for CFBC, and are shown as a component of non-interest income on the Company’s Consolidated Statements of Income. In 2010, FDIC-assisted transactions resulted in bargain purchase gains of $33.1 million, $6.6 million for Ravenswood, $22.3 million for Wheatland, and $4.2 million for Lincoln Park.

Other Bank Acquisitions

On October 22, 2010, Wheaton Bank acquired a branch of First National Bank of Brookfield that is located in Naperville, Illinois. The acquired operations are operating as Naperville Bank & Trust. Wheaton Bank acquired assets with a fair value of approximately $22.9 million, including $10.7 million of loans, and assumed liabilities with a fair value of approximately $22.9 million, including $22.8 million of deposits. Additionally, the Company recorded goodwill of $1.7 million on the acquisition.

Acquisition of Woodfield Planning Corporation

On February 3, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Woodfield Planning Corporation (“Woodfield”) of Rolling Meadows, Illinois. With offices in Rolling Meadows, Illinois and Crystal

Lake, Illinois, Woodfield originated approximately $180 million in mortgage loans in 2010.

Purchased loans with evidence of credit quality deterioration since origination

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio.

In determining the acquisition date fair value of purchased impaired loans for the five FDIC-assisted transactions, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans with common risk characteristics. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

The Company purchased a portfolio of life insurance premium finance receivables in 2009. These purchased life insurance premium finance receivables are valued on an individual basis with the accretable component being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion is evaluated each quarter and if the loans’ credit related conditions improve, a portion is transferred to the accretable component and accreted over future periods. In the event a specific loan prepays in whole, any remaining accretable and non-accretable discount is recognized in income immediately. If credit related conditions deteriorate, an allowance related to these loans will be established as part of the provision for credit losses.

See Note 6 — Loans, for more information on loans acquired with evidence of credit quality deterioration since origination.

(4) Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash items in the process of collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale agreements with original maturities of three months or less.

(5) Available-for-sale Securities

The following tables are a summary of the available-for-sale securities portfolio as of the dates shown:

		March 31, 2011
						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(Dollars in thousands)		Cost				gains				losses				Value
U.S. Treasury		$	104,360			$	1			$	(8,201	)		$	96,160
U.S. Government agencies			792,898				3,241				(285	)			795,854
Municipal			47,576				934				(104	)			48,406
Corporate notes and other:
Financial issuers			146,121				3,362				(2,453	)			147,030
Other			87,854				715				(26	)			88,543
Mortgage-backed: (1)
Agency			484,738				9,787				(986	)			493,539
Non-agency CMOs			397				7				—				404
Other equity securities			40,725				80				(420	)			40,385
Total available-for-sale securities		$	1,704,669			$	18,127			$	(12,475	)		$	1,710,321

		December 31, 2010
						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(Dollars in thousands)		Cost				gains				losses				Value
U.S. Treasury		$	104,418			$	—			$	(8,321	)		$	96,097
U.S. Government agencies			882,095				2,682				(722	)			884,055
Municipal			51,493				896				(86	)			52,303
Corporate notes and other:
Financial issuers			186,931				3,048				(2,972	)			187,007
Other			74,629				330				(51	)			74,908
Mortgage-backed: (1)
Agency			148,693				9,963				(3	)			158,653
Non-agency CMOs			3,018				10				—				3,028
Other equity securities			40,636				96				(481	)			40,251
Total available-for-sale securities		$	1,491,913			$	17,025			$	(12,636	)		$	1,496,302

The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011:

		Continuous unrealized								Continuous unrealized
		losses existing for								losses existing for
		less than 12 months								greater than 12 months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(Dollars in thousands)		value				losses				value				losses				value				losses
U.S. Treasury		$	94,148			$	(8,201	)		$	—			$	—			$	94,148			$	(8,201	)
U.S. Government agencies			128,120				(285	)			—				—				128,120				(285	)
Municipal			4,798				(65	)			3,318				(39	)			8,116				(104	)
Corporate notes and other:
Financial issuers			63,048				(1,298	)			4,787				(1,155	)			67,835				(2,453	)
Other			7,292				(26	)			—				—				7,292				(26	)
Mortgage-backed:
Non-agency CMOs			221,361				(986	)											221,361				(986	)
Other equity securities			28,075				(420	)			—				—				28,075				(420	)
Total		$	546,842			$	(11,281	)		$	8,105			$	(1,194	)		$	554,947			$	(12,475	)

The Company conducts a regular assessment of its investment securities to determine whether securities are other-than-temporarily impaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.

The Company does not consider securities with unrealized losses at March 31, 2011 to be other-than-temporarily impaired. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Securities with continuous unrealized losses existing for more than twelve months were primarily corporate securities of financial issuers. The corporate securities of financial issuers in this category were comprised of three trust-preferred securities with high investment grades. These obligations have interest rates significantly below the rates at which these types of obligations are currently issued, and have maturity dates in 2027. Although they are currently callable by the issuers, it is unlikely that they will be called in the near future as the interest rates are very attractive to the issuers. A review of the issuers indicated that they have recently raised equity capital and/or have strong capital ratios. The Company does not own any pooled trust-preferred securities.

The following table provides information as to the amount of gross gains and gross losses realized and proceeds received through the sales of available-for-sale investment securities:

		Three Months Ended March 31,
(Dollars in thousands)		2011				2010
Realized gains		$	106			$	507
Realized losses			—				(115	)
Net realized gains		$	106			$	392
Other than temporary impairment charges			—				—
Gains on available- for-sale securities, net		$	106			$	392
Proceeds from sales of available-for-sale securities		$	50,142			$	184,515

The amortized cost and fair value of securities as of March 31, 2011 and December 31, 2010, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:

		March 31, 2011								December 31, 2010
		Amortized				Fair				Amortized				Fair
(Dollars in thousands)		Cost				Value				Cost				Value
Due in one year or less		$	449,298			$	449,786			$	647,494			$	647,987
Due in one to five years			376,031				377,351				309,795				310,663
Due in five to ten years			233,052				226,530				194,442				185,938
Due after ten years			120,428				122,326				147,835				149,782
Mortgage-backed			485,135				493,943				151,711				161,681
Other equity securities			40,725				40,385				40,636				40,251
Total available-for-sale securities		$	1,704,669			$	1,710,321			$	1,491,913			$	1,496,302

At March 31, 2011 and December 31, 2010, securities having a carrying value of $895 million and $876 million, respectively, which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At March 31, 2011, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

(6) Loans

The following table shows the Company’s loan portfolio by category as of the dates shown:

		March 31,				December 31,				March 31,
(Dollars in thousands)		2011				2010				2010
Balance:
Commercial		$	1,937,561			$	2,049,326			$	1,749,895
Commercial real-estate			3,356,562				3,338,007				3,333,157
Home equity			891,332				914,412				924,993
Residential real-estate			344,909				353,336				322,984
Premium finance receivables — commercial			1,337,851				1,265,500				1,317,822
Premium finance receivables — life insurance			1,539,521				1,521,886				1,233,573
Indirect consumer			52,379				51,147				83,136
Other loans			101,687				106,272				105,002
Total loans, net of unearned income, excluding covered loans		$	9,561,802			$	9,599,886			$	9,070,562
Covered loans			431,299				334,353				—
Total loans		$	9,993,101			$	9,934,239			$	9,070,562
Mix:
Commercial			19	%			21	%			19	%
Commercial real-estate			34				34				37
Home equity			9				9				10
Residential real-estate			4				3				4
Premium finance receivables — commercial			13				13				14
Premium finance receivables — life insurance			15				15				14
Indirect consumer			1				1				1
Consumer and other			1				1				1
Total loans, net of unearned income, excluding covered loans			96	%			97	%			100	%
Covered loans			4				3				—
Total loans			100	%			100	%			100	%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $34.6 million at March 31, 2011, $32.3 million at December 31, 2010 and $37.1 million at March 31, 2010. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the covered loans acquired in the FDIC-assisted acquisitions during 2010 and 2011 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Indirect consumer loans include auto, boat and other indirect consumer loans. Total indirect consumer loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $11.5 million at March 31, 2011, $12.5 million at December 31, 2010 and $11.9 million at March 31, 2010.

The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses located within the geographic market areas that the Banks serve. The premium finance receivables portfolios are made to customers on a national basis and the majority of the indirect consumer loans were generated through a network of local automobile dealers. As a result, the Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.

It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.

Acquired Loan Information at Acquisition — Loans with evidence of credit quality deterioration since origination

As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the FDIC-assisted bank acquisitions in 2010 and 2011, we acquired loans for which there was evidence of credit quality deterioration since origination and we determined

that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The following table presents the unpaid principal balance and carrying value for these acquired loans:

		March 31, 2011								December 31, 2010
		Unpaid								Unpaid
		Principal				Carrying				Principal				Carrying
(Dollars in thousands)		Balance				Value				Balance				Value
Acquisitions during the period:
The Bank of Commerce (1)		$	134,082			$	83,282			$	—			$	—
Community First Bank — Chicago			31,604				25,440				—				—
Acquisitions during prior periods:
Covered loans from FDIC-assisted acquistions			384,767				322,577				432,566				331,295
Life insurance premium finance loans			722,766				675,076				752,129				695,587

For the loans acquired as a result of acquisitions during the first quarter of 2011, the following table provides estimated details on these loans at the date of each acquisition:

		The Bank of				Community First
(Dollars in thousands)		Commerce				Bank - Chicago
Contractually required payments including interest		$	136,162			$	35,597
Less: Nonaccretable difference			47,686				6,450
Cash flows expected to be collected (1)			88,476				29,147
Less: Accretable yield			5,200				1,907
Fair value of loans acquired with evidence of credit quality deterioration since origination		$	83,276			$	27,240

See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with the covered loan portfolio at March 31, 2011.

Accretable Yield Activity

The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination:

		Three Months Ended
		March 31, 2011
						Life Insurance
		FDIC-Assisted				Premium
(Dollars in thousands)		Acquisitions				Finance Loans
Accretable yield, beginning balance		$	39,809			$	33,315
Acquisitions			7,107				—
Accretable yield amortized to interest income			(14,159	)			(9,052	)
Increase in expected cash flows (1)			58,575				1,280
Accretable yield, ending balance		$	91,332			$	25,543

(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans

The tables below show the aging of the Company’s loan portfolio at March 31, 2011, December 31, 2010 and March 31, 2010:

						90+ days				60-89				30-59
As of March 31, 2011						and still				days past				days past
(Dollars in thousands)		Nonaccrual				accruing				due				due				Current				Total Loans
Loan Balances:
Commercial
Commercial and industrial		$	24,277			$	150			$	3,233			$	9,201			$	1,240,796			$	1,277,657
Franchise			1,792				—				—				—				112,584				114,376
Mortgage warehouse lines of credit			—				—				—				—				33,482				33,482
Community Advanatage — homeowners association			—				—				—				—				75,948				75,948
Aircraft			74				—				—				—				22,243				22,317
Asset-based lending			—				—				216				2,355				299,328				301,899
Municipal			—				—				—				—				60,376				60,376
Leases			14				—				—				88				51,404				51,506
Other			—				—				—				—				—				—
Total commercial			26,157				150				3,449				11,644				1,896,161				1,937,561
Commercial real-estate:
Residential construction			7,891				—				1,057				3,587				78,832				91,367
Commercial construction			1,396				692				2,469				680				116,311				121,548
Land			26,974				—				7,366				12,455				183,419				230,214
Office			17,945				—				1,705				3,059				534,558				557,267
Industrial			1,251				524				1,672				8,499				483,690				495,636
Retail			12,824				—				4,994				5,810				499,486				523,114
Multi-family			5,968				—				1,107				5,059				281,729				293,863
Mixed use and other			19,752				781				7,187				19,835				995,998				1,043,553
Total commercial real-estate			94,001				1,997				27,557				58,984				3,174,023				3,356,562
Home equity			11,184				—				3,366				6,603				870,179				891,332
Residential real estate			4,909				—				918				5,174				333,908				344,909
Premium finance receivables
Commercial insurance loans			9,550				6,319				4,433				14,428				1,303,121				1,337,851
Life insurance loans			342				—				1,130				5,580				857,393				864,445
Purchased life insurance loans			—				—				—				—				675,076				675,076
Indirect consumer			320				310				182				657				50,910				52,379
Consumer and other			147				1				185				394				100,960				101,687
Total loans, net of unearned income, excluding covered loans			146,610				8,777				41,220				103,464				9,261,731				9,561,802
Covered loans			—				116,298				5,288				24,855				284,858				431,299
Total loans, net of unearned income		$	146,610			$	125,075			$	46,508			$	128,319			$	9,546,589			$	9,993,101