WTFC 10-Q Quarterly Report June 30, 2013

WINTRUST FINANCIAL CORP

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10-Q 1 wtfc-20130630x10q.htm 10-Q WTFC-2013.06.30-10Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________



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

For the quarterly period ended June 30, 2013



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

For the transition period from to

Commission File Number 001-35077

_____________________________________

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



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

9700 W. Higgins Road, Suite 800

Rosemont, Illinois 60018

(Address of principal executive offices)

(847) 939-9000

(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 ¨

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 ¨

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	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	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 ¨ 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, 39,725,726 shares, as of July 31, 2013

Table of Contents

TABLE OF CONTENTS



		Page
	PART I. — FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	110
ITEM 4.	Controls and Procedures	112
	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings	NA
ITEM 1A.	Risk Factors	113
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	113
ITEM 3.	Defaults Upon Senior Securities	NA
ITEM 4.	Mine Safety Disclosures	NA
ITEM 5.	Other Information	NA
ITEM 6.	Exhibits	114
	Signatures	115

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION

	(Unaudited)						(Unaudited)
(In thousands, except share data)	June 30, 2013			December 31, 2012			June 30, 2012
Assets
Cash and due from banks	$	224,286		$	284,731		$	176,529
Federal funds sold and securities purchased under resale agreements	9,013			30,297			15,227
Interest-bearing deposits with other banks (no balance restricted for securitization investors at June 30, 2013 and December 31, 2012, and a balance restricted for securitization investors of $658,983 at June 30, 2012)	440,656			1,035,743			1,117,888
Available-for-sale securities, at fair value	1,843,824			1,796,076			1,196,702
Trading account securities	659			583			608
Federal Home Loan Bank and Federal Reserve Bank stock	79,354			79,564			92,792
Brokerage customer receivables	26,214			24,864			31,448
Mortgage loans held-for-sale, at fair value	525,027			385,033			511,566
Mortgage loans held-for-sale, at lower of cost or market	12,964			27,167			14,538
Loans, net of unearned income, excluding covered loans	12,516,892			11,828,943			11,202,842
Covered loans	454,602			560,087			614,062
Total loans	12,971,494			12,389,030			11,816,904
Less: Allowance for loan losses	106,842			107,351			111,920
Less: Allowance for covered loan losses	14,429			13,454			20,560
Net loans (no balance restricted for securitization investors at June 30, 2013 and December 31, 2012, and a balance restricted for securitization investors of $29,840 at June 30, 2012)	12,850,223			12,268,225			11,684,424
Premises and equipment, net	512,928			501,205			449,608
FDIC indemnification asset	137,681			208,160			222,568
Accrued interest receivable and other assets	573,709			511,617			710,275
Goodwill	356,871			345,401			330,896
Other intangible assets	20,137			20,947			21,213
Total assets	$	17,613,546		$	17,519,613		$	16,576,282
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	2,450,659		$	2,396,264		$	2,047,715
Interest bearing	11,915,195			12,032,280			11,009,866
Total deposits	14,365,854			14,428,544			13,057,581
Notes payable	1,729			2,093			2,457
Federal Home Loan Bank advances	585,942			414,122			564,301
Other borrowings	252,776			274,411			375,523
Secured borrowings—owed to securitization investors	—			—			360,825
Subordinated notes	10,000			15,000			15,000
Junior subordinated debentures	249,493			249,493			249,493
Trade date securities payable	577			—			19,025
Accrued interest payable and other liabilities	310,515			331,245			210,003
Total liabilities	15,776,886			15,714,908			14,854,208
Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series A - $1,000 liquidation value; 50,000 shares issued and outstanding at June 30, 2013, December 31, 2012 and June 30, 2012	49,976			49,906			49,837
Series C - $1,000 liquidation value; 126,500 shares issued and outstanding at June 30, 2013, December 31, 2012 and June 30, 2012	126,500			126,500			126,500
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at June 30, 2013, December 31, 2012, and June 30, 2012; 37,984,485 shares issued at June 30, 2013, 37,107,684 shares issued at December 31, 2012, and 36,573,468 shares issued at June 30, 2012	37,985			37,108			36,573
Surplus	1,066,796			1,036,295			1,013,428
Treasury stock, at cost, 259,342 shares at June 30, 2013, 249,329 shares at December 31, 2012, and 236,226 shares at June 30, 2012	(8,214		)	(7,838		)	(7,374		)
Retained earnings	612,821			555,023			501,139
Accumulated other comprehensive (loss) income	(49,204		)	7,711			1,971
Total shareholders’ equity	1,836,660			1,804,705			1,722,074
Total liabilities and shareholders’ equity	$	17,613,546		$	17,519,613		$	16,576,282

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In thousands, except per share data)	2013		2012			2013		2012
Interest income
Interest and fees on loans	$	145,983	$	144,100		$	288,097	$	287,655
Interest bearing deposits with banks	411		203			980		451
Federal funds sold and securities purchased under resale agreements	4		6			19		18
Securities	9,359		10,510			18,111		22,357
Trading account securities	8		10			13		19
Federal Home Loan Bank and Federal Reserve Bank stock	693		641			1,377		1,245
Brokerage customer receivables	188		221			362		432
Total interest income	156,646		155,691			308,959		312,177
Interest expense
Interest on deposits	13,675		17,273			28,179		35,303
Interest on Federal Home Loan Bank advances	2,821		2,867			5,585		6,451
Interest on notes payable and other borrowings	1,132		2,274			2,286		5,376
Interest on secured borrowings—owed to securitization investors	—		1,743			—		4,292
Interest on subordinated notes	52		126			111		295
Interest on junior subordinated debentures	3,142		3,138			6,261		6,295
Total interest expense	20,822		27,421			42,422		58,012
Net interest income	135,824		128,270			266,537		254,165
Provision for credit losses	15,382		20,691			31,069		38,091
Net interest income after provision for credit losses	120,442		107,579			235,468		216,074
Non-interest income
Wealth management	15,892		13,393			30,720		25,794
Mortgage banking	31,734		25,607			61,879		44,141
Service charges on deposit accounts	5,035		3,994			9,828		8,202
Gains on available-for-sale securities, net	2		1,109			253		1,925
Fees from covered call options	993		3,114			2,632		6,237
Gain on bargain purchases, net	—		(55		)	—		785
Trading gains (losses), net	3,260		(928		)	2,825		(782		)
Other	7,079		4,701			13,237		11,656
Total non-interest income	63,995		50,935			121,374		97,958
Non-interest expense
Salaries and employee benefits	79,225		68,139			156,738		137,169
Equipment	6,413		5,466			12,597		10,866
Occupancy, net	8,707		7,728			17,560		15,790
Data processing	4,358		3,840			8,957		7,458
Advertising and marketing	2,722		2,179			4,762		4,185
Professional fees	4,191		3,847			7,412		7,451
Amortization of other intangible assets	1,164		1,089			2,284		2,138
FDIC insurance	3,003		3,477			6,447		6,834
OREO expense, net	2,284		5,848			664		13,026
Other	16,120		15,572			30,885		30,027
Total non-interest expense	128,187		117,185			248,306		234,944
Income before taxes	56,250		41,329			108,536		79,088
Income tax expense	21,943		15,734			42,177		30,283
Net income	$	34,307	$	25,595		$	66,359	$	48,805
Preferred stock dividends and discount accretion	$	2,617	$	2,644		$	5,233	$	3,890
Net income applicable to common shares	$	31,690	$	22,951		$	61,126	$	44,915
Net income per common share—Basic	$	0.85	$	0.63		$	1.64	$	1.24
Net income per common share—Diluted	$	0.69	$	0.52		$	1.34	$	1.02
Cash dividends declared per common share	$	—	$	—		$	0.09	$	0.09
Weighted average common shares outstanding	37,486		36,329			37,231		36,266
Dilutive potential common shares	12,354		7,770			12,363		7,723
Average common shares and dilutive common shares	49,840		44,099			49,594		43,989

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2013			2012			2013			2012
Net income	$	34,307		$	25,595		$	66,359		$	48,805
Unrealized (losses) gains on securities
Before tax	(71,463		)	7,959			(78,918		)	4,740
Tax effect	28,341			(3,160		)	31,147			(1,884		)
Net of tax	(43,122		)	4,799			(47,771		)	2,856
Less: Reclassification of net gains included in net income
Before tax	2			1,109			253			1,925
Tax effect	(1		)	(445		)	(101		)	(772		)
Net of tax	1			664			152			1,153
Net unrealized (losses) gains on securities	(43,123		)	4,135			(47,923		)	1,703
Unrealized gains on derivative instruments
Before tax	2,169			936			3,643			1,732
Tax effect	(865		)	(371		)	(1,451		)	(687		)
Net unrealized gains on derivative instruments	1,304			565			2,192			1,045
Foreign currency translation adjustment
Before tax	(8,241		)	2,701			(14,545		)	2,701
Tax effect	1,923			(600		)	3,361			(600		)
Net foreign currency translation adjustment	(6,318		)	2,101			(11,184		)	2,101
Total other comprehensive (loss) income	(48,137		)	6,801			(56,915		)	4,849
Comprehensive (loss) income	$	(13,830	)	$	32,396		$	9,444		$	53,654

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

(In thousands)	Preferred stock		Common stock		Surplus			Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at December 31, 2011	$	49,768	$	35,982	$	1,001,316		$	(112	)	$	459,457		$	(2,878	)	$	1,543,533
Net income	—		—		—			—			48,805			—			48,805
Other comprehensive income, net of tax	—		—		—			—			—			4,849			4,849
Cash dividends declared on common stock	—		—		—			—			(3,261		)	—			(3,261		)
Dividends on preferred stock	—		—		—			—			(3,793		)	—			(3,793		)
Accretion on preferred stock	69		—		—			—			(69		)	—			—
Stock-based compensation	—		—		4,639			—			—			—			4,639
Issuance of Series C preferred stock	126,500		—		(3,810		)	—			—			—			122,690
Common stock issued for:
Exercise of stock options and warrants	—		420		7,676			(6,391		)	—			—			1,705
Restricted stock awards	—		110		1,692			(871		)	—			—			931
Employee stock purchase plan	—		39		1,223			—			—			—			1,262
Director compensation plan	—		22		692			—			—			—			714
Balance at June 30, 2012	$	176,337	$	36,573	$	1,013,428		$	(7,374	)	$	501,139		$	1,971		$	1,722,074
Balance at December 31, 2012	$	176,406	$	37,108	$	1,036,295		$	(7,838	)	$	555,023		$	7,711		$	1,804,705
Net income	—		—		—			—			66,359			—			66,359
Other comprehensive loss, net of tax	—		—		—			—			—			(56,915		)	(56,915		)
Cash dividends declared on common stock	—		—		—			—			(3,328		)	—			(3,328		)
Dividends on preferred stock	—		—		—			—			(5,163		)	—			(5,163		)
Accretion on preferred stock	70		—		—			—			(70		)	—			—
Stock-based compensation	—		—		4,628			—			—			—			4,628
Common stock issued for:
Acquisitions	—		648		22,422			—			—			—			23,070
Exercise of stock options and warrants	—		46		1,301			(214		)	—			—			1,133
Restricted stock awards	—		121		140			(162		)	—			—			99
Employee stock purchase plan	—		31		1,287			—			—			—			1,318
Director compensation plan	—		31		723			—			—			—			754
Balance at June 30, 2013	$	176,476	$	37,985	$	1,066,796		$	(8,214	)	$	612,821		$	(49,204	)	$	1,836,660

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six Months Ended
	June 30,
(In thousands)	2013			2012
Operating Activities:
Net income	$	66,359		$	48,805
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Provision for credit losses	31,069			38,091
Depreciation and amortization	13,874			11,442
Stock-based compensation expense	4,628			4,639
Tax benefit from stock-based compensation arrangements	223			1,228
Excess tax benefits from stock-based compensation arrangements	(326		)	(800		)
Net amortization of premium on securities	155			4,830
Mortgage servicing rights fair value change and amortization, net	(1,456		)	(1,920		)
Originations and purchases of mortgage loans held-for-sale	(2,025,231		)	(1,568,240		)
Proceeds from sales of mortgage loans held-for-sale	1,954,766			1,392,580
Bank owned life insurance income, net of claims	(1,748		)	(1,424		)
(Increase) decrease in trading securities, net	(76		)	1,882
Net increase in brokerage customer receivables	(1,350		)	(3,523		)
Gains on mortgage loans sold	(55,326		)	(29,920		)
Gains on available-for-sale securities, net	(253		)	(1,925		)
Gain on bargain purchases, net	—			(785		)
Loss on sales of premises and equipment, net	—			471
Net (gain) loss on sales and fair value adjustments of other real estate owned	(1,926		)	10,302
Decrease (increase) in accrued interest receivable and other assets, net	35,279			(245,123		)
(Decrease) increase in accrued interest payable and other liabilities, net	(12,930		)	10,600
Net Cash Provided by (Used for) Operating Activities	5,731			(328,790		)
Investing Activities:
Proceeds from maturities of available-for-sale securities	120,803			410,640
Proceeds from sales of available-for-sale securities	84,459			1,364,546
Purchases of available-for-sale securities	(205,372		)	(1,036,877		)
Net cash paid for acquisitions	(9,350		)	(129,742		)
Divestiture of operations	(149,100		)	—
Proceeds from sales of other real estate owned	40,127			49,773
Proceeds received from the FDIC related to reimbursements on covered assets	21,483			115,280
Net decrease (increase) in interest-bearing deposits with banks	653,816			(368,166		)
Net increase in loans	(530,412		)	(487,135		)
Purchases of premises and equipment, net	(13,097		)	(27,296		)
Net Cash Provided by (Used for) Investing Activities	13,357			(108,977		)
Financing Activities:
(Decrease) increase in deposit accounts	(242,433		)	609,317
Decrease in other borrowings, net	(22,881		)	(341,111		)
Increase in Federal Home Loan Bank advances, net	172,000			90,000
Repayment of subordinated notes	(5,000		)	(20,000		)
Excess tax benefits from stock-based compensation arrangements	326			800
Net proceeds from issuance of Series C preferred stock	—			122,690
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants	3,457			10,646
Common stock repurchases	(376		)	(7,262		)
Dividends paid	(5,910		)	(5,261		)
Net Cash (Used for) Provided by Financing Activities	(100,817		)	459,819
Net (Decrease) Increase in Cash and Cash Equivalents	(81,729		)	22,052
Cash and Cash Equivalents at Beginning of Period	315,028			169,704
Cash and Cash Equivalents at End of Period	$	233,299		$	191,756

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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 ("GAAP"). 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, 2012 (“ 2012 Form 10-K”). Operating results reported for the three-month and six-month periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, 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 2012 Form 10-K.

(2) Recent Accounting Developments

Accumulated Other Comprehensive Income Reporting by Component

In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” which adds disclosures to make reporting of accumulated other comprehensive income more informative. Specifically, the new guidance requires a Company to identify amounts reclassified out of other comprehensive income by component. The guidance is effective for fiscal years beginning after December 15, 2012. The Company has included the required disclosures in this Form 10-Q by disclosing the reclassification amounts related to its securities, derivatives and foreign currency translation components. Other than requiring additional disclosures, adoption of this guidance did not have a material impact on our consolidated financial statements. See Note 17 - Shareholders' Equity and Earnings Per Share, for further information.

Balance Sheet Offsetting

In January 2013, the FASB issued ASU No. 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” to address the disclosure requirements within ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 requires disclosure showing the Company's gross and net positions for derivatives and financial transactions that are either offset in accordance with GAAP or are subject to a master netting or similar agreement. The guidance is effective for fiscal years beginning on or after January 1, 2013. The Company has included required disclosures for the current and comparative periods as required by the new guidance. Other than requiring additional disclosures, adoption of this guidance did not have a material impact on our consolidated financial statements. See Note 14 - Derivative Financial Instruments, for further information.

Subsequent Accounting for Indemnification Assets

In October 2012, the FASB issued ASU No. 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution,” to address the diversity in practice and interpret guidance related to the subsequent measurement of an indemnification asset recognized in a government-assisted acquisition. These indemnification assets are recorded by the Company as FDIC indemnification assets on the Consolidated Statements of Condition. This ASU clarifies existing guidance by asserting that subsequent changes in expected cash flows related to an indemnification asset should be amortized over the shorter of the life of the indemnification agreement or the life of the underlying loan. This guidance is to be applied with respect to changes in cash flows on existing indemnification agreements as well as prospectively to new indemnification agreements. The guidance is effective for fiscal years beginning after December 15, 2012. As of January 1, 2013, the Company is accounting for its FDIC

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indemnification assets in accordance with ASU No. 2012-06. Adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

(3) Business Combinations

FDIC-Assisted Transactions

In 2010 and 2011, the Company acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of six financial institutions in FDIC-assisted transactions.

Since January 1, 2012, the Company has acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of three financial institutions in FDIC-assisted transactions. The following table presents details related to the three recent transactions:



(Dollars in thousands)	Charter National		Second Federal		First United Bank
Date of acquisition	February 10, 2012		July 20, 2012		September 28, 2012
Fair value of assets acquired, at the acquisition date	$	92,355	$	171,625	$	328,408
Fair value of loans acquired, at the acquisition date	45,555		—		77,964
Fair value of liabilities assumed, at the acquisition date	91,570		171,582		321,734
Fair value of reimbursable losses, at the acquisition date ⁽¹⁾	13,164		—		67,190
Gain on bargain purchase recognized	785		43		6,675

(1) As no assets subject to loss sharing agreements were acquired in the acquisition of Second Federal, there was no fair value of reimbursable losses.

Loans comprise the majority of the assets acquired in nearly all of these FDIC-assisted transactions since 2010, most of which 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. Additionally, the loss share agreements with the FDIC require the Company to reimburse the FDIC in the event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect of such assets in the loss share agreements. The Company refers to the loans subject to these loss-sharing agreements as “covered loans” and uses the term “covered assets” to refer to covered loans, covered OREO and certain other covered assets. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

On their respective acquisition dates in 2012, the Company announced that its wholly-owned subsidiary banks, Old Plank Trail Community Bank, N.A. ("Old Plank Trail Bank"), Hinsdale Bank and Trust Company ("Hinsdale Bank") and Barrington Bank and Trust Company, N.A. ("Barrington"), acquired certain assets and liabilities and the banking operations of First United Bank of Crete, Illinois ("First United Bank"), Second Federal Savings and Loan Association of Chicago ("Second Federal") and Charter National Bank and Trust (“Charter National”), respectively, in FDIC-assisted transactions. 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 subsequent to the acquisition date. See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion of the allowance on covered loans.

The loss share agreements with the FDIC cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets are also separately measured from the related loans and foreclosed real estate and recorded as FDIC indemnification assets on the Consolidated Statements of Condition. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses will reduce the FDIC indemnification assets. Reductions to expected losses, to the extent such reductions to expected losses are the result of an improvement to the actual or expected cash flows from the covered assets, will also reduce the FDIC indemnification assets. Although these assets are contractual receivables from the FDIC, there are no contractual interest rates. Additions to expected losses will require an increase to the allowance for loan losses and a corresponding increase to the FDIC indemnification assets. The corresponding accretion is recorded as a component of non-interest income on the Consolidated Statements of Income.

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The following table summarizes the activity in the Company’s FDIC indemnification asset during the periods indicated:



	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of period	$	170,696		$	263,212		$	208,160		$	344,251
Additions from acquisitions	—			—			—			13,164
Additions from reimbursable expenses	2,827			6,113			7,860			12,977
Amortization	(1,653		)	(1,204		)	(4,121		)	(2,780		)
Changes in expected reimbursements from the FDIC for changes in expected credit losses	(26,638		)	(12,551		)	(52,735		)	(29,764		)
Payments received from the FDIC	(7,551		)	(33,002		)	(21,483		)	(115,280		)
Balance at end of period	$	137,681		$	222,568		$	137,681		$	222,568

Divestiture of Previous FDIC-Assisted Acquisition

On February 1, 2013, the Company completed the divestiture of the deposits and current banking operations of Second Federal to an unaffiliated financial institution. Through this transaction, the Company divested approximately $149 million of related deposits.

Other Recent Bank Acquisitions

On May 1, 2013 , the Company completed its acquisition of First Lansing Bancorp, Inc. ("FLB"). FLB was the parent company of First National Bank of Illinois ("FNBI"), which operated seven banking locations in the south and southwest suburbs of Chicago, as well as one location in northwest Indiana. As part of this transaction, FNBI was merged into Old Plank Trail Bank. The Company acquired assets with a fair value of approximately $373.4 million , including approximately $123.0 million of loans, and assumed liabilities with a fair value of approximately $334.7 million , including approximately $331.4 million of deposits. Additionally, the Company recorded goodwill of $14.0 million on the acquisition.

On December 12, 2012 , the Company acquired HPK Financial Corporation ("HPK"). HPK was the parent company of Hyde Park Bank & Trust Company ("Hyde Park Bank"), which operated two banking locations in the Hyde Park neighborhood of Chicago, Illinois. As part of this transaction, Hyde Park Bank was merged into the Company's wholly-owned subsidiary bank, Beverly Bank & Trust Company, N.A. ("Beverly Bank"). The Company acquired assets with a fair value of approximately $371.6 million , including approximately $118.5 million of loans, and assumed liabilities with a fair value of approximately $344.1 million , including approximately $243.8 million of deposits. Additionally, the Company recorded goodwill of $12.6 million on the acquisition.

On April 13, 2012 , the Company acquired a branch of Suburban Bank & Trust Company (“Suburban”) located in Orland Park, Illinois. Through this transaction, the Company acquired approximately $52 million of deposits and $3 million of loans. The Company recorded goodwill of $1.5 million on the branch acquisition.

See Note 18—Subsequent Events for discussion regarding the Company's announcement in July 2013 of the signing of a definitive agreement to acquire Diamond Bancorp, Inc. ("Diamond").

Specialty Finance Acquisition

On June 8, 2012 , the Company completed its acquisition of Macquarie Premium Funding Inc., the Canadian insurance premium funding business of Macquarie Group. Through this transaction, the Company acquired approximately $213 million of gross premium finance receivables. The Company recorded goodwill of approximately $21.9 million at the time of the acquisition.

Wealth Management Acquisitions

On March 30, 2012 , the Company’s wholly-owned subsidiary, The Chicago Trust Company, N.A. (“CTC”), acquired the trust operations of Suburban. Through this transaction, CTC acquired trust accounts having assets under administration of approximately $160 million , in addition to land trust accounts. The Company recorded goodwill of $1.8 million on the trust operations acquisition.

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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, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

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

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

(4) Cash and Cash Equivalents

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

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(5) Available-For-Sale Securities

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



	June 30, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	225,200	$	134	$	(14,359	)	$	210,975
U.S. Government agencies	996,137		1,976		(39,655		)	958,458
Municipal	152,208		1,281		(3,362		)	150,127
Corporate notes and other:
Financial issuers	133,453		2,290		(2,783		)	132,960
Other	8,838		135		—			8,973
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	279,925		3,971		(14,866		)	269,030
Collateralized mortgage obligations	63,833		434		(530		)	63,737
Other equity securities	52,437		746		(3,619		)	49,564
Total available-for-sale securities	$	1,912,031	$	10,967	$	(79,174	)	$	1,843,824



	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	220,226	$	198	$	(937	)	$	219,487
U.S. Government agencies	986,186		4,839		(986		)	990,039
Municipal	107,868		2,899		(296		)	110,471
Corporate notes and other:
Financial issuers	142,205		2,452		(3,982		)	140,675
Other	13,911		220		—			14,131
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	188,485		8,805		(30		)	197,260
Collateralized mortgage obligations	73,386		928		—			74,314
Other equity securities	52,846		215		(3,362		)	49,699
Total available-for-sale securities	$	1,785,113	$	20,556	$	(9,593	)	$	1,796,076



	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	25,054	$	191	$	(2	)	$	25,243
U.S. Government agencies	636,117		4,262		(167		)	640,212
Municipal	77,397		2,414		(83		)	79,728
Corporate notes and other:
Financial issuers	143,892		2,434		(7,663		)	138,663
Other	19,311		253		—			19,564
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	205,689		12,889		—			218,578
Collateralized mortgage obligations	36,636		528		—			37,164
Other equity securities	42,726		122		(5,298		)	37,550
Total available-for-sale securities	$	1,186,822	$	23,093	$	(13,213	)	$	1,196,702


(1)	Consisting entirely of residential mortgage-backed securities, none of which are subprime.

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The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2013 :



	Continuous unrealized losses existing for less than 12 months					Continuous unrealized losses existing for greater than 12 months					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury	$	190,813	$	(14,359	)	$	—	$	—		$	190,813	$	(14,359	)
U.S. Government agencies	625,955		(39,654		)	6,024		(1		)	631,979		(39,655		)
Municipal	85,166		(3,360		)	618		(2		)	85,784		(3,362		)
Corporate notes and other:
Financial issuers	16,491		(301		)	63,459		(2,482		)	79,950		(2,783		)
Other	—		—			—		—			—		—
Mortgage-backed:
Mortgage-backed securities	179,965		(14,866		)	—		—			179,965		(14,866		)
Collateralized mortgage obligations	32,504		(530		)	—		—			32,504		(530		)
Other equity securities	13,171		(555		)	22,337		(3,064		)	35,508		(3,619		)
Total	$	1,144,065	$	(73,625	)	$	92,438	$	(5,549	)	$	1,236,503	$	(79,174	)

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

The Company does not consider securities with unrealized losses at June 30, 2013 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 and auction rate securities included in other equity securities. The corporate securities of financial issuers in this category were comprised of six fixed-to-floating rate bonds and three trust-preferred securities, all of which continue to be considered investment grade. Additionally, a review of the issuers indicated that they all have strong capital ratios.

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



	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands)	2013			2012		2013			2012
Realized gains	$	3		$	1,109	$	316		$	1,937
Realized losses	(1		)	—		(63		)	(12		)
Net realized gains	$	2		$	1,109	$	253		$	1,925
Other than temporary impairment charges	—			—		—			—
Gains on available-for-sale securities, net	$	2		$	1,109	$	253		$	1,925
Proceeds from sales of available-for-sale securities	$	43,403		$	627,177	$	84,459		$	1,364,546

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The amortized cost and fair value of securities as of June 30, 2013 , December 31, 2012 and June 30, 2012 , by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:



	June 30, 2013				December 31, 2012				June 30, 2012
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	284,334	$	284,734	$	188,594	$	189,015	$	67,163	$	67,488
Due in one to five years	320,175		320,189		419,588		419,654		467,468		466,553
Due in five to ten years	382,837		366,341		361,037		362,135		110,465		109,780
Due after ten years	528,490		490,229		501,177		503,999		256,675		259,589
Mortgage-backed	343,758		332,767		261,871		271,574		242,325		255,742
Other equity securities	52,437		49,564		52,846		49,699		42,726		37,550
Total available-for-sale securities	$	1,912,031	$	1,843,824	$	1,785,113	$	1,796,076	$	1,186,822	$	1,196,702

Securities having a carrying value of $1.1 billion at June 30, 2013 and December 31, 2012 and $782.8 million at June 30, 2012 , were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At June 30, 2013 , 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:



	June 30,			December 31,			June 30,
(Dollars in thousands)	2013			2012			2012
Balance:
Commercial	$	3,120,576		$	2,914,798		$	2,673,181
Commercial real-estate	4,093,983			3,864,118			3,666,519
Home equity	758,260			788,474			820,991
Residential real-estate	384,961			367,213			375,494
Premium finance receivables—commercial	2,165,734			1,987,856			1,830,044
Premium finance receivables—life insurance	1,821,147			1,725,166			1,656,200
Indirect consumer	64,521			77,333			72,482
Consumer and other	107,710			103,985			107,931
Total loans, net of unearned income, excluding covered loans	$	12,516,892		$	11,828,943		$	11,202,842
Covered loans	454,602			560,087			614,062
Total loans	$	12,971,494		$	12,389,030		$	11,816,904
Mix:
Commercial	24		%	24		%	23		%
Commercial real-estate	31			31			31
Home equity	6			6			7
Residential real-estate	3			3			3
Premium finance receivables—commercial	16			16			15
Premium finance receivables—life insurance	14			14			14
Indirect consumer	1			1			1
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	96		%	96		%	95		%
Covered loans	4			4			5
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 $41.5 million at June 30, 2013 , $41.1 million at December 31, 2012 and $41.9 million at June 30, 2012 ,

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respectively. 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 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(3.6) million at June 30, 2013 , $13.2 million at December 31, 2012 and $13.8 million at June 30, 2012 . The net credit balance at June 30, 2013 is primarily the result of purchase accounting adjustments related to the acquisition of FNBI during the second quarter of 2013.

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. 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 previous acquisitions, we acquired loans for which there was evidence of credit quality deterioration since origination and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments.

The following table presents the unpaid principal balance and carrying value for these acquired loans:



	June 30, 2013				December 31, 2012
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	549,781	$	416,733	$	674,868	$	503,837
Life insurance premium finance loans acquisition	492,221		474,450		536,503		514,459

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the six months ended June 30, 2013 , the following table provides estimated details on these loans at the date of acquisition:



(Dollars in thousands)	FNBI
Contractually required payments including interest	$	32,022
Less: Nonaccretable difference	8,890
Cash flows expected to be collected ⁽¹⁾	23,132
Less: Accretable yield	2,055
Fair value of loans acquired with evidence of credit quality deterioration since origination	$	21,077


(1)	Represents undiscounted expected principal and interest cash flows at acquisition.

See Note 7—Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with loans acquired with evidence of credit quality deterioration since origination at June 30, 2013 .

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Accretable Yield Activity

Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for loans acquired with evidence of credit quality deterioration since origination. The factors that most significantly affect the estimates of gross cash flows expected to be collected, and accordingly the accretable yield, include changes in the benchmark interest rate indices for variable-rate products and changes in prepayment assumptions and loss estimates. The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination:



	Three Months Ended June 30, 2013						Three Months Ended June 30, 2012
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	121,725		$	11,218		$	182,222		$	15,848
Acquisitions	2,055			—			—			—
Accretable yield amortized to interest income	(9,347		)	(2,254		)	(13,387		)	(2,749		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(11,906		)	—			(18,063		)	—
Reclassification from non-accretable difference ⁽²⁾	30,792			1,007			7,590			1,145
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(2,463		)	316			13,439			382
Accretable yield, ending balance ⁽³⁾	$	130,856		$	10,287		$	171,801		$	14,626



	Six Months Ended June 30, 2013						Six Months Ended June 30, 2012
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	143,224		$	13,055		$	173,120		$	18,861
Acquisitions	1,977			—			2,288			—
Accretable yield amortized to interest income	(18,924		)	(4,273		)	(28,279		)	(6,486		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(20,612		)	—			(39,440		)	—
Reclassification from non-accretable difference ⁽²⁾	36,204			1,007			49,191			1,145
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(11,013		)	498			14,921			1,106
Accretable yield, ending balance ⁽³⁾	$	130,856		$	10,287		$	171,801		$	14,626


(1)	Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset.


(2)	Reclassification is the result of subsequent increases in expected principal cash flows.


(3)	As of June 30, 2013, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $52.2 million . The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

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

The tables below show the aging of the Company’s loan portfolio at June 30, 2013 , December 31, 2012 and June 30, 2012 :



As of June 30, 2013			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	15,432	$	—	$	2,940	$	9,933	$	1,423,823	$	1,452,128
Franchise	—		—		—		450		201,790		202,240
Mortgage warehouse lines of credit	—		—		—		—		174,422		174,422
Community Advantage—homeowners association	—		—		—		—		83,003		83,003
Aircraft	—		—		—		—		13,174		13,174
Asset-based lending	1,816		100		2,305		7,127		919,106		930,454
Tax exempt	—		—		—		—		151,492		151,492
Leases	—		—		—		—		102,409		102,409
Other	—		—		—		—		98		98
Purchased non-covered commercial ⁽¹⁾	—		190		—		1,632		9,334		11,156
Total commercial	17,248		290		5,245		19,142		3,078,651		3,120,576
Commercial real-estate:
Residential construction	2,659		3,263		379		—		32,998		39,299
Commercial construction	7,857		—		1,271		70		128,845		138,043
Land	5,742		—		330		4,141		106,640		116,853
Office	6,324		—		4,210		2,720		584,503		597,757
Industrial	5,773		—		4,597		4,984		600,147		615,501
Retail	7,471		—		1,760		2,031		596,129		607,391
Multi-family	3,337		—		401		3,149		526,681		533,568
Mixed use and other	15,662		—		2,183		10,379		1,349,936		1,378,160
Purchased non-covered commercial real-estate ⁽¹⁾	—		6,466		3,430		6,226		51,289		67,411
Total commercial real-estate	54,825		9,729		18,561		33,700		3,977,168		4,093,983
Home equity	12,322		25		2,085		5,821		738,007		758,260
Residential real estate	10,213		—		1,896		1,836		368,696		382,641
Purchased non-covered residential real estate ⁽¹⁾	—		—		46		260		2,014		2,320
Premium finance receivables
Commercial insurance loans	13,605		6,671		6,592		11,386		2,127,480		2,165,734
Life insurance loans	16		1,212		7,896		—		1,337,573		1,346,697
Purchased life insurance loans ⁽¹⁾	—		—		—		—		474,450		474,450
Indirect consumer	91		217		28		428		63,757		64,521
Consumer and other	1,677		—		484		156		105,055		107,372
Purchased non-covered consumer and other ⁽¹⁾	—		28		—		—		310		338
Total loans, net of unearned income, excluding covered loans	$	109,997	$	18,172	$	42,833	$	72,729	$	12,273,161	$	12,516,892
Covered loans	3,982		97,000		10,568		4,852		338,200		454,602
Total loans, net of unearned income	$	113,979	$	115,172	$	53,401	$	77,581	$	12,611,361	$	12,971,494


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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As of December 31, 2012			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	19,409	$	—	$	5,520	$	15,410	$	1,587,864	$	1,628,203
Franchise	1,792		—		—		—		194,603		196,395
Mortgage warehouse lines of credit	—		—		—		—		215,076		215,076
Community Advantage—homeowners association	—		—		—		—		81,496		81,496
Aircraft	—		—		148		—		17,216		17,364
Asset-based lending	536		—		1,126		6,622		564,154		572,438
Tax exempt	—		—		—		—		91,824		91,824
Leases	—		—		—		896		89,547		90,443
Other	—		—		—		—		16,549		16,549
Purchased non-covered commercial ⁽¹⁾	—		496		432		7		4,075		5,010
Total commercial	21,737		496		7,226		22,935		2,862,404		2,914,798
Commercial real-estate
Residential construction	3,110		—		4		41		37,246		40,401
Commercial construction	2,159		—		885		386		167,525		170,955
Land	11,299		—		632		9,014		113,252		134,197
Office	4,196		—		1,889		3,280		560,346		569,711
Industrial	2,089		—		6,042		4,512		565,294		577,937
Retail	7,792		—		1,372		998		558,734		568,896
Multi-family	2,586		—		3,949		1,040		389,116		396,691
Mixed use and other	16,742		—		6,660		13,349		1,312,503		1,349,254
Purchased non-covered commercial real-estate ⁽¹⁾	—		749		2,663		2,508		50,156		56,076
Total commercial real-estate	49,973		749		24,096		35,128		3,754,172		3,864,118
Home equity	13,423		100		1,592		5,043		768,316		788,474
Residential real-estate	11,728		—		2,763		8,250		343,616		366,357
Purchased non-covered residential real-estate ⁽¹⁾	—		—		200		—		656		856
Premium finance receivables
Commercial insurance loans	9,302		10,008		6,729		19,597		1,942,220		1,987,856
Life insurance loans	25		—		—		5,531		1,205,151		1,210,707
Purchased life insurance loans ⁽¹⁾	—		—		—		—		514,459		514,459
Indirect consumer	55		189		51		442		76,596		77,333
Consumer and other	1,511		32		167		433		99,010		101,153
Purchased non-covered consumer and other ⁽¹⁾	—		66		32		101		2,633		2,832
Total loans, net of unearned income, excluding covered loans	$	107,754	$	11,640	$	42,856	$	97,460	$	11,569,233	$	11,828,943
Covered loans	1,988		122,350		16,108		7,999		411,642		560,087
Total loans, net of unearned income	$	109,742	$	133,990	$	58,964	$	105,459	$	11,980,875	$	12,389,030


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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As of June 30, 2012			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	27,911	$	—	$	5,557	$	17,227	$	1,570,366	$	1,621,061
Franchise	1,792		—		—		—		176,827		178,619
Mortgage warehouse lines of credit	—		—		—		—		123,804		123,804
Community Advantage—homeowners association	—		—		—		—		73,289		73,289
Aircraft	428		—		—		170		22,205		22,803
Asset-based lending	342		—		172		1,074		487,619		489,207
Tax exempt	—		—		—		—		79,708		79,708
Leases	—		—		—		1		77,805		77,806
Other	—		—		—		—		1,842		1,842
Purchased non-covered commercial ⁽¹⁾	—		486		—		57		4,499		5,042
Total commercial	30,473		486		5,729		18,529		2,617,964		2,673,181
Commercial real-estate:
Residential construction	892		—		6,041		5,773		32,020		44,726
Commercial construction	3,011		—		13,131		330		140,223		156,695
Land	13,459		—		3,276		6,044		142,490		165,269
Office	4,796		—		891		1,868		562,879		570,434
Industrial	1,820		—		3,158		1,320		591,919		598,217
Retail	8,158		—		1,351		6,657		546,617		562,783
Multi-family	3,312		—		151		1,447		332,871		337,781
Mixed use and other	20,629		—		15,530		16,063		1,126,930		1,179,152
Purchased non-covered commercial real-estate ⁽¹⁾	—		2,232		2,352		1,057		45,821		51,462
Total commercial real-estate	56,077		2,232		45,881		40,559		3,521,770		3,666,519
Home equity	10,583		—		2,182		3,195		805,031		820,991
Residential real estate	9,387		—		3,765		1,558		360,128		374,838
Purchased non-covered residential real estate ⁽¹⁾	—		—		—		—		656		656
Premium finance receivables
Commercial insurance loans	7,404		5,184		4,796		7,965		1,804,695		1,830,044
Life insurance loans	—		—		—		30		1,111,207		1,111,237
Purchased life insurance loans ⁽¹⁾	—		—		—		—		544,963		544,963
Indirect consumer	132		234		51		312		71,753		72,482
Consumer and other	1,446		—		483		265		105,669		107,863
Purchased non-covered consumer and other ⁽¹⁾	—		—		—		—		68		68
Total loans, net of unearned income, excluding covered loans	$	115,502	$	8,136	$	62,887	$	72,413	$	10,943,904	$	11,202,842
Covered loans	—		145,115		14,658		7,503		446,786		614,062
Total loans, net of unearned income	$	115,502	$	153,251	$	77,545	$	79,916	$	11,390,690	$	11,816,904


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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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 and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including: a borrower’s financial strength, cash flow coverage, collateral protection and guarantees.

The Company’s Problem Loan Reporting system automatically includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible or an impairment reserve may be established. The Company’s impairment analysis utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real-estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. If we determine that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses.

If, based on current information and events, it is probable that the Company will be unable to collect all amounts due to it according to the contractual terms of the loan agreement, a specific impairment reserve is established. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

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Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest, excluding loans acquired with evidence of credit quality deterioration since origination. The remainder of the portfolio not classified as non-performing are considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at June 30, 2013 , December 31, 2012 and June 30, 2012 :



	Performing						Non-performing						Total
(Dollars in thousands)	June 30, 2013		December 31, 2012		June 30, 2012		June 30, 2013		December 31, 2012		June 30, 2012		June 30, 2013		December 31, 2012		June 30, 2012
Loan Balances:
Commercial
Commercial and industrial	$	1,436,696	$	1,608,794	$	1,593,150	$	15,432	$	19,409	$	27,911	$	1,452,128	$	1,628,203	$	1,621,061
Franchise	202,240		194,603		176,827		—		1,792		1,792		202,240		196,395		178,619
Mortgage warehouse lines of credit	174,422		215,076		123,804		—		—		—		174,422		215,076		123,804
Community Advantage—homeowners association	83,003		81,496		73,289		—		—		—		83,003		81,496		73,289
Aircraft	13,174		17,364		22,375		—		—		428		13,174		17,364		22,803
Asset-based lending	928,538		571,902		488,865		1,916		536		342		930,454		572,438		489,207
Tax exempt	151,492		91,824		79,708		—		—		—		151,492		91,824		79,708
Leases	102,409		90,443		77,806		—		—		—		102,409		90,443		77,806
Other	98		16,549		1,842		—		—		—		98		16,549		1,842
Purchased non-covered commercial ⁽¹⁾	11,156		5,010		5,042		—		—		—		11,156		5,010		5,042
Total commercial	3,103,228		2,893,061		2,642,708		17,348		21,737		30,473		3,120,576		2,914,798		2,673,181
Commercial real-estate
Residential construction	33,377		37,291		43,834		5,922		3,110		892		39,299		40,401		44,726
Commercial construction	130,186		168,796		153,684		7,857		2,159		3,011		138,043		170,955		156,695
Land	111,111		122,898		151,810		5,742		11,299		13,459		116,853		134,197		165,269
Office	591,433		565,515		565,638		6,324		4,196		4,796		597,757		569,711		570,434
Industrial	609,728		575,848		596,397		5,773		2,089		1,820		615,501		577,937		598,217
Retail	599,920		561,104		554,625		7,471		7,792		8,158		607,391		568,896		562,783
Multi-family	530,231		394,105		334,469		3,337		2,586		3,312		533,568		396,691		337,781
Mixed use and other	1,362,498		1,332,512		1,158,523		15,662		16,742		20,629		1,378,160		1,349,254		1,179,152
Purchased non-covered commercial real-estate ⁽¹⁾	67,411		56,076		51,462		—		—		—		67,411		56,076		51,462
Total commercial real-estate	4,035,895		3,814,145		3,610,442		58,088		49,973		56,077		4,093,983		3,864,118		3,666,519
Home equity	745,913		774,951		810,408		12,347		13,523		10,583		758,260		788,474		820,991
Residential real-estate	372,428		354,629		365,451		10,213		11,728		9,387		382,641		366,357		374,838
Purchased non-covered residential real-estate ⁽¹⁾	2,320		856		656		—		—		—		2,320		856		656
Premium finance receivables
Commercial insurance loans	2,145,458		1,968,546		1,817,456		20,276		19,310		12,588		2,165,734		1,987,856		1,830,044
Life insurance loans	1,345,469		1,210,682		1,111,237		1,228		25		—		1,346,697		1,210,707		1,111,237
Purchased life insurance loans ⁽¹⁾	474,450		514,459		544,963		—		—		—		474,450		514,459		544,963
Indirect consumer	64,213		77,089		72,116		308		244		366		64,521		77,333		72,482
Consumer and other	105,695		99,610		106,417		1,677		1,543		1,446		107,372		101,153		107,863
Purchased non-covered consumer and other ⁽¹⁾	338		2,832		68		—		—		—		338		2,832		68
Total loans, net of unearned income, excluding covered loans	$	12,395,407	$	11,710,860	$	11,081,922	$	121,485	$	118,083	$	120,920	$	12,516,892	$	11,828,943	$	11,202,842


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. See Note 6 - Loans for further discussion of these purchased loans.

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A summary of activity in the allowance for credit losses by loan portfolio (excluding covered loans) for the three and six months ended June 30, 2013 and 2012 is as follows:



Three months ended June 30, 2013				Commercial Real-estate						Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	28,952		$	56,408		$	12,122		$	5,140		$	6,071		$	277		$	1,378		$	110,348
Other adjustments	(1		)	(211		)	—			(85		)	(12		)	—			—			(309		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			65			—			—			—			—			—			65
Charge-offs	(1,093		)	(14,947		)	(1,785		)	(517		)	(1,306		)	(16		)	(112		)	(19,776		)
Recoveries	268			584			171			18			279			17			44			1,381
Provision for credit losses	611			10,051			3,697			269			236			(15		)	284			15,133
Allowance for loan losses at period end	$	28,737		$	51,950		$	14,205		$	4,825		$	5,268		$	263		$	1,594		$	106,842
Allowance for unfunded lending-related commitments at period end	$	—		$	3,563		$	—		$	—		$	—		$	—		$	—		$	3,563
Allowance for credit losses at period end	$	28,737		$	55,513		$	14,205		$	4,825		$	5,268		$	263		$	1,594		$	110,405
Individually evaluated for impairment	5,587			7,411			1,060			606			—			—			218			14,882
Collectively evaluated for impairment	23,072			47,988			13,145			4,209			5,268			263			1,376			95,321
Loans acquired with deteriorated credit quality	78			114			—			10			—			—			—			202
Loans at period end
Individually evaluated for impairment	$	25,495		$	139,920		$	13,488		$	13,629		$	—		$	54		$	1,784		$	194,370
Collectively evaluated for impairment	3,083,925			3,886,652			744,772			369,012			3,512,431			64,467			105,588			11,766,847
Loans acquired with deteriorated credit quality	11,156			67,411			—			2,320			474,450			—			338			555,675

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Three months ended June 30, 2012				Commercial Real-estate						Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	33,219		$	53,952		$	7,920		$	5,551		$	8,108		$	643		$	1,630		$	111,023
Other adjustments	(1		)	(261		)	(3		)	(7		)	—			—			—			(272		)
Reclassification to/from allowance for unfunded lending-related commitments	—			175			—			—			—			—			—			175
Charge-offs	(6,046		)	(9,226		)	(1,732		)	(388		)	(747		)	(33		)	(51		)	(18,223		)
Recoveries	246			174			171			3			171			21			37			823
Provision for credit losses	(435		)	8,987			7,522			1,565			990			9			(244		)	18,394
Allowance for loan losses at period end	$	26,983		$	53,801		$	13,878		$	6,724		$	8,522		$	640		$	1,372		$	111,920
Allowance for unfunded lending-related commitments at period end	$	—		$	12,903		$	—		$	—		$	—		$	—		$	—		$	12,903
Allowance for credit losses at period end	$	26,983		$	66,704		$	13,878		$	6,724		$	8,522		$	640		$	1,372		$	124,823
Individually evaluated for impairment	$	3,259		$	22,160		$	3,305		$	2,273		$	—		$	—		$	451		$	31,448
Collectively evaluated for impairment	$	23,724		$	44,544		$	10,573		$	4,451		$	8,522		$	640		$	921		$	93,375
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Loans at period end
Individually evaluated for impairment	$	51,951		$	184,739		$	12,197		$	14,125		$	—		$	107		$	1,545		$	264,664
Collectively evaluated for impairment	2,616,188			3,430,318			808,794			360,713			2,941,281			72,375			106,318			10,335,987
Loans acquired with deteriorated credit quality	5,042			51,462			—			656			544,963			—			68			602,191



Six months ended June 30, 2013				Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	28,794		$	52,135		$	12,734		$	5,560		$	6,096		$	267		$	1,765		$	107,351
Other adjustments	(4		)	(428		)	—			(94		)	(12		)	—			—			(538		)
Reclassification to/from allowance for unfunded lending-related commitments	—			(148		)	—			—			—			—			—			(148		)
Charge-offs	(5,633		)	(18,246		)	(4,182		)	(2,245		)	(2,374		)	(48		)	(209		)	(32,937		)
Recoveries	563			952			333			23			573			32			138			2,614
Provision for credit losses	5,017			17,685			5,320			1,581			985			12			(100		)	30,500
Allowance for loan losses at period end	$	28,737		$	51,950		$	14,205		$	4,825		$	5,268		$	263		$	1,594		$	106,842
Allowance for unfunded lending-related commitments at period end	$	—		$	3,563		$	—		$	—		$	—		$	—		$	—		$	3,563
Allowance for credit losses at period end	$	28,737		$	55,513		$	14,205		$	4,825		$	5,268		$	263		$	1,594		$	110,405

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Six months ended June 30, 2012				Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Indirect Consumer			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	31,237		$	56,405		$	7,712		$	5,028		$	7,214		$	645		$	2,140		$	110,381
Other adjustments	(4		)	(483		)	(2		)	(21		)	—			—			—			(510		)
Reclassification to/from allowance for unfunded lending-related commitments	45			282			—			—			—			—			—			327
Charge-offs	(9,308		)	(17,455		)	(4,322		)	(563		)	(1,597		)	(84		)	(361		)	(33,690		)
Recoveries	503			305			333			5			469			51			198			1,864
Provision for credit losses	4,510			14,747			10,157			2,275			2,436			28			(605		)	33,548
Allowance for loan losses at period end	$	26,983		$	53,801		$	13,878		$	6,724		$	8,522		$	640		$	1,372		$	111,920
Allowance for unfunded lending-related commitments at period end	$	—		$	12,903		$	—		$	—		$	—		$	—		$	—		$	12,903
Allowance for credit losses at period end	$	26,983		$	66,704		$	13,878		$	6,724		$	8,522		$	640		$	1,372		$	124,823

A summary of activity in the allowance for covered loan losses for the three and six months ended June 30, 2013 and 2012 is as follows:



	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(Dollars in thousands)	2013			2012			2013			2012
Balance at beginning of period	$	12,272		$	17,735		$	13,454		$	12,977
Provision for covered loan losses before benefit attributable to FDIC loss share agreements	1,246			11,591			2,846			22,820
Benefit attributable to FDIC loss share agreements	(997		)	(9,294		)	(2,277		)	(18,277		)
Net provision for covered loan losses	249			2,297			569			4,543
Increase in FDIC indemnification asset	997			9,294			2,277			18,277
Loans charged-off	(2,266		)	(8,793		)	(5,057		)	(15,316		)
Recoveries of loans charged-off	3,177			27			3,186			79
Net charge-offs	911			(8,766		)	(1,871		)	(15,237		)
Balance at end of period	$	14,429		$	20,560		$	14,429		$	20,560

In conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. Additional expected losses, to the extent such expected losses result in the recognition of an allowance for loan losses, will increase the FDIC indemnification asset. The allowance for loan losses for loans acquired in FDIC-assisted transactions is determined without giving consideration to the amounts recoverable through loss share agreements (since the loss share agreements are separately accounted for and thus presented “gross” on the balance sheet). On the Consolidated Statements of Income, the provision for credit losses related to covered loans is reported net of changes in the amount recoverable under the loss share agreements. Reductions to expected losses, to the extent such reductions to expected losses are the result of an improvement to the actual or expected cash flows from the covered assets, will reduce the FDIC indemnification asset. Additions to expected losses will require an increase to the allowance for loan losses, and a corresponding increase to the FDIC indemnification asset. See “FDIC-Assisted Transactions” within Note 3 – Business Combinations for more detail.

Table of Contents

Impaired Loans

A summary of impaired loans, including troubled debt restructurings ("TDRs"), is as follows:



	June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012
Impaired loans (included in non-performing and restructured loans):
Impaired loans with an allowance for loan loss required ⁽¹⁾	$	96,519	$	89,983	$	161,297
Impaired loans with no allowance for loan loss required	93,629		114,562		103,367
Total impaired loans ⁽²⁾	$	190,148	$	204,545	$	264,664
Allowance for loan losses related to impaired loans	$	11,839	$	13,575	$	19,127
Troubled debt restructurings	$	126,196	$	126,473	$	172,306


(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.


(2)	Impaired loans are considered by the Company to be non-accrual loans, TDRs or loans with principal and/or interest at risk, even if the loan is current with all payments of principal and interest.

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The following tables present impaired loans evaluated for impairment by loan class for the periods ended as follows:



							For the Six Months Ended
	As of June 30, 2013						June 30, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	11,720	$	13,429	$	4,561	$	12,131	$	434
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	1,803		1,810		988		1,721		46
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	1,528		1,615		403		1,547		33
Commercial construction	10,591		10,591		67		10,853		207
Land	8,713		8,894		173		7,281		117
Office	9,306		9,411		685		9,385		170
Industrial	4,165		5,226		203		5,047		159
Retail	12,730		12,730		152		12,675		254
Multi-family	4,712		5,173		1,068		4,824		112
Mixed use and other	23,996		24,940		1,686		21,742		499
Home equity	3,454		4,857		1,060		4,183		87
Residential real-estate	3,155		3,666		575		2,905		62
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	11		12		—		12		1
Consumer and other	635		636		218		638		16
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	11,028	$	14,384	$	—	$	12,155	$	393
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	12		1,352		—		19		36
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	4,100		4,481		—		3,782		81
Commercial construction	8,377		13,410		—		11,508		357
Land	8,195		13,910		—		9,791		331
Office	7,442		9,171		—		8,581		237
Industrial	5,178		5,321		—		5,234		141
Retail	16,114		17,374		—		15,512		406
Multi-family	894		3,009		—		1,235		74
Mixed use and other	10,856		13,464		—		9,623		293
Home equity	10,034		11,734		—		10,012		235
Residential real-estate	10,207		10,860		—		10,632		211
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	43		53		—		49		2
Consumer and other	1,149		1,683		—		1,172		50
Total loans, net of unearned income, excluding covered loans	$	190,148	$	223,196	$	11,839	$	194,249	$	5,044

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							For the Twelve Months Ended
	As of December 31, 2012						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	11,010	$	12,562	$	1,982	$	13,312	$	881
Franchise	1,792		1,792		1,259		1,792		122
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	511		511		55		484		26
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	2,007		2,007		389		2,007		98
Commercial construction	1,865		1,865		70		1,865		78
Land	12,184		12,860		1,414		12,673		483
Office	5,829		5,887		622		5,936		246
Industrial	1,150		1,200		224		1,208		75
Retail	13,240		13,314		343		13,230		584
Multi-family	3,954		3,954		348		3,972		157
Mixed use and other	22,249		23,166		2,989		23,185		1,165
Home equity	7,270		7,313		2,569		7,282		271
Residential real-estate	6,420		6,931		1,169		6,424		226
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	—		—		—		—		—
Consumer and other	502		502		142		502		26
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	20,270	$	27,574	$	—	$	23,877	$	1,259
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	25		1,362		—		252		76
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	4,085		4,440		—		4,507		143
Commercial construction	12,263		13,395		—		13,635		540
Land	12,163		17,141		—		14,646		906
Office	8,939		9,521		—		9,432		437
Industrial	3,598		3,776		—		3,741		181
Retail	18,073		18,997		—		19,067		892
Multi-family	2,817		4,494		—		4,120		222
Mixed use and other	15,462		17,210		—		16,122		912
Home equity	7,320		8,758		—		8,164		376
Residential real-estate	8,390		9,189		—		9,069		337
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	53		61		—		65		6
Consumer and other	1,104		1,558		—		1,507		94
Total loans, net of unearned income, excluding covered loans	$	204,545	$	231,340	$	13,575	$	222,076	$	10,819

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							For the Six Months Ended
	As of June 30, 2012						June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	31,284	$	32,240	$	2,704	$	25,357	$	822
Franchise	1,792		1,792		394		1,792		61
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	428		428		95		428		15
Asset-based lending	243		243		66		258		6
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	1,007		1,082		149		1,005		26
Commercial construction	2,389		2,389		1,051		2,355		66
Land	41,411		43,203		2,344		41,497		894
Office	6,660		7,203		1,415		6,712		165
Industrial	434		475		87		448		13
Retail	24,420		24,502		1,251		24,000		555
Multi-family	5,226		5,226		783		5,219		134
Mixed use and other	26,381		27,102		2,759		27,057		692
Home equity	8,666		9,103		3,305		8,687		238
Residential real-estate	9,660		10,132		2,273		9,603		200
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	—		—		—		—		—
Consumer and other	1,296		1,296		451		1,297		43
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	18,106	$	25,417	$	—	$	21,530	$	584
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	98		1,417		—		398		38
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	4,485		4,715		—		4,823		103
Commercial construction	9,859		9,976		—		11,066		219
Land	13,063		16,083		—		14,274		393
Office	7,974		9,673		—		8,440		236
Industrial	3,796		4,251		—		3,993		103
Retail	11,548		11,590		—		11,897		299
Multi-family	1,925		2,671		—		2,562		58
Mixed use and other	24,161		27,637		—		25,465		680
Home equity	3,531		4,287		—		3,651		67
Residential real-estate	4,465		5,189		—		4,688		97
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	107		121		—		113		5
Consumer and other	249		253		—		253		8
Total loans, net of unearned income, excluding covered loans	$	264,664	$	289,696	$	19,127	$	268,868	$	6,820

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TDRs

The Company’s approach to restructuring loans, excluding those acquired with evidence of credit quality deterioration since origination, is built on its credit risk rating system which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company’s credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for repayment under the revised terms.

A modification of a loan, excluding those acquired with evidence of credit quality deterioration since origination, with an existing credit risk rating of six or worse or a modification of any other credit which will result in a restructured credit risk rating of six or worse, must be reviewed for possible TDR classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of these loans is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan, excluding those acquired with evidence of credit quality deterioration since origination, where the credit risk rating is five or better both before and after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is five or better are not experiencing financial difficulties and therefore, are not considered TDRs.

TDRs are reviewed at the time of modification and on a quarterly basis to determine if a specific reserve is needed. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific reserve.

All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has been in compliance with the loan’s modified terms for a period of six months (including over a calendar year-end) and the modified interest rate represented a market rate at the time of a restructuring. The Managed Assets Division, in consultation with the respective loan officer, determines whether the modified interest rate represented a current market rate at the time of restructuring. Using knowledge of current market conditions and rates, competitive pricing on recent loan originations, and an assessment of various characteristics of the modified loan (including collateral position and payment history), an appropriate market rate for a new borrower with similar risk is determined. If the modified interest rate meets or exceeds this market rate for a new borrower with similar risk, the modified interest rate represents a market rate at the time of restructuring. Additionally, before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and any concerns related to future performance by the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR classification is not removed from the loan. Loans classified as TDRs that are re-modified subsequent to the initial determination will continue to be classified as TDRs following the re-modification, unless the requirements for removal from TDR classification discussed above are satisfied at the time of the re-modification.

TDRs are reviewed at the time of the modification and on a quarterly basis to determine if a specific reserve is necessary. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific reserve. The Company, in accordance with ASC 310-10, continues to individually measure impairment of these loans after the TDR classification is removed.

Each TDR was reviewed for impairment at June 30, 2013 and approximately $4.0 million of impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses. For TDRs in which impairment is calculated by the present value of future cash flows, the Company records interest income representing the decrease in impairment resulting from the passage of time during the respective period, which differs from interest income from contractually required interest on these specific loans. During the three months ended June 30, 2013 and 2012, the Company recorded $296,000 and $272,000 , respectively, in interest income representing this decrease in impairment. During the six months ended June 30, 2013 and 2012, the Company recorded $522,000 and $510,000 , respectively, in interest income representing this decrease in impairment.

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The tables below present a summary of the post-modification balance of loans restructured during the three and six months ended June 30, 2013 and 2012, respectively, which represent TDRs:



Three months ended June 30, 2013 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
Three months ended June 30, 2013 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Commercial real-estate
Residential construction	—	—			—		—	—		—	—		—	—
Commercial construction	3	6,120		3	6,120		—	—		3	6,120		—	—
Land	—	—		—	—		—	—		—	—		—	—
Office	3	3,465		3	3,465		—	—		—	—		—	—
Industrial	1	949		1	949		1	949		—	—		—	—
Retail	—	—		—	—		—	—		—	—		—	—
Multi-family	—	—		—	—		—	—		—	—		—	—
Mixed use and other	2	3,533		2	3,533		2	3,533		—	—		—	—
Residential real estate and other	3	401		1	25		3	401		1	111		—	—
Total loans	12	$	14,468	10	$	14,092	6	$	4,883	4	$	6,231	—	$	—


(1)	TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.


(2)	Balances represent the recorded investment in the loan at the time of the restructuring.



Three months ended June 30, 2012 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
Three months ended June 30, 2012 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	10	$	12,765	6	$	2,328	8	$	12,480	4	$	10,308	2	$	1,486
Commercial real-estate
Residential construction	2	1,651		2	1,651		—	—		—	—		—	—
Commercial construction	—	—		—	—		—	—		—	—		—	—
Land	3	3,844		3	3,844		2	3,557		2	3,557		—	—
Office	—	—		—	—		—	—		—	—		—	—
Industrial	—	—		—	—		—	—		—	—		—	—
Retail	—	—		—	—		—	—		—	—		—	—
Multi-family	—	—		—	—		—	—		—	—		—	—
Mixed use and other	3	2,365		3	2,365		2	2,219		1	146		—	—
Residential real estate and other	1	29		1	29		1	29		—	—		1	29
Total loans	19	$	20,654	15	$	10,217	13	$	18,285	7	$	14,011	3	$	1,515


(1)	TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.


(2)	Balances represent the recorded investment in the loan at the time of the restructuring.

During the three months ended June 30, 2013 , 12 loans totaling $14.5 million were determined to be TDRs, compared to 19 loans totaling $20.7 million in the same period of 2012. Of these loans extended at below market terms, the weighted average extension had a term of approximately 16 months during the three months ended June 30, 2013 compared to 14 months for the same period of 2012. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 225 basis points and 101 basis points during the three months ending June 30, 2013 and 2012, respectively. Interest-only payment terms were approximately eleven months and five months during the three months ending June 30, 2013 and 2012, respectively. Additionally, no balances were forgiven in the second quarter of 2013 compared to $420,000 in principal balances forgiven during the same period of 2012.

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Six months ended June 30, 2013 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
Six months ended June 30, 2013 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	6	$	708	5	$	573	4	$	553	2	$	185	—	$	—
Commercial real-estate
Residential construction	—	—		—	—		—	—		—	—		—	—
Commercial construction	3	6,120		3	6,120		—	—		3	6,120		—	—
Land	2	287		2	287		2	287		—	—		1	73
Office	3	3,465		3	3,465		—	—		—	—		—	—
Industrial	1	949		1	949		1	949		—	—		—	—
Retail	1	200		1	200		1	200		—	—		—	—
Multi-family	1	705		1	705		1	705		—	—		—	—
Mixed use and other	2	3,533		2	3,533		2	3,533		—	—		—	—
Residential real estate and other	7	778		3	95		6	762		2	234		—	—
Total loans	26	$	16,745	21	$	15,927	17	$	6,989	7	$	6,539	1	$	73


(1)	TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.


(2)	Balances represent the recorded investment in the loan at the time of the restructuring.



Six months ended June 30, 2012 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
Six months ended June 30, 2012 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	13	$	12,883	7	$	2,342	8	$	12,480	6	$	10,412	2	$	1,486
Commercial real-estate
Residential construction	2	1,651		2	1,651		—	—		—	—		—	—
Commercial construction	2	622		2	622		2	622		2	622		—	—
Land	17	31,836		17	31,836		14	30,561		13	26,511		—	—
Office	—	—		—	—		—	—		—	—		—	—
Industrial	—	—		—	—		—	—		—	—		—	—
Retail	5	8,633		5	8,633		5	8,633		4	8,243		—	—
Multi-family	—	—		—	—		—	—		—	—		—	—
Mixed use and other	6	3,637		6	3,637		4	3,430		3	1,275		—	—
Residential real estate and other	5	1,075		4	956		2	147		2	845		1	29
Total loans	50	$	60,337	43	$	49,677	35	$	55,873	30	$	47,908	3	$	1,515


(1)	TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.


(2)	Balances represent the recorded investment in the loan at the time of the restructuring.

During the six months ended June 30, 2013 , 26 loans totaling $16.7 million were determined to be TDRs, compared to 50 loans totaling $60.3 million in the same period of 2012. Of these loans extended at below market terms, the weighted average extension had a term of approximately 17 months during the six months ended June 30, 2013 compared to eight months for the same period of 2012. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 203 basis points and 142 basis points during the six months ending June 30, 2013 and 2012, respectively. Interest-only payment terms were approximately eleven months and four months during the six months ending June 30, 2013 and 2012, respectively. Additionally, $50,000 in balances were forgiven in the first six months of 2013 compared to $420,000 balances forgiven during the same period of 2012.

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The following table presents a summary of all loans restructured in TDRs during the twelve months ended June 30, 2013 and 2012, and such loans which were in payment default under the restructured terms during the respective periods below:



(Dollars in thousands)	As of June 30, 2013			Three Months Ended June 30, 2013			Six Months Ended June 30, 2013
	Total ⁽¹⁾⁽³⁾			Payments in Default ⁽²⁾⁽³⁾			Payments in Default ⁽²⁾⁽³⁾
	Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	11	$	2,136	3	$	236	3	$	236
Commercial real-estate
Residential construction	1	496			—		—	—
Commercial construction	3	6,120		—	—		—	—
Land	2	287		—	—		—	—
Office	3	3,465		1	1,648		1	1,648
Industrial	2	1,676		1	727		1	727
Retail	4	5,085		—	—		—	—
Multi-family	2	1,085		1	705		1	705
Mixed use and other	11	7,230		3	683		3	683
Residential real estate and other	12	1,341		5	563		5	563
Total loans	51	$	28,921	14	$	4,562	14	$	4,562


(1)	Total TDRs represent all loans restructured in TDRs during the previous twelve months from the date indicated.


(2)	TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.


(3)	Balances represent the recorded investment in the loan at the time of the restructuring.



(Dollars in thousands)	As of June 30, 2012			Three Months Ended June 30, 2012			Six Months Ended June 30, 2012
	Total ⁽¹⁾⁽³⁾			Payments in Default ⁽²⁾⁽³⁾			Payments in Default ⁽²⁾⁽³⁾
	Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	26	$	17,876	4	$	531	4	$	531
Commercial real-estate
Residential construction	3	2,756		—	—		—	—
Commercial construction	8	3,827		5	2,227		5	2,227
Land	23	38,296		3	2,081		3	2,081
Office	2	4,795		—	—		—	—
Industrial	3	2,110		2	1,786		2	1,786
Retail	15	26,460		1	1,605		2	3,840
Multi-family	6	4,414		—	—		—	—
Mixed use and other	25	11,429		3	1,158		6	3,441
Residential real estate and other	18	6,397		7	2,273		8	2,722
Total loans	129	$	118,360	25	$	11,661	30	$	16,628


(1)	Total TDRs represent all loans restructured in TDRs during the previous twelve months from the date indicated.


(2)	TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.


(3)	Balances represent the recorded investment in the loan at the time of the restructuring.

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(8) Loan Securitization

During the third quarter of 2009, the Company entered into a revolving period securitization transaction sponsored by First Insurance Funding Corporation ("FIFC"). In connection with the securitization, premium finance receivables – commercial were transferred to FIFC Premium Funding, LLC (the “securitization entity”). Principal collections on loans in the securitization entity were used to acquire and transfer additional loans into the securitization entity during the stated revolving period. At December 31, 2011, the stated revolving period ended and the majority of collections began accumulating to pay off the issued instruments as scheduled.

Instruments issued by the securitization entity included $600 million Class A notes bearing an annual interest rate of one-month LIBOR plus 1.45% (the “Notes”). At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (“TALF”). Class B and Class C notes (“Subordinated securities”), which were recorded in the form of zero coupon bonds, were also issued and were retained by the Company.

This securitization transaction was accounted for as a secured borrowing and the securitization entity is treated as a consolidated subsidiary of the Company under ASC 810, “Consolidation”. The securitization entity’s receivables underlying third-party investors’ interests were recorded in loans, net of unearned income, excluding covered loans, an allowance for loan losses was established and the related debt issued was reported in secured borrowings—owed to securitization investors. Additionally, the Company’s retained interests in the transaction, principally consisting of subordinated securities, cash collateral, and overcollateralization of loans, constituted intercompany positions, which were eliminated in the preparation of the Company’s Consolidated Statements of Condition.

Upon transfer of premium finance receivables – commercial to the securitization entity, the receivables and certain cash flows derived from them became restricted for use in meeting obligations to the securitization entity’s creditors. The securitization entity had ownership of interest-bearing deposit balances that also had restrictions, the amounts of which were reported in interest-bearing deposits with other banks. With the exception of the seller’s interest in the transferred receivables, the Company’s interests in the securitization entity’s assets were generally subordinate to the interests of third-party investors.

During the first and second quarters of 2012, the Company purchased portions of the Notes in the open market in the amounts of $172.0 million and $67.2 million , respectively, effectively reducing the outstanding Notes, on a consolidated basis, to $360.8 million . On August 15, 2012, the securitization entity paid off the $360.8 million of Notes held by third party investors as well as the $239.2 million owed to the Company. Additionally, the Company received payment of $49.6 million related to the Subordinated securities held by the Company. As of June 30, 2013 , the securitization entity held no loans or borrowings but retained approximately $36,000 in cash, which is not restricted.

The carrying values and classification of the assets and liabilities relating to the securitization activities are shown in the table below. As of June 30, 2012 , the balances of interest-bearing deposits with banks and loans were restricted for securitization investors.



(Dollars in thousands)	June 30, 2013		December 31, 2012		June 30, 2012
Cash collateral accounts	$	36	$	36	$	3,362
Collections and interest funding accounts	—		—		655,621
Interest-bearing deposits with banks	$	36	$	36	$	658,983
Loans, net of unearned income	$	—	$	—	$	30,080
Allowance for loan losses	—		—		(240		)
Net loans	$	—	$	—	$	29,840
Other assets	—		—		1,607
Total assets	$	36	$	36	$	690,430
Secured borrowings—owed to securitization investors	$	—	$	—	$	600,000
Other liabilities	—		—		560
Total liabilities	$	—	$	—	$	600,560

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(9) Goodwill and Other Intangible Assets

A summary of the Company’s goodwill assets by business segment is presented in the following table:



(Dollars in thousands)	January 1, 2013		Goodwill Acquired		Impairment Loss		Goodwill Adjustments			June 30, 2013
Community banking	$	274,963	$	13,960	$	—	$	(1,496	)	$	287,427
Specialty finance	38,574		—		—		(994		)	37,580
Wealth management	31,864		—		—		—			31,864
Total	$	345,401	$	13,960	$	—	$	(2,490	)	$	356,871

The community banking segment's goodwill increased $12.5 million in 2013 as a result of the acquisition of FNBI in the second quarter of 2013 and subsequent purchase adjustments related to the acquisition of Hyde Park Bank in 2012. Additionally, the specialty finance segment’s goodwill decreased $994,000 during this same period as a result of subsequent purchase adjustments and foreign currency translation adjustments related to the acquisition of Macquarie Premium Funding Inc. in 2012.

At June 30, 2013, the Company utilized a qualitative approach for its annual goodwill impairment test of the community banking segment and determined that it is not more likely than not that an impairment existed at that time. The annual goodwill impairment tests of the specialty finance and wealth management segments will be conducted at December 31, 2013.

A summary of finite-lived intangible assets as of the dates shown and the expected amortization as of June 30, 2013 is as follows:



(Dollars in thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Community banking segment:
Core deposit intangibles:
Gross carrying amount	$	39,350		$	38,176		$	36,253
Accumulated amortization	(27,132		)	(25,159		)	(23,276		)
Net carrying amount	$	12,218		$	13,017		$	12,977
Specialty finance segment:
Customer list intangibles:
Gross carrying amount	$	1,800		$	1,800		$	1,800
Accumulated amortization	(731		)	(645		)	(559		)
Net carrying amount	$	1,069		$	1,155		$	1,241
Wealth management segment:
Customer list and other intangibles:
Gross carrying amount	$	7,690		$	7,390		$	7,390
Accumulated amortization	(840		)	(615		)	(395		)
Net carrying amount	$	6,850		$	6,775		$	6,995
Total other intangible assets, net	$	20,137		$	20,947		$	21,213



Estimated amortization
Actual in six months ended June 30, 2013	$	2,284
Estimated remaining in 2013	2,277
Estimated—2014	4,117
Estimated—2015	2,565
Estimated—2016	1,981
Estimated—2017	1,589

The increase in gross carrying amount of core deposit intangibles from 2012 was primarily from the acquisition of FNBI in the second quarter of 2013, partially offset by the divestiture of the deposits and current banking locations of Second Federal in the first quarter of 2013. The core deposit intangibles recognized in connection with these acquisitions are amortized over a ten -year period on an accelerated basis.

The customer list intangibles recognized in connection with the purchase of life insurance premium finance assets in 2009 are being amortized over an 18 -year period on an accelerated basis.

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The increase in intangibles within the Wealth management segment was related to the Company's acquisition of the trust operations of FNBI during the second quarter of 2013. The customer list intangibles recognized in connection with this and prior acquisitions within the Wealth management segment are being amortized over a ten -year period on a straight-line basis.

Total amortization expense associated with finite-lived intangibles totaled approximately $2.3 million and $2.1 million for the six months ended June 30, 2013 and 2012, respectively.

(10) Deposits

The following table is a summary of deposits as of the dates shown:



(Dollars in thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Balance:
Non-interest bearing	$	2,450,659		$	2,396,264		$	2,047,715
NOW	2,147,004			2,022,957			1,780,872
Wealth management deposits	1,083,897			991,902			954,319
Money market	3,037,354			2,761,498			2,335,238
Savings	1,304,619			1,275,012			958,295
Time certificates of deposit	4,342,321			4,980,911			4,981,142
Total deposits	$	14,365,854		$	14,428,544		$	13,057,581
Mix:
Non-interest bearing	17		%	17		%	16		%
NOW	15			14			14
Wealth management deposits	8			7			7
Money market	21			19			18
Savings	9			9			7
Time certificates of deposit	30			34			38
Total deposits	100		%	100		%	100		%

Wealth management deposits represent deposit balances (primarily money market accounts) at the Company’s subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of CTC and brokerage customers from unaffiliated companies.

(11) Notes Payable, Federal Home Loan Bank Advances, Other Borrowings, Secured Borrowings and Subordinated Notes

The following table is a summary of notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings and subordinated notes as of the dates shown:



(Dollars in thousands)	June 30, 2013		December 31, 2012		June 30, 2012
Notes payable	$	1,729	$	2,093	$	2,457
Federal Home Loan Bank advances	585,942		414,122		564,301
Other borrowings:
Securities sold under repurchase agreements	224,915		238,401		352,064
Other	27,861		36,010		23,459
Total other borrowings	252,776		274,411		375,523
Secured borrowings—owed to securitization investors	—		—		360,825
Subordinated notes	10,000		15,000		15,000
Total notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings, and subordinated notes	$	850,447	$	705,626	$	1,318,106

At June 30, 2013 , the Company had notes payable of $1.7 million . The Company had a $1.0 million outstanding balance of notes payable, with an interest rate of 4.00% , under a $101.0 million loan agreement (“Agreement”) with unaffiliated banks. The Agreement consists of a $100.0 million revolving credit facility, maturing on October 25, 2013 , and a $1.0 million term loan

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maturing on June 1, 2015 . At June 30, 2013 , no amount was outstanding on the $100.0 million revolving credit facility. Borrowings under the Agreement that are considered “Base Rate Loans” will bear interest at a rate equal to the higher of (1) 400 basis points and (2) for the applicable period, the highest of (a) the federal funds rate plus 100 basis points , (b) the lender’s prime rate plus 50 basis points , and (c) the Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 150 basis points . Borrowings under the Agreement that are considered “Eurodollar Rate Loans” will bear interest at a rate equal to the higher of (1) the British Bankers Association’s LIBOR rate for the applicable period plus 300 basis points (the “Eurodollar Rate”) and (2) 400 basis points . A commitment fee is payable quarterly equal to 0.50% of the actual daily amount by which the lenders’ commitment under the revolving note exceeded the amount outstanding under such facility.

Borrowings under the Agreement are secured by the stock of some of the banks and contain several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. At June 30, 2013 , the Company was in compliance with all such covenants. The revolving credit facility is available to be utilized, as needed, to provide capital to fund continued growth at the Company’s banks and to serve as an interim source of funds for acquisitions, common stock repurchases or other general corporate purposes.

As a result of the acquisition of Great Lakes Advisors, the Company assumed an unsecured promissory note to a Great Lakes Advisor shareholder (“Unsecured Promissory Note”) with an outstanding balance of $729,000 as of June 30, 2013 . Under the Unsecured Promissory Note, the Company will make quarterly principal payments and pay interest at a rate of the federal funds rate plus 100 basis points . As of June 30, 2013 , the current interest rate was 1.25% .

Federal Home Loan Bank advances consist of 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. In order to achieve lower interest rates and to extend maturities, the Company may periodically restructure FHLB advances. The Company restructured $292.5 million of FHLB advances in the first quarter of 2012, paying $22.4 million in prepayment fees. The Company did not restructure any FHLB advances in the first six months of 2013. These prepayment fees are classified in other assets on the Consolidated Statements of Condition and are amortized as an adjustment to interest expense using the effective interest method.

At June 30, 2013 and 2012, securities sold under repurchase agreements represent $44.9 million and $85.5 million , respectively, of customer balances in sweep accounts in connection with master repurchase agreements at the banks and $180.0 million and $266.6 million , respectively, of short-term borrowings from brokers. Securities pledged for customer balances in sweep accounts are maintained under the Company’s control and consist of U.S. Government agency, mortgage-backed and corporate securities. These securities are included in the available-for-sale securities portfolio as reflected on the Company’s Consolidated Statements of Condition.

Other borrowings at June 30, 2013 and 2012 represent the junior subordinated amortizing notes issued by the Company in connection with the issuance of Tangible Equity Units (TEUs) in December 2010 and a fixed-rate promissory note issued by the Company in August 2012 ("Fixed-rate Promissory Note") related to and secured by an office building owned by the Company. The junior subordinated notes were recorded at their initial principal balance of $44.7 million , net of issuance costs. These notes have a stated interest rate of 9.5% and require quarterly principal and interest payments of $4.3 million , with an initial payment of $4.6 million that was paid on March 15, 2011. The issuance costs are being amortized to interest expense using the effective-interest method. The scheduled final installment payment on the notes is December 15, 2013 , subject to extension. At June 30, 2013 , these notes had an outstanding balance of $8.3 million . See Note 17 – Shareholders’ Equity and Earnings Per Share for further discussion of the TEUs. At June 30, 2013 the Fixed-rate Promissory Note had an outstanding balance of $19.6 million . Under the Fixed-rate Promissory Note, the Company will make monthly principal payments and pay interest at a fixed rate of 3.75% until maturity on September 1, 2017.

During the third quarter of 2009, the Company entered into an off-balance sheet securitization transaction sponsored by FIFC. In connection with the securitization, premium finance receivables—commercial were transferred to FIFC Premium Funding, LLC, a qualifying special purpose entity (the “QSPE”). The QSPE issued $600 million Class A notes, which were reflected on the Company's Consolidated Statements of Condition as secured borrowings owed to securitization investors, that had an annual interest rate of one-month LIBOR plus 1.45% (the “Notes”). At the time of issuance, the Notes were eligible collateral under TALF. During the first and second quarters of 2012, the Company purchased $172.0 million and $67.2 million , respectively, of the Notes in the open market effectively defeasing a portion of the Notes. During the third quarter of 2012, the Company completely paid-off the remaining portion of these Notes as reflected on the Company’s Consolidated Statements of Condition as secured borrowings owed to securitization investors. See Note 8 — Loan Securitization, for more information on the QSPE.

At June 30, 2013 , the Company had an obligation for one subordinated note with a remaining balance of $10.0 million . This subordinated note was issued in October 2005 (funded in May 2006). During the second quarter of 2012, two subordinated notes issued in October 2002 and April 2003 with remaining balances of $5.0 million and $10.0 million , respectively, were paid off

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prior to maturity. The remaining subordinated note as of June 30, 2013 requires annual principal payments of $5.0 million on May 29, 2014 and 2015. The Company may redeem the subordinated note without payment of premium or penalty at any time prior to maturity. Interest on each note is calculated at a rate equal to three-month LIBOR plus 130 basis points .

(12) Junior Subordinated Debentures

As of June 30, 2013 , the Company owned 100% of the common securities of nine trusts, Wintrust Capital Trust III, Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, and First Northwest Capital Trust I (the “Trusts”) set up to provide long-term financing. The Northview, Town and First Northwest capital trusts were acquired as part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., and First Northwest Bancorp, Inc., respectively. The Trusts were formed for purposes of issuing trust preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.

The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in available-for-sale securities.

The following table provides a summary of the Company’s junior subordinated debentures as of June 30, 2013 . The junior subordinated debentures represent the par value of the obligations owed to the Trusts.



(Dollars in thousands)	Common Securities		Trust Preferred Securities		Junior Subordinated Debentures		Rate Structure	Contractual rate at 6/30/2013		Issue Date	Maturity Date	Earliest Redemption Date
Wintrust Capital Trust III	$	774	$	25,000	$	25,774	L+3.25	3.53	%	04/2003	04/2033	04/2008
Wintrust Statutory Trust IV	619		20,000		20,619		L+2.80	3.07	%	12/2003	12/2033	12/2008
Wintrust Statutory Trust V	1,238		40,000		41,238		L+2.60	2.87	%	05/2004	05/2034	06/2009
Wintrust Capital Trust VII	1,550		50,000		51,550		L+1.95	2.22	%	12/2004	03/2035	03/2010
Wintrust Capital Trust VIII	1,238		40,000		41,238		L+1.45	1.72	%	08/2005	09/2035	09/2010
Wintrust Captial Trust IX	1,547		50,000		51,547		L+1.63	1.90	%	09/2006	09/2036	09/2011
Northview Capital Trust I	186		6,000		6,186		L+3.00	3.27	%	08/2003	11/2033	08/2008
Town Bankshares Capital Trust I	186		6,000		6,186		L+3.00	3.27	%	08/2003	11/2033	08/2008
First Northwest Capital Trust I	155		5,000		5,155		L+3.00	3.27	%	05/2004	05/2034	05/2009
Total					$	249,493		2.46	%

The junior subordinated debentures totaled $249.5 million at June 30, 2013 , December 31, 2012 and June 30, 2012 .

The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. At June 30, 2013 , the weighted average contractual interest rate on the junior subordinated debentures was 2.46% . The Company entered into interest rate swaps and caps with an aggregate notional value of $315 million to hedge the variable cash flows on certain junior subordinated debentures. Two of these interest rate caps, which were purchased in the second quarter of 2013 with an aggregate notional amount of $90 million , are forward starting effective in September 2013 to replace interest rate swaps that mature at that time. The hedge-adjusted rate on the junior subordinated debentures as of June 30, 2013 , was 4.88% . Distributions on the common and preferred securities issued by the Trusts are payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.

The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts under

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the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations.

The junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. At June 30, 2013 , all of the junior subordinated debentures, net of the Common Securities, were included in the Company’s Tier 1 regulatory capital.

(13) Segment Information

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management.

The three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. In addition, each segment’s customer base has varying characteristics. The community banking segment has a different regulatory environment than the specialty finance and wealth management segments. While the Company’s management monitors each of the fifteen bank subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable operating segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.

The net interest income, net revenue and segment profit of the community banking segment includes income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations, thereby causing inter-segment eliminations. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. See Note 10 — Deposits, for more information on these deposits.

The segment financial information provided in the following tables has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The accounting policies of the segments are substantially similar to as those described in “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2012 Form 10-K. The Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common to each segment. Certain indirect expenses have been allocated based on actual volume measurements and other criteria, as appropriate. Intersegment revenue and transfers are generally accounted for at current market prices. The parent and intersegment eliminations reflected parent company information and intersegment eliminations.

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The following is a summary of certain operating information for reportable segments:



	Three months ended June 30,						$ Change in Contribution			% Change in Contribution
(Dollars in thousands)	2013			2012			$ Change in Contribution			% Change in Contribution
Net interest income:
Community banking	$	127,515		$	123,016		$	4,499		4	%
Specialty finance	31,460			28,694			2,766			10
Wealth management	2,396			2,692			(296		)	(11	)
Parent and inter-segment eliminations	(25,547		)	(26,132		)	585			2
Total net interest income	$	135,824		$	128,270		$	7,554		6	%
Non-interest income:
Community banking	$	42,602		$	37,019		$	5,583		15	%
Specialty finance	1,789			1,567			222			14
Wealth management	19,071			15,964			3,107			19
Parent and inter-segment eliminations	533			(3,615		)	4,148			NM
Total non-interest income	$	63,995		$	50,935		$	13,060		26	%
Net revenue:
Community banking	$	170,117		$	160,035		$	10,082		6	%
Specialty finance	33,249			30,261			2,988			10
Wealth management	21,467			18,656			2,811			15
Parent and inter-segment eliminations	(25,014		)	(29,747		)	4,733			16
Total net revenue	$	199,819		$	179,205		$	20,614		12	%
Segment profit:
Community banking	$	34,227		$	29,414		$	4,813		16	%
Specialty finance	13,838			10,969			2,869			26
Wealth management	3,154			2,484			670			27
Parent and inter-segment eliminations	(16,912		)	(17,272		)	360			2
Total segment profit	$	34,307		$	25,595		$	8,712		34	%
Segment assets:
Community banking	$	17,339,140		$	16,234,511		$	1,104,629		7	%
Specialty finance	4,163,795			3,711,459			452,336			12
Wealth management	98,016			96,125			1,891			2
Parent and inter-segment eliminations	(3,987,405		)	(3,465,813		)	(521,592		)	(15	)
Total segment assets	$	17,613,546		$	16,576,282		$	1,037,264		6	%

NM - Not Meaningful

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	Six months ended June 30,						$ Change in Contribution			% Change in Contribution
(Dollars in thousands)	2013			2012			$ Change in Contribution			% Change in Contribution
Net interest income:
Community banking	$	250,949		$	244,150		$	6,799		3	%
Specialty finance	62,550			56,280			6,270			11
Wealth management	3,660			4,416			(756		)	(17	)
Parent and inter-segment eliminations	(50,622		)	(50,681		)	59			—
Total net interest income	$	266,537		$	254,165		$	12,372		5	%
Non-interest income:
Community banking	$	82,484		$	68,805		$	13,679		20	%
Specialty finance	3,482			2,938			544			19
Wealth management	36,927			31,201			5,726			18
Parent and inter-segment eliminations	(1,519		)	(4,986		)	3,467			70
Total non-interest income	$	121,374		$	97,958		$	23,416		24	%
Net revenue:
Community banking	$	333,433		$	312,955		$	20,478		7	%
Specialty finance	66,032			59,218			6,814			12
Wealth management	40,587			35,617			4,970			14
Parent and inter-segment eliminations	(52,141		)	(55,667		)	3,526			6
Total net revenue	$	387,911		$	352,123		$	35,788		10	%
Segment profit:
Community banking	$	67,874		$	56,389		$	11,485		20	%
Specialty finance	27,612			23,434			4,178			18
Wealth management	5,391			3,980			1,411			35
Parent and inter-segment eliminations	(34,518		)	(34,998		)	480			1
Total segment profit	$	66,359		$	48,805		$	17,554		36	%

(14) Derivative Financial Instruments

The Company primarily enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying. Derivatives are also implicit in certain contracts and commitments.

The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate swaps and caps to manage the interest rate risk of certain fixed and variable rate assets and variable rate liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market; (3) forward commitments for the future delivery of such mortgage loans to protect the Company from adverse changes in interest rates and corresponding changes in the value of mortgage loans available-for-sale; and (4) covered call options related to specific investment securities to enhance the overall yield on such securities. The Company also enters into derivatives (typically interest rate swaps) with certain qualified borrowers to facilitate the borrowers’ risk management strategies and concurrently enters into mirror-image derivatives with a third party counterparty, effectively making a market in the derivatives for such borrowers. Additionally, the Company enters into foreign currency contracts to manage foreign exchange risk associated with certain foreign currency denominated assets.

As discussed within "The Current Economic Environment" section of Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company has purchased a series of interest rate cap derivatives to hedge or manage its own risk exposures. Certain interest rate cap derivatives have been designated as cash flow hedge derivatives of the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures. Other cap derivatives are not designated for hedge accounting but are economic hedges of the Company's overall portfolio, therefore any mark to market changes in the value of these caps are recognized in earnings.

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Below is a summary of the interest rate cap derivatives held by the Company as of June 30, 2013:



(Dollars in thousands)
		Notional		Accounting	Fair Value as of
Effective Date	Maturity Date	Amount		Treatment	June 30, 2013
September 30, 2011	September 30, 2014	$	20,000	Cash Flow Hedging	$	1
September 30, 2011	September 30, 2014	40,000		Cash Flow Hedging	1
May 3, 2012	May 3, 2015	77,000		Non-Hedge Designated	43
May 3, 2012	May 3, 2016	215,000		Non-Hedge Designated	983
June 1, 2012	April 1, 2015	96,530		Non-Hedge Designated	91
August 29, 2012	August 29, 2016	216,500		Non-Hedge Designated	1,568
February 22, 2013	August 22, 2016	100,000		Non-Hedge Designated	852
March 21, 2013	March 21, 2017	100,000		Non-Hedge Designated	1,573
May 16, 2013	November 16, 2016	75,000		Non-Hedge Designated	834
September 15, 2013	September 15, 2017	50,000		Cash Flow Hedging	1,175
September 30, 2013	September 30, 2017	40,000		Cash Flow Hedging	969
		$	1,030,030		$	8,090

As required by ASC 815, the Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Derivative financial instruments are included in other assets or other liabilities, as appropriate, on the Consolidated Statements of Condition. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as cash flow hedges, to the extent they are effective hedges, are recorded as a component of other comprehensive income, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings. Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815, including changes in fair value related to the ineffective portion of cash flow hedges, are reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and are validated by comparison with valuations provided by the respective counterparties. Fair values of certain mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans on a best efforts basis) are estimated based on changes in mortgage interest rates from the date of the loan commitment. The fair value of foreign currency derivatives is computed based on changes in foreign currency rates stated in the contract compared to those prevailing at the measurement date.

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The Company records derivative assets and derivative liabilities on the Consolidated Statements of Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. The table below presents the fair value of the Company’s derivative financial instruments as of June 30, 2013 , December 31, 2012 and June 30, 2012 :



	Derivative Assets						Derivative Liabilities
	Fair Value						Fair Value
(Dollars in thousands)	June 30, 2013		December 31, 2012		June 30, 2012		June 30, 2013		December 31, 2012		June 30, 2012
Derivatives designated as hedging instruments under ASC 815:
Interest rate derivatives designated as Cash Flow Hedges	$	2,146	$	2	$	17	$	4,416	$	7,988	$	9,918
Interest rate derivatives designated as Fair Value Hedges	$	94	$	104	$	392	$	—	$	—	$	—
Total derivatives designated as hedging instruments under ASC 815	$	2,240	$	106	$	409	$	4,416	$	7,988	$	9,918
Derivatives not designated as hedging instruments under ASC 815:
Interest rate derivatives	35,878		47,440		45,021		29,372		45,767		43,537
Interest rate lock commitments	14,579		6,069		8,062		3,208		937		3,847
Forward commitments to sell mortgage loans	7,835		277		111		583		3,057		4,072
Foreign exchange contracts	22		14		63		75		2		6
Total derivatives not designated as hedging instruments under ASC 815	$	58,314	$	53,800	$	53,257	$	33,238	$	49,763	$	51,462
Total derivatives	$	60,554	$	53,906	$	53,666	$	37,654	$	57,751	$	61,380

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of payments at the end of each period in which the interest rate specified in the contract exceeds the agreed upon strike price. During the second quarter of 2013, the Company purchased two new interest rate caps which are forward starting effective in September 2013 to replace interest rate swaps designated as cash flow hedges that mature in September 2013. As of June 30, 2013 , the Company had four interest rate swaps and four interest rate caps with an aggregate notional amount of $315 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 cash flow hedges as of June 30, 2013 :



	June 30, 2013
(Dollars in thousands)	Notional		Fair Value
Maturity Date	Amount		Asset (Liability)
Interest Rate Swaps:
September 2013	50,000		(530		)
September 2013	40,000		(508		)
September 2016	50,000		(2,227		)
October 2016	25,000		(1,151		)
Total Interest Rate Swaps	165,000		(4,416		)
Interest Rate Caps:
September 2014	20,000		1
September 2014	40,000		1
September 2017 ⁽¹⁾	50,000		1,175
September 2017 ⁽¹⁾	40,000		969
Total Interest Rate Caps	150,000		2,146
Total Cash Flow Hedges	$	315,000	$	(2,270	)


(1)	These cap derivatives are forward starting with effective dates in the third quarter of 2013.

Since entering into these interest rate derivatives, the Company has used them to hedge the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures. The effective portion of changes in the fair value of these cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate junior subordinated debentures. The changes in fair value (net of tax) are separately disclosed in the Consolidated Statements of Comprehensive Income. The ineffective portion of the change in fair value of these derivatives is recognized directly in earnings; however, no hedge ineffectiveness was recognized during the six months ended June 30, 2013 or June 30, 2012 . The Company uses the hypothetical derivative method to assess and measure effectiveness.

A rollforward of the amounts in accumulated other comprehensive income related to interest rate derivatives designated as cash flow hedges follows:



	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2013			2012			2013			2012
Unrealized loss at beginning of period	$	(7,199	)	$	(10,837	)	$	(8,673	)	$	(11,633	)
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures	1,583			1,443			3,122			2,853
Amount of gain/(loss) recognized in other comprehensive income	586			(507		)	521			(1,121		)
Unrealized loss at end of period	$	(5,030	)	$	(9,901	)	$	(5,030	)	$	(9,901	)

As of June 30, 2013 , the Company estimates that during the next twelve months, $2.9 million will be reclassified from accumulated other comprehensive income as an increase to interest expense.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value related to certain of its floating rate assets that contain embedded optionality due to changes in benchmark interest rates, such as LIBOR. The Company uses purchased interest rate caps and swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. As of December 31, 2012 and June 30, 2012, the Company had one interest rate cap with a notional amount of $96.5 million that was designated as a fair value hedge of interest rate risk associated with an embedded cap in one of the Company’s floating rate loans. Effective June 1, 2013, the hedged loan was restructured which resulted in the interest rate cap no longer qualifying as an effective fair value hedge. As such, the interest rate cap derivative is no longer accounted for under hedge accounting rules and all changes in value subsequent to June 1, 2013 are recorded in earnings.

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The Company has designated two interest rate swaps with a total notional amount of $4.2 million as fair value hedges of interest rate risk associated with fixed rate commercial franchise loans. In these interest rate swaps, the Company pays a fixed rate cash flow to receive a variable rate cash flow to minimize interest rate risk associated with the lack of repricing of fixed rate loans in a rising rate environment.

For derivatives designated as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged item in the same line item as the offsetting loss or gain on the related derivatives. During the three months and six months ended June 30, 2013 , the Company recognized a net gain of $10,000 and $9,000 , respectively, in other income related to hedge ineffectiveness. The Company also recognized net reductions to interest income of $46,000 and $103,000 for the respective three and six month periods ended June 30, 2013 related to the Company’s fair value hedges, which includes net settlements on the derivatives and amortization adjustment of the basis in the hedged item.

The following table presents the gain/(loss) and hedge ineffectiveness recognized on derivative instruments and the related hedged items that are designated as a fair value hedge accounting relationship as of June 30, 2013 :



(Dollars in thousands) Derivatives in Fair Value Hedging Relationships	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative Three Months Ended June 30,					Amount of Gain or (Loss) Recognized in Income on Hedged Item Three Months Ended June 30,					Income Statement Gain/ (Loss) due to Hedge Ineffectiveness Three Months Ended June 30,
		2013		2012			2013			2012		2013		2012
Interest rate products	Other income	$	67	$	(203	)	$	(57	)	$	216	$	10	$	13



(Dollars in thousands) Derivatives in Fair Value Hedging Relationships	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative Six Months Ended June 30,					Amount of Gain or (Loss) Recognized in Income on Hedged Item Six Months Ended June 30,					Income Statement Gain/ (Loss) due to Hedge Ineffectiveness Six Months Ended June 30,
		2013		2012			2013			2012		2013		2012
Interest rate products	Other income	$	56	$	(203	)	$	(47	)	$	216	$	9	$	13

Non-Designated Hedges

The Company does not use derivatives for speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.

Interest Rate Derivatives —The Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At June 30, 2013 , the Company had interest rate derivative transactions with an aggregate notional amount of approximately $2.5 billion (all interest rate swaps and caps with customers and third parties) related to this program. These interest rate derivatives had maturity dates ranging from August 2013 to January 2033 .

Mortgage Banking Derivatives— These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of a portion of our residential mortgage loan production when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At June 30, 2013 , the Company had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $1.0 billion and interest rate lock commitments with an aggregate notional amount of approximately $496.2 million . Additionally, the Company’s total mortgage

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loans held-for-sale at June 30, 2013 was $538.0 million . The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.

Foreign Currency Derivatives— These derivatives include foreign currency contracts used to manage the foreign exchange risk associated with foreign currency denominated assets and transactions. Foreign currency contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. As a result of fluctuations in foreign currencies, the U.S. dollar-equivalent value of the foreign currency denominated assets or forecasted transactions increase or decrease. Gains or losses on the derivative instruments related to these foreign currency denominated assets or forecasted transactions are expected to substantially offset this variability. As of June 30, 2013 the Company held foreign currency derivatives with an aggregate notional amount of approximately $4.8 million .

Other Derivatives— Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the Banks’ investment portfolios (covered call options). These option transactions are designed primarily to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of June 30, 2013 , December 31, 2012 or June 30, 2012 .

As discussed above, the Company has entered into interest rate cap derivatives to protect the Company in a rising rate environment against increased margin compression due to the repricing of variable rate liabilities and lack of repricing of fixed rate loans and/or securities. The Company entered into three interest rate cap derivative contracts in the second quarter of 2012 (one of which was initially designated as a fair value hedge), one interest rate cap derivative contract in the third quarter of 2012, two interest rate cap derivative contracts in the first quarter of 2013 and one interest rate cap derivative contract in the second quarter of 2013 (see summary earlier in the footnote). As of June 30, 2013 , the seven interest rate cap derivative contracts, which are not designated in hedge relationships, have an aggregate notional value of $880.0 million .

Amounts included in the Consolidated Statements of Income related to derivative instruments not designated in hedge relationships were as follows:



		Three Months Ended						Six Months Ended
(Dollars in thousands)		June 30,						June 30,
Derivative	Location in income statement	2013			2012			2013			2012
Interest rate swaps and caps	Other income	$	3,217		$	(1,005	)	$	2,920		$	(854	)
Mortgage banking derivatives	Mortgage banking revenue	(2,368		)	1,016			(3,038		)	2,363
Covered call options	Fees from covered call options	993			3,114			2,632			6,237
Foreign exchange contracts	Other income	79			57			(67		)	57

Credit Risk

Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the risk that the counterparty will fail to perform according to the terms of the agreement. The amounts potentially subject to market and credit risks are the streams of interest payments under the contracts and the market value of the derivative instrument and not the notional principal amounts used to express the volume of the transactions. Market and credit risks are managed and monitored as part of the Company's overall asset-liability management process, except that the credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company's standard loan underwriting process since these derivatives are secured through collateral provided by the loan agreements. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. When deemed necessary, appropriate types and amounts of collateral are obtained to minimize credit exposure.

The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counterparty to terminate the derivative positions if the Company fails to maintain its status as a well or adequately capitalized institution, which would require the Company to settle its obligations under the agreements. As of June 30, 2013 the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $35.1 million .

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The Company's is also exposed to the credit risk of its commercial borrowers who are counterparties to interest rate derivatives with the Banks. This counterparty risk related to the commercial borrowers is managed and monitored through the Banks' standard underwriting process applicable to loans since these derivatives are secured through collateral provided by the loan agreement. The counterparty risk associated with the mirror-image swaps executed with third parties is monitored and managed in connection with the Company's overall asset liability management process.

The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative assets and liabilities on the Consolidated Statements of Condition. The tables below summarize the Company's interest rate derivatives and offsetting positions as of the dates shown.



	Derivative Assets									Derivative Liabilities
	Fair Value									Fair Value
(Dollars in thousands)	June 30, 2013			December 31, 2012			June 30, 2012			June 30, 2013			December 31, 2012			June 30, 2012
Gross Amounts Recognized	$	38,118		$	47,546		$	45,430		$	33,788		$	53,755		$	53,455
Less: Amounts offset in the Statements of Financial Condition	$	—		$	—		$	—		$	—		$	—		$	—
Net amount presented in the Statements of Financial Condition	$	38,118		$	47,546		$	45,430		$	33,788		$	53,755		$	53,455
Gross amounts not offset in the Statements of Financial Condition
Offsetting Derivative Positions	(8,192		)	(339		)	(448		)	(8,192		)	(339		)	(448		)
Securities Collateral Posted ⁽¹⁾	—			—			—			(25,027		)	(46,811		)	(43,020		)
Cash Collateral Posted	—			—			—			—			(6,605		)	(7,315		)
Net Credit Exposure	$	29,926		$	47,207		$	44,982		$	569		$	—		$	2,672

(1) As of December 31, 2012, the Company posted securities collateral of $49.9 million which resulted in excess collateral with its counterparties. For purposes of this disclosure, the amount of posted collateral is limited to the amount offsetting the derivative liability.

(15) Fair Values of Assets and Liabilities

The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:


•	Level 1—unadjusted quoted prices in active markets for identical assets or liabilities.

•

Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3—significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. Following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.

Available-for-sale and trading account securities —Fair values for available-for-sale and trading securities are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research publications are used to fair value a security. When these inputs are not available, broker/dealer quotes may be obtained by the vendor to determine the fair value of

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the security. We review the vendor’s pricing methodologies to determine if observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy.

The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale securities. The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

At June 30, 2013 , the Company classified $32.4 million of municipal securities as Level 3. These municipal securities are bond issues for various municipal government entities, including park districts, located in the Chicago metropolitan area and southeastern Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company’s methodology for pricing the non-rated bonds focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal bond, the Investment Operations Department references a publicly issued bond by the same issuer if available. A reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). In the second quarter of 2013, all of the ratings derived in the above process by Investment Operations were BBB or better, for both bonds with and without comparable bond proxies. The fair value measurement of municipal bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Certain municipal bonds held by the Company at June 30, 2013 have a call date that has passed, and are now continuously callable. When valuing these bonds, the fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously callable bond.

At June 30, 2013 , the Company held $22.4 million of other equity securities classified as Level 3. The securities in Level 3 are primarily comprised of auction rate preferred securities. The Company utilizes an independent pricing vendor to provide a fair market valuation of these securities. The vendor’s valuation methodology includes modeling the contractual cash flows of the underlying preferred securities and applying a discount to these cash flows by a credit spread derived from the market price of the securities underlying debt. At June 30, 2013 , the vendor considered five different securities whose implied credit spreads were believed to provide a proxy for the Company’s auction rate preferred securities. The credit spreads ranged from 1.15% - 1.97% with an average of 1.61% which was added to three-month LIBOR to be used as the discount rate input to the vendor’s model. Fair value of the securities is sensitive to the discount rate utilized as a higher discount rate results in a decreased fair value measurement.

Mortgage loans held-for-sale —Mortgage loans originated by Wintrust Mortgage, a division of Barrington ("Wintrust Mortgage") are carried at fair value. The fair value of mortgage loans held-for-sale is determined by reference to investor price sheets for loan products with similar characteristics.

Mortgage servicing rights —Fair value for mortgage servicing rights is determined utilizing a third party valuation model which stratifies the servicing rights into pools based on product type and interest rate. The fair value of each servicing rights pool is calculated based on the present value of estimated future cash flows using a discount rate commensurate with the risk associated with that pool, given current market conditions. At June 30, 2013 , the Company classified $8.6 million of mortgage servicing rights as Level 3. The weighted average discount rate used as an input to value the pool of mortgage servicing rights at June 30, 2013 was 10.18% with discount rates applied ranging from 10% - 13.5% . The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. Additionally, fair value estimates include assumptions about prepayment speeds which ranged from 11% - 17% or a weighted average prepayment speed of 13.50% used as an input to value the pool of mortgage servicing rights at June 30, 2013 . Prepayment speeds are inversely related to the fair value of mortgage servicing rights as an increase in prepayment speeds results in a decreased valuation.

Derivative instruments —The Company’s derivative instruments include interest rate swaps and caps, commitments to fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of mortgage loans and foreign currency contracts. Interest rate swaps and caps 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. The fair value of foreign currency derivatives is computed based on change in foreign currency rates stated in the contract compared to those prevailing at the measurement date. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election in the first quarter of 2012 to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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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.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented:



	June 30, 2013
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	210,975	$	—	$	210,975	$	—
U.S. Government agencies	958,458		—		958,458		—
Municipal	150,127		—		117,695		32,432
Corporate notes and other	141,933		—		141,933		—
Mortgage-backed	332,767		—		332,767		—
Equity securities	49,564		—		27,136		22,428
Trading account securities	659		—		659		—
Mortgage loans held-for-sale	525,027		—		525,027		—
Mortgage servicing rights	8,636		—		—		8,636
Nonqualified deferred compensations assets	6,793		—		6,793		—
Derivative assets	60,554		—		60,554		—
Total	$	2,445,493	$	—	$	2,381,997	$	63,496
Derivative liabilities	$	37,654	$	—	$	37,654	$	—



	December 31, 2012
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	219,487	$	—	$	219,487	$	—
U.S. Government agencies	990,039		—		990,039		—
Municipal	110,471		—		79,701		30,770
Corporate notes and other	154,806		—		154,806		—
Mortgage-backed	271,574		—		271,574		—
Equity securities	49,699		—		27,530		22,169
Trading account securities	583		—		583		—
Mortgage loans held-for-sale	385,033		—		385,033		—
Mortgage servicing rights	6,750		—		—		6,750
Nonqualified deferred compensations assets	5,532		—		5,532		—
Derivative assets	53,906		—		53,906		—
Total	$	2,247,880	$	—	$	2,188,191	$	59,689
Derivative liabilities	$	57,751	$	—	$	57,751	$	—

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	June 30, 2012
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	25,243	$	—	$	25,243	$	—
U.S. Government agencies	640,212		—		640,212		—
Municipal	79,728		—		54,191		25,537
Corporate notes and other	158,227		—		158,227		—
Mortgage-backed	255,742		—		255,742		—
Equity securities	37,550		—		17,332		20,218
Trading account securities	608		—		608		—
Mortgage loans held-for-sale	511,566		—		511,566		—
Mortgage servicing rights	6,647		—		—		6,647
Nonqualified deferred compensations assets	5,207		—		5,207		—
Derivative assets	53,666		—		53,666		—
Total	$	1,774,396	$	—	$	1,721,994	$	52,402
Derivative liabilities	$	61,380	$	—	$	61,380	$	—

The aggregate remaining contractual principal balance outstanding as of June 30, 2013 , December 31, 2012 and June 30, 2012 for mortgage loans held-for-sale measured at fair value under ASC 825 was $539.5 million , $379.5 million and $500.4 million , respectively, while the aggregate fair value of mortgage loans held-for-sale was $525.0 million , $385.0 million and $511.6 million , for the same respective periods, as shown in the above tables. There were no nonaccrual loans or loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio measured at fair value as of June 30, 2013 , December 31, 2012 and June 30, 2012 .

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The changes in Level 3 assets measured at fair value on a recurring basis during the three and six months ended June 30, 2013 are summarized as follows:



				Equity securities			Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities			Mortgage servicing rights
Balance at March 31, 2013	$	32,324		$	24,470		$	7,344
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			1,292
Other comprehensive income	(302		)	(2,042		)	—
Purchases	660			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(250		)	—			—
Net transfers into/(out of) Level 3	—			—			—
Balance at June 30, 2013	$	32,432		$	22,428		$	8,636


(1)	Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.



				Equity securities		Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities		Mortgage servicing rights
Balance at January 1, 2013	$	30,770		$	22,169	$	6,750
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—		1,886
Other comprehensive income	(314		)	259		—
Purchases	2,347			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(371		)	—		—
Net transfers into/(out of) Level 3	—			—		—
Balance at June 30, 2013	$	32,432		$	22,428	$	8,636


(1)	Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.



				Equity securities			Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities			Mortgage servicing rights
Balance at March 31, 2012	$	25,535		$	21,224		$	7,201
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			(554		)
Other comprehensive income	34			(1,006		)	—
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(32		)	—			—
Net transfers into/(out of) Level 3	—			—			—
Balance at June 30, 2012	$	25,537		$	20,218		$	6,647


(1)	Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.

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				Equity securities		Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities		Mortgage servicing rights
Balance at January 1, 2012	$	24,211		$	18,971	$	6,700
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—		(53		)
Other comprehensive income	36			1,247		—
Purchases	3,840			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(148		)	—		—
Net transfers out of Level 3 ⁽²⁾	(2,402		)	—		—
Balance at June 30, 2012	$	25,537		$	20,218	$	6,647


(1)	Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.


(2)	During the first quarter of 2012, one municipal security was transferred out of Level 3 into Level 2 as observable market information was available that market participants would use in pricing these securities. Transfers out of Level 3 are recognized at the end of the reporting period.

Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at June 30, 2013 .



	June 30, 2013								Three Months Ended June 30, 2013 Fair Value Losses Recognized		Six Months Ended June 30, 2013 Fair Value Losses Recognized
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Impaired loans—collateral based	$	104,050	$	—	$	—	$	104,050	$	10,678	$	16,050
Other real estate owned ⁽¹⁾	57,025		—		—		57,025		5,379		8,338
Mortgage loans held-for-sale, at lower of cost or market	12,964		—		12,964		—		—		—
Total	$	174,039	$	—	$	12,964	$	161,075	$	16,057	$	24,388


(1)	Fair value losses recognized on other real estate owned include valuation adjustments and charge-offs during the respective period.

Impaired loans —A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. A loan restructured in a troubled debt restructuring is an impaired loan according to applicable accounting guidance. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. Impaired loans are considered a fair value measurement where an allowance is established based on the fair value of collateral. Appraised values, which may require adjustments to market-based valuation inputs, are generally used on real estate collateral-dependent impaired loans.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 measurements of impaired loans. For more information on the Managed Assets Division review of impaired loans refer to Note 7 – Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans. At June 30, 2013 , the Company had $190.1 million of impaired loans classified as Level 3. Of the $190.1 million of impaired loans, $104.0 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $86.1 million were valued based on discounted cash flows in accordance with ASC 310.

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

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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.

Similar to impaired loans, the Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 measurements for other real estate owned. At June 30, 2013 , the Company had $57.0 million of other real estate owned classified as Level 3. The unobservable input applied to other real estate owned relates to the valuation adjustment determined by the Company’s appraisals. The impairment adjustments applied to other real estate owned range from 0% - 61% of the carrying value prior to impairment adjustments at June 30, 2013 , with a weighted average input of 7.48% . An increased impairment adjustment applied to the carrying value results in a decreased valuation.

Mortgage loans held-for-sale, at lower of cost or market —Fair value is based on either quoted prices for the same or similar loans, or values obtained from third parties, or is estimated for portfolios of loans with similar financial characteristics and is therefore considered a Level 2 valuation.

The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair value measurements at June 30, 2013 were as follows:

(Dollars in thousands)

Fair Value

Valuation Methodology

Significant Unobservable Input

Range

of Inputs

Weighted

Average

of Inputs

Impact to valuation

from an increased or

higher input value

Measured at fair value on a recurring basis:

Municipal Securities

32,432

Bond pricing

Equivalent rating

BBB-AAA

N/A

Increase

Other Equity Securities

22,428

Discounted cash flows

Discount rate

1.15%-1.97%

1.61%

Decrease

Mortgage Servicing Rights

8,636

Discounted cash flows

Discount rate

10%-13.5%

10.18%

Decrease

Constant prepayment rate (CPR)

11%-17%

13.50%

Decrease

Measured at fair value on a non-recurring basis:

Impaired loans—collateral based

104,050

Appraisal value

N/A

Other real estate owned

57,025

Appraisal value

Property specific impairment adjustment

0%-61%

7.48%

Decrease

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The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the consolidated statements of condition, including those financial instruments carried at cost. The carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:



	At June 30, 2013				At December 31, 2012				At June 30, 2012
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	233,299	$	233,299	$	315,028	$	315,028	$	191,756	$	191,756
Interest bearing deposits with banks	440,656		440,656		1,035,743		1,035,743		1,117,888		1,117,888
Available-for-sale securities	1,843,824		1,843,824		1,796,076		1,796,076		1,196,702		1,196,702
Trading account securities	659		659		583		583		608		608
Brokerage customer receivables	26,214		26,214		24,864		24,864		31,448		31,448
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	79,354		79,354		79,564		79,564		92,792		92,792
Mortgage loans held-for-sale, at fair value	525,027		525,027		385,033		385,033		511,566		511,566
Mortgage loans held-for-sale, at lower of cost or market	12,964		13,113		27,167		27,568		14,538		14,752
Total loans	12,971,494		13,613,298		12,389,030		13,053,101		11,816,904		12,510,167
Mortgage servicing rights	8,636		8,636		6,750		6,750		6,647		6,647
Nonqualified deferred compensation assets	6,793		6,793		5,532		5,532		5,207		5,207
Derivative assets	60,554		60,554		53,906		53,906		53,666		53,666
FDIC indemnification asset	137,681		137,681		208,160		208,160		222,568		222,568
Accrued interest receivable and other	163,703		163,703		157,157		157,157		146,360		146,360
Total financial assets	$	16,510,858	$	17,152,811	$	16,484,593	$	17,149,065	$	15,408,650	$	16,102,127
Financial Liabilities
Non-maturity deposits	$	10,023,533	10,023,533		$	9,447,633	$	9,447,633	$	8,076,439	$	8,076,439
Deposits with stated maturities	4,342,321		4,359,361		4,980,911		5,013,757		4,981,142		5,010,700
Notes payable	1,729		1,729		2,093		2,093		2,457		2,457
Federal Home Loan Bank advances	585,942		591,183		414,122		425,431		564,301		574,231
Subordinated notes	10,000		10,000		15,000		15,000		15,000		15,000
Other borrowings	252,776		252,776		274,411		274,411		375,523		375,523
Secured borrowings - owed to securitization investors	—		—		—		—		360,825		361,918
Junior subordinated debentures	249,493		250,597		249,493		250,428		249,493		250,402
Derivative liabilities	37,654		37,654		57,751		57,751		61,380		61,380
Accrued interest payable and other	11,293		11,293		11,589		11,589		12,398		12,398
Total financial liabilities	$	15,514,741	$	15,538,126	$	15,453,003	$	15,498,093	$	14,698,958	$	14,740,448

Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC Topic 820, as certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, interest bearing deposits with banks, brokerage customer receivables, FHLB and FRB stock, FDIC indemnification asset, accrued interest receivable and accrued interest payable, non-maturity deposits, notes payable, subordinated notes and other borrowings.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were not previously disclosed.

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

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represent the current fair value of probable incurred losses for purposes of the fair value calculation. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value measurement.

Deposits with stated maturities. 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. In accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.

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. In accordance with ASC 820, the Company has categorized Federal Home Loan Bank advances as a Level 3 fair value measurement.

Secured borrowings – owed to securitization investors. The fair value of secured borrowings – owed to securitization investors is based on the discounted value of expected cash flows. In accordance with ASC 820, the Company has categorized secured borrowings – owed to securitization investors as a Level 3 fair value measurement. There were no secured borrowings - owed to securitization investors outstanding at June 30, 2013 .

Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of contractual cash flows. In accordance with ASC 820, the Company has categorized junior subordinated debentures as a Level 3 fair value measurement.

(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. In May 2009 and May 2011, the Company's shareholders approved an additional 325,000 shares and 2,860,000 shares, respectively, of common stock that may be offered under the 2007 Plan. All grants made after 2006 have been made pursuant to the 2007 Plan, and as of June 30, 2013 , assuming all performance-based shares will be issued at the maximum levels, 701,280 shares were available for future grants. 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 Compensation Committee of the Board of Directors administers all stock-based compensation programs and authorizes all awards granted pursuant to the Plans.

The Company historically awarded stock-based compensation in the form of nonqualified stock options and time-vested restricted share awards (“restricted shares”). In general, the grants of options provide for the purchase shares of Wintrust's common stock at the fair market value of the stock on the date the options are granted. Options under the 2007 Plan generally vest ratably over periods of three to five years and have a maximum term of seven years from the date of grant. Stock options granted under the 1997 Plan provided for a maximum term of 10 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.

The Long-Term Incentive Program (“LTIP”), which is designed in part to align the interests of management with the interests of shareholders, foster retention, create a long-term focus based on sustainable results and provide participants a target long-term incentive opportunity, is administered under the 2007 Plan. LTIP grants to date have consisted of time vested nonqualified stock options and performance-based stock and cash awards. The first grant of these awards was made in August 2011 and subsequent grants were made in January 2012 and January 2013. It is anticipated that LTIP awards will be granted annually. Stock options granted under the LTIP have a term of seven years and will generally vest equally over three years based on continued service. Performance-based stock and cash awards are contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation Committee over a three-year period with overlapping performance periods starting at the beginning of each calendar year. The actual payouts of performance-based awards will vary based on the achievement of the pre-established targets and can range from 0% to 200% of the target award.

Holders of restricted share awards and performance-based stock awards received under the Plans are not entitled to vote or receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are vested. Except in limited circumstances, these awards are canceled upon termination of employment without any payment of consideration by the Company.

Stock-based compensation is measured as the fair value of an award on the date of grant, and the measured cost is recognized over the period which the recipient is required to provide service in exchange for the award. The fair values of restricted shares and performance-based stock awards are determined based on the average of the high and low trading prices on the grant date, and the fair value of stock options is estimated using a Black-Scholes option-pricing model that utilizes the assumptions outlined in

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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 has been based on historical exercise and termination behavior as well as the term of the option, but the expected life of the options granted pursuant to the LTIP awards was based on the safe harbor rule of the SEC Staff Accounting Bulletin No. 107 “Share-Based Payment” as the Company believes historical exercise data may not provide a reasonable basis to estimate the expected term of these options. Expected stock price volatility is based on historical volatility of the Company's common stock, which correlates with the expected life of the options, and 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 six month periods ending June 30, 2013 and 2012 .



	Six Months Ended		Six Months Ended
	June 30,		June 30,
	2013		2012
Expected dividend yield	0.5	%	0.6	%
Expected volatility	59.6	%	62.6	%
Risk-free rate	0.7	%	0.7	%
Expected option life (in years)	4.5		4.5

Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest. Forfeitures are estimated based on historical forfeiture experience. For performance-based awards, an estimate is made of the number of shares expected to vest as a result of projected performance against the performance criteria in the award to determine the amount of compensation expense to recognize. The estimate is reevaluated periodically and total compensation expense is adjusted for any change in estimate in the current period.

Stock-based compensation expense recognized in the Consolidated Statements of Income was $2.2 million and $2.3 million in the second quarter of 2013 and 2012 , respectively, and $4.5 million and $4.6 million for the 2013 and 2012 year-to-date periods, respectively.

A summary of the Plans' stock option activity for the six months ended June 30, 2013 and June 30, 2012 is presented below:



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term ⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2013	1,745,427		$	42.31
Granted	223,995		37.81
Exercised	(44,658	)	28.27
Forfeited or canceled	(16,765	)	38.64
Outstanding at June 30, 2013	1,907,999		$	42.15	3.1	$	4,634
Exercisable at June 30, 2013	1,399,796		$	45.04	2.1	$	2,552



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term ⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2012	2,064,534		$	38.83
Granted	244,654		31.01
Exercised	(402,557	)	19.94
Forfeited or canceled	(33,561	)	40.79
Outstanding at June 30, 2012	1,873,070		$	41.83	3.4	$	3,679
Exercisable at June 30, 2012	1,378,377		$	45.53	2.4	$	1,677


(1)	Represents the remaining weighted average contractual life 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. Options with exercise prices above the average of the high and low stock price on the last trading day of the quarter are excluded from the calculation of intrinsic value. The intrinsic value will change based on the fair market value of the Company's stock.

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The weighted average grant date fair value per share of options granted during the six months ended June 30, 2013 and June 30, 2012 was $17.55 and $14.92 , respectively. The aggregate intrinsic value of options exercised during the six months ended June 30, 2013 and 2012 , was $375,000 and $4.7 million , respectively.

A summary of the Plans' restricted share and performance-based stock award activity for the six months ended June 30, 2013 and June 30, 2012 is presented below:



	Six months ended June 30, 2013				Six months ended June 30, 2012
Restricted Shares	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	314,226		$	37.99	336,709		$	38.29
Granted	686		35.92		85,057		30.99
Vested and issued	(121,472	)	32.06		(109,758	)	34.61
Forfeited	(872	)	32.42		(959	)	30.98
Outstanding at June 30	192,568		$	41.74	311,049		$	37.62
Vested, but not issuable at June 30	85,000		$	51.88	85,069		$	51.86

Performance-based Shares
Outstanding at January 1	153,915		$	31.78	72,158		$	33.25
Granted	103,987		37.81		117,662		31.01
Vested and issued	—		—		—		—
Net change due to estimated performance	(9,998	)	38.57		(6,887	)	33.25
Forfeited	(5,124	)	33.84		(3,390	)	31.87
Outstanding at June 30	242,780		$	34.04	179,543		$	31.81

The number of performance-based shares granted is reflected in the above table at the target performance level. The actual performance-based award payouts will vary based on the achievement of the pre-established goals and can range from 0% to 200% of the target award. The outstanding number of performance-based shares reflected in the table represents the number of shares expected to be awarded based on management's current assessment of the achievement of the goals. At June 30, 2013, the maximum number of performance-based shares that could be issued based on the grants made to date is approximately 624,000 shares.

The Company issues new shares to satisfy its obligation to issue shares granted pursuant to the Plans.

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(17) Shareholders’ Equity and Earnings Per Share

Tangible Equity Units

In December 2010, the Company sold 4.6 million 7.50% TEUs at a public offering price of $50.00 per unit. The Company received net proceeds of $222.7 million after deducting underwriting discounts and commissions and estimated offering expenses. Each tangible equity unit is composed of a prepaid common stock purchase contract and a junior subordinated amortizing note due December 15, 2013 . The prepaid stock purchase contracts have been recorded as surplus (a component of shareholders’ equity), net of issuance costs, and the junior subordinated amortizing notes have been recorded as debt within other borrowings. Issuance costs associated with the debt component are recorded as a discount within other borrowings and will be amortized over the term of the instrument to December 15, 2013 . The Company allocated the proceeds from the issuance of the TEU to equity and debt based on the relative fair values of the respective components of each unit.

The aggregate fair values assigned to each component of the TEU offering at the issuance date were as follows:



(Dollars in thousands, except per unit amounts)	Equity Component		Debt Component		TEU Total
Units issued ⁽¹⁾	4,600		4,600		4,600
Unit price	$	40.271818	$	9.728182	$	50.00
Gross proceeds	185,250		44,750		230,000
Issuance costs, including discount	5,934		1,419		7,353
Net proceeds	$	179,316	$	43,331	$	222,647
Balance sheet impact
Other borrowings	—		43,331		43,331
Surplus	179,316		—		179,316


(1)	TEUs consist of two components: one unit of the equity component and one unit of the debt component.

The fair value of the debt component was determined using a discounted cash flow model using the following assumptions: (1) quarterly cash payments of 7.5% ; (2) a maturity date of December 15, 2013 ; and (3) an assumed discount rate of 9.5% . The discount rate used for estimating the fair value was determined by obtaining yields for comparably-rated issuers trading in the market. The debt component was recorded at fair value, and the discount is being amortized using the level yield method over the term of the instrument to the settlement date of December 15, 2013.

The fair value of the equity component was determined using Black-Scholes valuation models applied to the range of stock prices contemplated by the terms of the TEU and using the following assumptions: (1) risk-free interest rate of 0.95% ; (2) expected stock price volatility in the range of 35% - 45% ; (c) dividend yield plus stock borrow cost of 0.85% ; and (4) term of 3.02 years.

Each junior subordinated amortizing note, which had an initial principal amount of $9.728182 , is bearing interest at 9.50% per annum, and has a scheduled final installment payment date of December 15, 2013. On each March 15, June 15, September 15 and December 15, the Company will pay equal quarterly installments of $0.9375 on each amortizing note. Each payment will constitute a payment of interest and a partial repayment of principal. The Company may defer installment payments at any time and from time to time, under certain circumstances and subject to certain conditions, by extending the installment period so long as such period of time does not extend beyond December 15, 2015 .

Each prepaid common stock purchase contract will automatically settle on December 15, 2013 and the Company will deliver not more than 1.6666 shares and not less than 1.3333 shares of its common stock based on the applicable market value (the average of the volume weighted average price of Company common stock for the twenty ( 20 ) consecutive trading days ending on the third trading day immediately preceding December 15, 2013) as follows:



Applicable market value of Company common stock	Settlement Rate
Less than or equal to $30.00	1.6666
Greater than $30.00 but less than $37.50	$50.00, divided by the applicable market value
Greater than or equal to $37.50	1.3333

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At any time prior to the third business day immediately preceding December 15, 2013 , the holder may settle the purchase contract early and receive 1.3333 shares of Company common stock, subject to anti-dilution adjustments. Upon settlement, an amount equal to $1.00 per common share issued will be reclassified from additional paid-in capital to common stock.

Series A Preferred Stock

In August 2008, the Company issued and sold 50,000 shares of non-cumulative perpetual convertible preferred stock, Series A, liquidation preference $1,000 per share (the “Series A Preferred Stock”) for $50 million in a private transaction. If declared, dividends on the Series A Preferred Stock are payable quarterly in arrears at a rate of 8.00% per annum. The Series A Preferred Stock was 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 July 19, 2013, pursuant to such terms, the holder of the Series A Preferred Stock elected to convert all 50,000 shares of the Series A Preferred Stock into 1,944,000 shares of the Company's common stock, no par value. See Note 18 - Subsequent Events for further discussion regarding the conversion of 50,000 shares of the Series A Preferred Stock.

Series C Preferred Stock

In March 2012, the Company issued and sold 126,500 shares of non-cumulative perpetual convertible preferred stock, Series C, liquidation preference $1,000 per share (the “Series C Preferred Stock”) for $126.5 million in an equity offering. If declared, dividends on the Series C Preferred Stock are payable quarterly in arrears at a rate of 5.00% per annum. The Series C Preferred Stock is convertible into common stock at the option of the holder at a conversion rate of 24.3132 shares of common stock per share of Series C Preferred Stock. On and after April 15, 2017, the Company will have the right under certain circumstances to cause the Series C Preferred Stock to be converted into common stock if the closing price of the Company’s common stock exceeds a certain amount.

Common Stock Warrant

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, 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. In February 2011, the U.S. Treasury sold all of its interest in the warrant issued to it in a secondary underwritten public offering. At June 30, 2013 , the warrant to purchase 1,643,295 shares remains outstanding.

The Company previously issued other warrants to acquire common stock. These warrants entitled the holders to purchase one share of the Company’s common stock at a purchase price of $30.50 per share. In March 2012, 18,000 warrants were exercised resulting in warrants outstanding totaling 1,000 at June 30, 2012 . In February 2013, the remaining warrants were exercised resulting in no warrants outstanding at June 30, 2013 .

Other

In May 2013, the Company issued 648,286 shares of its common stock in the acquisition of FNBI. In December 2012, the Company issued 372,530 shares of its common stock in the acquisition of HPK. In August 2012, the Company issued 25,493 shares of its common stock in settlement of contingent consideration related to the previously completed acquisition of Great Lakes Advisors, which is in addition to the 529,087 shares issued in July 2011 at the time of the acquisition.

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Accumulated Other Comprehensive (Loss) Income

The following tables summarize the components of other comprehensive (loss) income, including the related income tax effects, and the related amount reclassified to net income for the periods presented (in thousands).



	Accumulated Unrealized Gains (Losses) on Securities			Accumulated Unrealized Losses on Derivative Instruments			Accumulated Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
Balance at April 1, 2013	$	1,910		$	(4,404	)	$	1,427		$	(1,067	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	(43,122		)	351			(6,318		)	(49,089		)
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(1		)	953			—			952
Net other comprehensive income (loss) during the period, net of tax	$	(43,123	)	$	1,304		$	(6,318	)	$	(48,137	)
Balance at June 30, 2013	$	(41,213	)	$	(3,100	)	$	(4,891	)	$	(49,204	)

Balance at January 1, 2013	$	6,710		$	(5,292	)	$	6,293		$	7,711
Other comprehensive income (loss) during the period, net of tax, before reclassifications	(47,771		)	312			(11,184		)	(58,643		)
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(152		)	1,880			—			1,728
Net other comprehensive income (loss) during the period, net of tax	$	(47,923	)	$	2,192		$	(11,184	)	$	(56,915	)
Balance at June 30, 2013	$	(41,213	)	$	(3,100	)	$	(4,891	)	$	(49,204	)

Balance at April 1, 2012	$	1,772		$	(6,602	)	$	—		$	(4,830	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	4,799			(299		)	2,101			6,601
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(664		)	864			—			200
Net other comprehensive income (loss) during the period, net of tax	$	4,135		$	565		$	2,101		$	6,801
Balance at June 30, 2012	$	5,907		$	(6,037	)	$	2,101		$	1,971

Balance at January 1, 2012	$	4,204		$	(7,082	)	$	—		$	(2,878	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	2,856			(663		)	2,101			4,294
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(1,153		)	1,708			—			555
Net other comprehensive income (loss) during the period, net of tax	$	1,703		$	1,045		$	2,101		$	4,849
Balance at June 30, 2012	$	5,907		$	(6,037	)	$	2,101		$	1,971

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	Amount Reclassified from Accumulated Other Comprehensive Income for the
Details Regarding the Component of	Three Months Ended June 30,						Six Months Ended June 30,						Impacted Line on the
Accumulated Other Comprehensive Income	2013			2012			2013			2012			Consolidated Statements of Income
Accumulated unrealized losses on securities
Gains included in net income	$	2		$	1,109		$	253		$	1,925		Gains on available-for-sale securities, net
	2			1,109			253			1,925			Income before taxes
Tax effect	$	(1	)	$	(445	)	$	(101	)	$	(772	)	Income tax expense
Net of tax	$	1		$	664		$	152		$	1,153		Net income

Accumulated unrealized losses on derivative instruments
Amount reclassified to interest expense on junior subordinated debentures	$	1,583		$	1,443		$	3,122		$	2,853		Interest on junior subordinated debentures
	(1,583		)	(1,443		)	(3,122		)	(2,853		)	Loss before taxes
Tax effect	$	630		$	579		$	1,242		$	1,145		Income tax benefit
Net of tax	$	(953	)	$	(864	)	$	(1,880	)	$	(1,708	)	Net loss

Earnings per Share

The following table shows the computation of basic and diluted earnings per share for the periods indicated:



		Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)		2013		2012		2013		2012
Net income		$	34,307	$	25,595	$	66,359	$	48,805
Less: Preferred stock dividends and discount accretion		2,617		2,644		5,233		3,890
Net income applicable to common shares—Basic	(A)	31,690		22,951		61,126		44,915
Add: Dividends on convertible preferred stock, if dilutive		2,581		—		5,162		—
Net income applicable to common shares—Diluted	(B)	34,271		22,951		66,288		44,915
Weighted average common shares outstanding	(C)	37,486		36,329		37,231		36,266
Effect of dilutive potential common shares
Common stock equivalents		7,334		7,770		7,343		7,723
Convertible preferred stock, if dilutive		5,020		—		5,020		—
Total dilutive potential common shares		12,354		7,770		12,363		7,723
Weighted average common shares and effect of dilutive potential common shares	(D)	49,840		44,099		49,594		43,989
Net income per common share:
Basic	(A/C)	$	0.85	$	0.63	$	1.64	$	1.24
Diluted	(B/D)	$	0.69	$	0.52	$	1.34	$	1.02

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock, tangible equity unit shares and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share, net income applicable to common shares is not adjusted by the associated preferred dividends.

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(18) Subsequent Events

On July 19, 2013, the holder of the Company's Series A Preferred Stock elected to convert all 50,000 shares of the Series A Preferred Stock issued and outstanding into 1,944,000 shares of the Company's common stock, no par value, at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. No separate consideration was paid to the Company for the issuance of the shares of the Company’s common stock.

On July 31, 2013, the Company announced the signing of a definitive agreement to acquire Diamond. Diamond is the parent company of Diamond Bank, FSB, which operates four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. Through this transaction, subject to final adjustments, the Company expects to acquire approximately $165 million in assets and approximately $135 million in deposits. In the merger, outstanding shares of Diamond common stock will be converted into the right to receive cash merger consideration.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition as of June 30, 2013 compared with December 31, 2012 and June 30, 2012 , and the results of operations for the three and six month periods ended June 30, 2013 and 2012 , should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the risk factors discussed herein and under Item 1A of the Company’s 2012 Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management’s current expectations. See the last section of this discussion for further information on forward-looking statements.

Introduction

Wintrust is a financial holding company that provides traditional community banking services, primarily in the Chicago metropolitan area and southeastern Wisconsin, and operates other financing businesses on a national basis and Canada through several non-bank subsidiaries. Additionally, Wintrust offers a full array of wealth management services primarily to customers in the Chicago metropolitan area and southeastern Wisconsin.

Overview

Second Quarter Highlights

The Company recorded net income of $34.3 million for the second quarter of 2013 compared to $25.6 million in the second quarter of 2012 . The results for the second quarter of 2013 demonstrate continued operating strengths as net income increased, loans outstanding increased and our deposit funding base mix continued its beneficial shift toward an aggregate lower cost of funds. The quarter was also highlighted by strong mortgage banking and wealth management results, improved utilization of liquidity and effective expense management. In the second quarter of 2013, the Company completed the acquisition of First Lansing Bancorp, Inc. For more information, see “Overview—Recent Acquisition Transactions.”

The Company increased its loan portfolio, excluding covered loans and loans held for sale, from $11.2 billion at June 30, 2012 and $11.8 billion at December 31, 2012 , to $12.5 billion at June 30, 2013 . The increase in the current quarter compared to the prior year quarter was primarily a result of the Company’s commercial banking initiative, growth in the premium finance receivables – commercial portfolio as well as acquisition transactions. The Company continues to make new loans, including in the commercial and commercial real-estate sector, where opportunities that meet our underwriting standards exist. For more information regarding changes in the Company’s loan portfolio, see “Financial Condition – Interest Earning Assets” and Note 6 “Loans” of the Financial Statements presented under Item 1 of this report.

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during the second quarter of 2013 , the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company continues to benefit from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources. In the current quarter, the Company continued its asset driven approach and utilized a portion of its liquidity to fund strong loan growth. At June 30, 2013 , the Company had $674.0 million in overnight liquid funds and interest-bearing deposits with banks.

The Company recorded net interest income of $135.8 million in the second quarter of 2013 compared to $128.3 million in the second quarter of 2012 . The higher level of net interest income recorded in the second quarter of 2013 compared to the second quarter of 2012 resulted primarily from an $851.5 million increase in the balance of total average earning assets and a 24 basis point decline in the rate paid on average interest bearing liabilities as a result of the positive re-pricing of retail interest-bearing deposits along with a more favorable deposit mix. The increase in average earning assets was partially offset by a 21 basis point decline in the yield on earning assets, creating an increase in total interest income of $1.0 million in the second quarter of 2013 compared to the second quarter of 2012 . The increase in interest income of $1.0 million, combined with a reduction of interest expense of $6.6 million, resulted in the $7.6 million increase in net interest income.

Non-interest income totaled $64.0 million in the second quarter of 2013 an increase of $13.1 million , or 26 %, compared to the second quarter of 2012 . The increase in the second quarter of 2013 compared to the second quarter of 2012 was primarily attributable to higher mortgage banking, increased trading gains and higher wealth management revenues, partially offset by a decrease in fees from covered call options and fewer gains on available-for-sale securities. Mortgage banking revenue increased $6.1 million when compared to the second quarter of 2012 . The increase in mortgage banking revenue in the current quarter as compared to the second quarter of 2012 resulted primarily from higher origination volumes from new home purchases, due to the general improvement in the overall economy (increased housing starts, home sales and median prices of homes) as well as a continued

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active refinance market. Loans sold to the secondary market were $1.1 billion in the second quarter of 2013 compared to $853.6 million in the second quarter of 2012 (see “Non-Interest Income” section later in this document for further detail).

Non-interest expense totaled $128.2 million in the second quarter of 2013 , increasing $11.0 million , or 9 %, compared to the second quarter of 2012 . The increase compared to the second quarter of 2012 was primarily attributable to a $11.1 million increase in salaries and employee benefits and a $1.9 million increase in equipment and occupancy expenses as a result of acquisitions, partially offset by a $3.6 million decrease in OREO expense. Salaries and employee benefits expense increased primarily as a result of a $5.8 million increase in bonus and commissions primarily attributable to the increase in variable pay based revenue and the Company’s long-term incentive program, a $4.4 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows and an $897,000 increase from employee benefits.

The Current Economic Environment

The economic environment in the second quarter of 2013 was characterized by continued low interest rates and renewed competition as banks have experienced improvements in their financial condition allowing them to be more active in the lending market. Both the low rate environment and increased competition have limited the Company's expansion of its net interest margin. While management believes interest rates will rebound over time, the Company has employed certain strategies to manage net income in the current rate environment. In particular:

Net Interest Income

The Company has leveraged its internal loan pipeline and external growth opportunities to grow its earning assets base which has more than offset the pressures the Company has experienced related to net interest margin expansion. In the second quarter of 2013, average earning assets grew $851.5 million compared to the second quarter of 2012 resulting in a $7.6 million increase in net interest income.

The Company has continued efforts to shift a greater allocation of its deposit base to non-interest bearing. Non-interest bearing deposits as a percentage of total deposits was 17.1% in the second quarter of 2013 as compared to 15.7% in the second quarter of 2012.

The Company has continued its practice of writing call options against certain U.S. Treasury and Agency securities to enhance the overall return on its securities to compensate for net interest margin compression. Although the Company wrote fewer options in the second quarter of 2013 as compared to previous quarters, the Company recognized $993,000 in fees on covered call options. While these fees are not recorded as a component of net interest income in accordance with accounting guidance, the fee contribution is considered by the Company to be an additional return on the investment portfolio.

The Company utilizes “back to back” interest rate derivative transactions, primarily interest rate swaps, to receive floating rate interest payments related to customer loans. In these arrangements, the Company makes a floating rate loan to a borrower who prefers to pay a fixed rate. To accommodate the risk management strategy of certain qualified borrowers, the Company enters a swap with its borrower to effectively convert the borrower's variable rate loan to a fixed rate. However, in order to minimize the Company's exposure on these transactions and continue to receive a floating rate, the Company simultaneously executes an offsetting mirror-image derivative with a third party.

Non-Interest Income

In preparation for a rising rate environment, the Company has purchased a series of interest rate cap contracts to offset the negative impact on the net interest margin in a rising rate environment caused by the repricing of variable rate liabilities and lack of repricing of fixed rate loans and securities. As of June 30, 2013, the Company held seven interest rate cap derivatives with a total notional value of $880.0 million which are not designated as accounting hedges but are considered to be an economic hedge for the potential rise in interest rates. Because these are not accounting hedges, fluctuations in the cap values are recorded in earnings. In the second quarter of 2013, long term interest rates rose resulting in increased cap valuations as compared to prior quarters. The Company recognized $3.0 million in trading gains in the second quarter of 2013 related to the mark to market of these interest rate caps.

The current interest rate environment impacts the profitability and mix of the Company's mortgage banking business which generated revenues of $31.7 million in the second quarter of 2013, representing 16% of total net revenue. Mortgage banking revenue is comprised of gains on originations for new home purchases as well as mortgage refinancing. Mortgage banking revenue is partially offset by corresponding commission and overhead costs. In the second quarter of 2013, approximately 56% of originations were mortgages associated with new home purchases while 44% of originations were mortgage refinancing. As the housing market and economy have improved, a higher percentage of originations have been attributed to new home purchases. We anticipate that as rates increase, new home purchase originations will continue to increase partially offsetting a decline in refinance activity.

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Non-Interest Expense

The Company has made expense management a primary focus to enhance profitability amid the low interest rate environment and increased competition. Management believes that its focus on cost control and an efficient infrastructure positions the Company appropriately as it continues its growth strategy. The Company continues to evaluate expense management opportunities throughout all facets of the organization, both organically and through acquisitions. Management continues to be disciplined in its approach to growth and will leverage the Company's existing expense infrastructure to expand its presence in existing and complimentary markets. Management believes that its recent acquisitions have provided operating capacity for balance sheet growth without commensurate increase in operating expenses which should provide improvement in its overhead ratio, holding all else equal.

Potentially impacting the cost control strategies discussed above, the Company anticipates increased costs resulting from the changing regulatory environment on our business and operations. We have already experienced increases in compliance related costs and we expect that compliance with the Dodd-Frank Act and its implementing regulations will require us to invest significant additional management attention and resources.

Credit Quality

The Company’s credit quality metrics improved in the second quarter of 2013, including improvements in the ratios of non-performing assets and non-performing loans to total assets and total loans. These improvements reflect the Company's continued focus on addressing non-performing assets. The Company has continued to be disciplined in its approach to growth and has not sacrificed asset quality.

In particular:

•

The Company’s provision for credit losses, excluding covered loans, in the second quarter of 2013 totaled $15.1 million, a decrease of $3.3 million when compared to the second quarter of 2012 . Net charge-offs increased to $18.4 million in the second quarter of 2013 (of which $14.4 million related to commercial real-estate loans) compared to $17.4 million for the same period in 2012 (of which $9.1 million related to commercial real-estate loans).

•

The Company’s allowance for loan losses, excluding covered loans, totaled $106.8 million at June 30, 2013 , reflecting a decrease of $5.1 million, or 5%, when compared to the same period in 2012 and a slight decrease of $509,000, when compared to December 31, 2012 . At June 30, 2013 , approximately $52.0 million, or 49%, of the allowance for loan losses was associated with commercial real-estate loans and another $28.7 million, or 27%, was associated with commercial loans.

•

The Company has significant exposure to commercial real-estate. At June 30, 2013 , $4.1 billion , or 33%, of our loan portfolio, excluding covered loans, was commercial real-estate, with approximately 93% located in the greater Chicago metropolitan and southeastern Wisconsin market areas. As of June 30, 2013 , the commercial real-estate loan portfolio was comprised of $294.2 million related to land, residential and commercial construction, $597.8 million related to office buildings, $607.4 million related to retail, $615.5 million related to industrial use, $533.6 million related to multi-family and $1.4 billion related to mixed use and other use types. In analyzing the commercial real-estate market, the Company does not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of the decline in real estate valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks. As of June 30, 2013 , the Company had approximately $58.1 million of non-performing commercial real-estate loans representing approximately 1.4 % of the total commercial real-estate loan portfolio. $16.3 million, or 28%, of the total non-performing commercial real-estate loan portfolio related to the land, residential and commercial construction sector.


•	Total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest), excluding covered loans, was $121.5 million (of which $58.1 million , or 48%, was related to commercial real-estate) at June 30, 2013 , an increase of approximately $565,000 compared to June 30, 2012 .


•	The Company’s other real estate owned, excluding covered other real estate owned, decreased by $15.6 million, to $57.0 million during the second quarter of 2013 , from $72.6 million at June 30, 2012 . The decrease in other

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real estate owned in the second quarter of 2013 compared to the same period in the prior year is primarily a result of disposals in the past 12 months. The $57.0 million of other real estate owned as of June 30, 2013 was comprised of $7.0 million of residential real-estate development property, $42.7 million of commercial real-estate property and $7.3 million of residential real-estate property.

During the quarter, Management continued its strategic efforts to resolve problem loans through liquidation, rather than retention, of loans or real estate acquired as collateral through the foreclosure process. For more information regarding these efforts, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 . The level of loans past due 30 days or more and still accruing interest, excluding covered loans, totaled $133.7 million as of June 30, 2013 , decreasing $18.3 million compared to the balance of $152.0 million as of December 31, 2012 . Fluctuations from period to period in loans that are past due 30 days or more and still accruing interest are primarily the result of timing of payments for loans with near term delinquencies (i.e. 30-89 days past-due).

The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. At June 30, 2013 , the Company had a $4.5 million estimated liability on loans expected to be repurchased from loans sold to investors compared to a $4.3 million liability and a $2.9 million liability for similar items as of December 31, 2012 and June 30, 2012 , respectively. For more information regarding requests for indemnification on loans sold, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .

In addition, during the second quarter of 2013 , the Company modified $14.5 million of loans in troubled debt restructurings ("TDRs"), primarily attributable to two credit relationships, by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At June 30, 2013 , approximately $126.2 million in loans had terms modified in TDRs, with $93.8 million of these TDRs in accruing status.

Trends in Our Three Operating Segments During the Second Quarter

Community Banking

Net interest income . Net interest income for the community banking segment totaled $127.5 million for the second quarter of 2013 compared to $123.4 million for the first quarter of 2013 and $123.0 million for the second quarter of 2012 . The increase in net interest income in the second quarter of 2013 compared to the first quarter of 2013 is primarily attributable to one additional day in the current quarter along with a seven basis point increase in the yield on earning assets and a three basis point decrease on the rate paid on interest-bearing liabilities. The increase in net interest income in the current quarter compared to the second quarter of 2012 can be attributed to growth in earning assets, including those obtained in FDIC-assisted acquisitions as well as the ability to price interest-bearing deposits at more reasonable rates.

Funding mix and related costs. Community banking profitability has been bolstered in recent quarters as the Company utilized its liquidity position to fund loan growth. Additionally, non-interest bearing deposits have grown as a result of the Company’s commercial banking initiative and fixed term certificates of deposit have been running off and renewing at lower rates given the historically low interest rate levels.

Level of non-performing loans and other real estate owned. Given the economic conditions, problem loan expenses have been at elevated levels in recent years. However, the non-performing loans decreased in the second quarter of 2013 as compared to the first quarter of 2013 and increased slightly compared to the second quarter of 2012 . The company remains committed to the timely resolution of non-performing loans. Other real estate owned has increased slightly in the current quarter as compared to the first quarter of 2013 and decreased compared to the second quarter of 2012 .

Mortgage banking revenue. Mortgage banking revenue increased $1.6 million when compared to the first quarter of 2013 and increased $6.1 million when compared to the second quarter of 2012 . The increase in the current quarter as compared to the first quarter of 2013 resulted primarily from increased loan originations. The increase in the current quarter compared to the second quarter of 2012 resulted primarily from higher origination volumes from new home purchases, due to the general improvement in the overall economy (increased housing starts, home sales and median prices of homes) as well as a continued active refinance market.

For more information regarding our community banking business, please see “Overview and Strategy—Community Banking” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .

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Specialty Finance

Financing of Commercial Insurance Premiums. FIFC originated approximately $1.1 billion of commercial insurance premium finance loans in the U.S. in the second quarter of 2013 , relatively unchanged as compared to U.S. commercial insurance premium finance loan originated in both the first quarter of 2013 and the second quarter of 2012 , respectively. The Company acquired a Canadian insurance premium funding company in the second quarter of 2012. In the second quarter of 2013 , the Canadian insurance premium funding company originated approximately $173.6 million in commercial insurance premium finance loans as compared to $126.3 million in first quarter of 2013 . For more information on this acquisition, see “Overview—Recent Acquisition Transactions.”

Financing of Life Insurance Premiums . FIFC originated approximately $136.3 million in life insurance premium finance loans in the second quarter of 2013 compared to $85.7 million in the first quarter of 2013 , and compared to $96.4 million in the second quarter of 2012 . The increase in originations in the second quarter of 2013 from the first quarter of 2013 is a result of higher renewal volume in the current quarter. The increase in originations in the second quarter of 2013 compared to the second quarter of 2012 was a result of higher renewal volume in the current year coupled with new business with higher average loan sizes on originations.

For more information regarding our specialty finance business, please see “Overview and Strategy—Specialty Finance” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .

Wealth Management Activities

The wealth management segment recorded higher non-interest income in the second quarter of 2013 compared to the second quarter of 2012 mostly attributable to growth in assets from new customers and new financial advisors, as well as an increase in existing customer activity and market appreciation. For more information on the trust operation acquisition, see “Overview—Recent Acquisition Transactions.”

For more information regarding our wealth management business, please see “Overview and Strategy—Wealth Management Activities” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .

Recent Acquisition Transactions

FDIC-Assisted Transactions

On September 28, 2012, the Company’s wholly-owned subsidiary Old Plank Trail Bank, acquired certain assets and liabilities and the banking operations of First United Bank in an FDIC-assisted transaction. First United Bank operated four locations in Illinois; one in Crete, two in Frankfort and one in Steger, as well as one location in St. John, Indiana and had approximately $328.4 million in total assets and $316.9 million in total deposits as of the acquisition date. Old Plank Trail Bank acquired substantially all of First United Bank's assets at a discount of approximately 9.3% and assumed all of the non-brokered deposits at a premium of 0.60%. In connection with the acquisition, Old Plank Trail Bank entered into a loss sharing agreement with the FDIC whereby Old Plank Trail Bank will share in losses with the FDIC on certain loans and foreclosed real estate at First United Bank.

On July 20, 2012, the Company’s wholly-owned subsidiary Hinsdale Bank, assumed the deposits and banking operations of Second Federal in an FDIC-assisted transaction. Second Federal operated three locations in Illinois; two in Chicago (Brighton Park and Little Village neighborhoods) and one in Cicero, and had $169.1 million in total deposits as of the acquisition date. Hinsdale Bank assumed substantially all of Second Federal's non-brokered deposits at a premium of $100,000. The Company subsequently divested the deposits and banking operations of Second Federal. See "Divestiture of Previous FDIC-Assisted Acquisition" below for more information.

On February 10, 2012, the Company announced that its wholly-owned subsidiary bank, Barrington Bank, acquired certain assets and liabilities and the banking operations of Charter National in an FDIC-assisted transaction. Charter National operated two locations: one in Hoffman Estates and one in Hanover Park and had approximately $92.4 million in total assets and $90.1 million in total deposits as of the acquisition date. Barrington Bank acquired substantially all of Charter National’s assets at a discount of approximately 4.1% and assumed all of the non-brokered deposits at no premium. In connection with the acquisition, Barrington Bank entered into a loss sharing agreement with the FDIC whereby Barrington Bank will share in losses with the FDIC on certain loans and foreclosed real estate at Charter National.

Loans comprise the majority of the assets acquired in FDIC-assisted transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, OREO, and certain other assets. Additionally, the loss share agreements with the FDIC require the Company to reimburse the FDIC in the

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event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect of such assets in the loss share agreements. The Company refers to the loans subject to loss-sharing agreements as “covered loans” and use the term “covered assets” to refer to covered loans, covered OREO and certain other covered assets. At their respective acquisition dates in 2012, the Company estimated the fair value of the reimbursable losses, which were approximately $67.2 million and $13.2 million, related to the First United Bank and Charter National acquisitions, respectively. As no loans were acquired by the Company in the acquisition of Second Federal, there is no fair value of reimbursable losses. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as FDIC indemnification assets, both in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date, therefore the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration. The FDIC-assisted transactions resulted in bargain purchase gains of $6.7 million for First United Bank, $43,000 for Second Federal and $785,000 for Charter National, which are shown as a component of non-interest income on the Company’s Consolidated Statements of Income.

Other Completed Transactions

Acquisition of First Lansing Bancorp, Inc.

On May 1, 2013, the Company completed its acquisition of First Lansing Bancorp, Inc. ("FLB"). FLB was the parent company of First National Bank of Illinois ("FNBI"), which operated seven banking locations in the south and southwest suburbs of Chicago, Illinois as well as one location in northwest Indiana. As part of this transaction, FNBI was merged into Old Plank Trail Bank. FLB had approximately $372 million in assets and $330 million in deposits as of the acquisition date, prior to purchase accounting adjustments. The Company recorded goodwill of $14.0 million on the acquisition.

Acquisition of HPK Financial Corporation

On December 12, 2012, the Company completed its acquisition of HPK Financial Corporation (“HPK”). HPK was the parent company of Hyde Park Bank & Trust Company, an Illinois state bank, (“Hyde Park Bank”), which operated two banking locations in the Hyde Park neighborhood of Chicago, Illinois. As part of the transaction, Hyde Park Bank merged into the Company's wholly-owned subsidiary bank, Beverly Bank & Trust Company, N.A. (“Beverly Bank”), and the two acquired banking locations are operating as branches of Beverly Bank under the brand name Hyde Park Bank. HPK had approximately $358 million in assets and $243 million in deposits as of the acquisition date, prior to purchase accounting adjustments. The Company recorded goodwill of $12.6 million on the acquisition.

Acquisition of Macquarie Premium Funding Inc.

On June 8, 2012, the Company, through its wholly-owned subsidiary Lake Forest Bank and Trust Company (“Lake Forest Bank”), completed its acquisition of Macquarie Premium Funding Inc., the Canadian insurance premium funding unit of Macquarie Group. Through this transaction, Lake Forest Bank acquired approximately $213 million of gross premium finance receivables outstanding. The Company recorded goodwill of approximately $22 million on the acquisition.

Acquisition of a Branch of Suburban Bank & Trust

On April 13, 2012, the Company’s wholly-owned subsidiary bank, Old Plank Trail Bank, completed its acquisition of a branch of Suburban located in Orland Park, Illinois. Through this transaction, Old Plank Trail Bank acquired approximately $52 million of deposits and $3 million of loans. The Company recorded goodwill of $1.5 million on the branch acquisition.

Acquisition of the Trust Operations of Suburban Bank & Trust

On March 30, 2012, the Company’s wholly-owned subsidiary, CTC, completed its acquisition of the trust operations of Suburban. Through this transaction, CTC acquired trust accounts having assets under administration of approximately $160 million, in addition to land trust accounts and various other assets. The Company recorded goodwill of $1.8 million on this acquisition.

Divestiture of Previous FDIC-Assisted Acquisition

On February 1, 2013, Hinsdale Bank completed its divestiture of the deposits and current banking operations of Second Federal, which were acquired in an FDIC-assisted transaction on July 20, 2012, to an unaffiliated financial institution. Through this transaction, the Company divested approximately $149 million of related deposits.

Announced Acquisitions

On July 31, 2013, the Company announced the signing of a definitive agreement to acquire Diamond Bancorp, Inc. ("Diamond"). Diamond is the parent company of Diamond Bank, FSB, which operates four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. Through this transaction, subject to final adjustments, the Company expects to acquire approximately

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$165 million in assets and approximately $135 million in deposits. In the merger, outstanding shares of Diamond common stock will be converted into the right to receive cash merger consideration.

Stock Offerings

On March 14, 2012, the Company announced the sale of 126,500 shares, or $126,500,000 aggregate liquidation preference, of Series C Preferred Stock. Dividends will be payable on the Series C Preferred Stock when, as, and if, declared by Wintrust’s Board of Directors on a non-cumulative basis quarterly in arrears on January 15, April 15, July 15 and October 15 of each year at a rate of 5.00% per year on the liquidation preference of $1,000 per share.

The holders of the Series C Preferred Stock will have the right at any time to convert each share of Series C Preferred Stock into 24.3132 shares of Wintrust common stock, which represents an initial conversion price of $41.13 per share of Wintrust common stock, plus cash in lieu of fractional shares. The initial conversion price represents a 17.5% conversion premium to the volume-weighted average price of Wintrust common stock on March 13, 2012 of approximately $35.00 per share. The conversion rate, and thus the conversion price, will be subject to adjustment under certain circumstances. On or after April 15, 2017, Wintrust will have the right under certain circumstances to cause the Series C Preferred Stock to be converted into shares of Wintrust common stock, plus cash in lieu of fractional shares.

Conversion of Preferred Stock

On August 26, 2008, the Company sold 50,000 shares of its Series A Preferred Stock to CIVC-WTFC LP ("CIVC"). The terms of the Series A Preferred Stock provide that holders of the Series A Preferred Stock may convert their shares into common stock at any time. On July 19, 2013, pursuant to such terms, the holder of the Company's Series A Preferred Stock elected to convert all 50,000 shares of the Series A Preferred Stock issued and outstanding into 1,944,000 shares of the Company's common stock, no par value, at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. No separate consideration was paid to the Company for the issuance of the shares of the Company’s common stock.

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RESULTS OF OPERATIONS

Earnings Summary

The Company’s key operating measures for the three and six months ended June 30, 2013 , as compared to the same periods last year, are shown below:



(Dollars in thousands, except per share data)	Three months ended June 30, 2013			Three months ended June 30, 2012			Percentage (%) or Basis Point (bp)Change
Net income	$	34,307		$	25,595		34	%
Net income per common share—Diluted	0.69			0.52			33
Pre-tax adjusted earnings ^{(2) (6)}	70,920			68,928			3
Net revenue ⁽¹⁾	199,819			179,205			12
Net interest income	135,824			128,270			6
Net interest margin ⁽²⁾	3.50		%	3.51		%	(1) bp
Net overhead ratio ⁽²⁾ ⁽³⁾	1.49			1.63			(14	)
Net overhead ratio, based on pre-tax adjusted earnings ^{(2) (3)}	1.51			1.46			5
Efficiency ratio ^{(2) (4)}	63.97			65.63			(166	)
Efficiency ratio, based on pre-tax adjusted earnings ^{(2) (4)}	63.78			61.35			243
Return on average assets	0.80			0.63			17
Return on average common equity	7.55			6.08			147
Return on average tangible common equity	9.70			7.80			190



(Dollars in thousands, except per share data)	Six months ended June 30, 2013			Six months ended June 30, 2012			Percentage (%) or Basis Point (bp) Change
Net income	$	66,359		$	48,805		36	%
Net income per common share—Diluted	1.34			1.02			31
Net revenue ⁽¹⁾	387,911			352,123			10
Net interest income	226,537			254,165			(11	)
Pre-tax adjusted earnings ^{(2) (6)}	139,183			132,995			5
Net interest margin ⁽²⁾	3.46		%	3.53		%	(7) bp
Net overhead ratio ⁽²⁾ ⁽³⁾	1.48			1.71			(23	)
Net overhead ratio, based on pre-tax adjusted earnings ^{(2) (3)}	1.49			1.52			(3	)
Efficiency ratio ^{(2) (4)}	63.88			66.91			(303	)
Efficiency ratio, based on pre-tax adjusted earnings ^{(2) (4)}	63.63			61.75			188
Return on average assets	0.77			0.61			16
Return on average common equity	7.42			5.99			143
Return on average tangible common equity	9.53			7.68			185
At end of period
Total assets	$	17,613,546		$	16,576,282		6	%
Total loans, excluding loans held-for-sale, excluding covered loans	12,516,892			11,202,842			12
Total loans, including loans held-for-sale, excluding covered loans	13,054,883			11,728,946			11
Total deposits	14,365,854			13,057,581			10
Total shareholders’ equity	1,836,660			1,722,074			7
Tangible common equity ratio (TCE) ⁽²⁾	7.4		%	7.4		%	0 bp
Tangible common equity ratio, assuming full conversion of preferred stock ⁽²⁾	8.5			8.4			10
Book value per common share ⁽²⁾	$	37.84		$	35.86		6	%
Tangible common book value per share ⁽²⁾	29.25			27.69			6
Market price per common share	38.28			35.50			8
Excluding covered loans:
Allowance for credit losses to total loans ⁽⁵⁾	0.88			1.11			(23) bp
Non-performing loans to total loans	0.97			1.08			(11) bp


(1)	Net revenue is net interest income plus non-interest income.


(2)	See following section titled, “Supplementary Financial Measures/Ratios” for additional information on this performance measure/ratio.


(3)	The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.


(4)	The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net revenues (less securities gains or losses). A lower ratio indicates more efficient revenue generation.


(5)	The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments.


(6)	Pre-tax adjusted earnings excludes the provision for credit losses and certain significant items.

Certain returns, yields, performance ratios, and quarterly growth rates are “annualized” in this presentation and throughout this report to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, balance sheet growth rates are most often expressed in terms of an annual rate. As such, 5% growth during a quarter would represent an annualized growth rate of 20%.

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Supplemental Financial Measures/Ratios

The accounting and reporting policies of Wintrust conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity ratio, tangible common book value per share, return on average tangible common equity and pre-tax adjusted earnings. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the 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. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. The Company references the return on average tangible common equity as a measurement of profitability. Pre-tax adjusted earnings is a significant metric in assessing the Company’s operating performance. Pre-tax adjusted earnings is calculated by adjusting income before taxes to exclude the provision for credit losses and certain significant items.

The net overhead ratio and the efficiency ratio are primarily reviewed by the Company based on pre-tax adjusted earnings. The Company believes that these measures provide a more meaningful view of the Company’s operating efficiency and expense management. The net overhead ratio, based on pre-tax adjusted earnings, is calculated by netting total adjusted non-interest expense and total adjusted non-interest income, annualizing this amount, and dividing it by total average assets. Adjusted non-interest expense is calculated by subtracting OREO expenses, covered loan collection expense, defeasance cost, seasonal payroll tax fluctuation and fees to terminate repurchase agreements. Adjusted non-interest income is calculated by adding back the recourse obligation on loans previously sold and subtracting gains or adding back losses on FDIC indemnification asset accretion, foreign currency remeasurement, investment partnerships, bargain purchase, trading and available-for-sale securities activity.

The efficiency ratio, based on pre-tax adjusted earnings, is calculated by dividing adjusted non-interest expense by adjusted taxable-equivalent net revenue. Adjusted taxable-equivalent net revenue is comprised of fully taxable equivalent net interest income and adjusted non-interest income.

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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 June 30,						Six months ended June 30,
(Dollars and shares in thousands)	2013			2012			2013			2012
Calculation of Net Interest Margin and Efficiency Ratio
(A) Interest Income (GAAP)	$	156,646		$	155,691		$	308,959		$	312,177
Taxable-equivalent adjustment:
—Loans	225			135			375			269
—Liquidity management assets	356			333			699			662
—Other earning assets	4			3			5			6
Interest Income—FTE	$	157,231		$	156,162		$	310,038		$	313,114
(B) Interest Expense (GAAP)	20,822			27,421			42,422			58,012
Net interest income—FTE	136,409			128,741			267,616			255,102
(C) Net Interest Income (GAAP) (A minus B)	$	135,824		$	128,270		$	266,537		$	254,165
(D) Net interest margin (GAAP)	3.49		%	3.49		%	3.44		%	3.52		%
Net interest margin—FTE	3.50		%	3.51		%	3.46		%	3.53		%
(E) Efficiency ratio (GAAP)	64.15		%	65.80		%	64.05		%	67.09		%
Efficiency ratio—FTE	63.97		%	65.63		%	63.88		%	66.91		%
Efficiency ratio—Based on pre-tax adjusted earnings	63.78		%	61.35		%	63.63		%	61.75		%
(F) Net Overhead ratio (GAAP)	1.49		%	1.63		%	1.48		%	1.71		%
Net Overhead ratio—Based on pre-tax adjusted earnings	1.51		%	1.46		%	1.49		%	1.52		%
Calculation of Tangible Common Equity ratio (at period end)
Total shareholders’ equity	$	1,836,660		$	1,722,074
(G) Less: Preferred stock	(176,476		)	(176,337		)
Less: Intangible assets	(377,008		)	(352,109		)
(H) Total tangible common shareholders’ equity	$	1,283,176		$	1,193,628
Total assets	$	17,613,546		$	16,576,282
Less: Intangible assets	(377,008		)	(352,109		)
(I) Total tangible assets	$	17,236,538		$	16,224,173
Tangible common equity ratio (H/I)	7.4		%	7.4		%
Tangible common equity ratio, assuming full conversion of preferred stock ((H-G)/I)	8.5		%	8.4		%
Calculation of Pre-Tax Adjusted Earnings
Income before taxes	$	56,250		$	41,329		$	108,536		$	79,088
Add: Provision for credit losses	15,382			20,691			31,069			38,091
Add: OREO expense, net	2,284			5,848			664			13,026
Add: Recourse obligation on loans previously sold	815			(36		)	60			—
Add: Covered loan collection expense	276			1,323			975			2,722
Add: Defeasance cost	—			148			—			996
Add: Seasonal payroll tax fluctuation	(312		)	(271		)	1,298			1,994
Add: FDIC indemnification asset amortization	16			87			1,224			466
Add: Loss on foreign currency remeasurement	33			—			55			—
Add: Fees for termination of repurchase agreements	—			—			—			—
Less: Gain from investment partnerships	(562		)	(65		)	(1,620		)	(1,460		)
Less: Gain on bargain purchases, net	—			55			—			(785		)
Less: Trading (gains) losses, net	(3,260		)	928			(2,825		)	782
Less: Gains on available-for-sale securities, net	(2		)	(1,109		)	(253		)	(1,925		)
Pre-tax adjusted earnings	$	70,920		$	68,928		$	139,183		$	132,995
Calculation of book value per share
Total shareholders’ equity	$	1,836,660		$	1,722,074
Less: Preferred stock	(176,476		)	(176,337		)
(J) Total common equity	$	1,660,184		$	1,545,737
Actual common shares outstanding	37,725			36,341
Add: TEU conversion shares	6,145			6,760
(K) Common shares used for book value calculation	43,870			43,101
Book value per share (J/K)	$	37.84		$	35.86
Tangible common book value per share (H/K)	$	29.25		$	27.69
Calculation of return on average common equity
(L) Net income applicable to common shares	$	31,690		$	22,951		61,126			44,915
Total average shareholders' equity	1,859,265			1,695,440			1,838,810			1,630,051
Less: Average preferred stock	(176,454		)	(176,314		)	(176,438		)	(122,083		)
(M) Total average common shareholders' equity	1,682,811			1,519,126			1,662,372			1,507,968
Less: Average intangible assets	(372,796		)	(335,327		)	(369,171		)	(331,261		)
(N) Total average tangible common shareholders’ equity	1,310,015			1,183,799			1,293,201			1,176,707
Return on average common equity, annualized (L/M)	7.55		%	6.08		%	7.42		%	5.99		%
Return on average tangible common equity, annualized (L/N)	9.70		%	7.80		%	9.53		%	7.68		%

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Critical Accounting Policies

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP 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, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, 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 47 of the Company’s 2012 Form 10-K.

Net Income

Net income for the quarter ended June 30, 2013 totaled $34.3 million , an increase of $8.7 million , or 34% , compared to the second quarter of 2012 . On a per share basis, net income for the second quarter of 2013 totaled $0.69 per diluted common share compared to $0.52 in the second quarter of 2012 .

The most significant factors impacting net income for the second quarter of 2013 as compared to the same period in the prior year include increased mortgage banking revenues primarily due to higher origination volumes from new home purchases, due to the general improvement in the overall economy (increased housing starts, home sales and median price of homes) as well as a continued active refinance market, reduced costs on interest-bearing deposits from a more favorable mix of the deposit funding base, improvement in OREO expenses due to fewer negative valuation adjustments on properties held, higher wealth management revenues partially benefited by an acquisition in 2012 and growth within the existing business, higher trading gains from fair value adjustments related to interest rate derivative contracts and lower provision for credit losses. These improvements were partially offset by an increase in salary expense caused by the addition of employees from acquisitions and an increase in variable pay based revenue as well as a decrease in fees from covered call options. The return on average common equity for the second quarter of 2013 was 7.55%, compared to 6.08% for the prior year second quarter.

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Net Interest Income

The primary source of the Company’s revenue is net interest income. Net interest income is the difference between interest income and fees on earnings assets, such as loans and securities, and interest expense on the liabilities to fund those assets, including interest bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of earning assets and interest bearing liabilities. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period.

Quarter Ended June 30, 2013 compared to the Quarter Ended June 30, 2012

The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the second quarter of 2013 as compared to the second quarter of 2012 (linked quarters):



	For the three months ended June 30, 2013							For the three months ended June 30, 2012
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,560,118		$	10,823	1.70	%	$	2,781,730		$	11,693	1.69	%
Other earning assets ^{(2) (3) (7)}	25,775			201		3.13		30,761			233		3.04
Loans, net of unearned income ^{(2) (4) (7)}	12,546,676			137,139		4.38		11,300,395			130,293		4.64
Covered loans	491,603			9,068		7.40		659,783			13,943		8.50
Total earning assets ⁽⁷⁾	$	15,624,172		$	157,231	4.04	%	$	14,772,669		$	156,162	4.25	%
Allowance for loan and covered loan losses	(126,455		)					(134,077		)
Cash and due from banks	225,712							152,118
Other assets	1,560,556							1,528,497
Total assets	$	17,283,985						$	16,319,207

Interest-bearing deposits	$	11,766,422		$	13,675	0.47	%	$	10,815,018		$	17,273	0.64	%
Federal Home Loan Bank advances	434,572			2,821		2.60		514,513			2,867		2.24
Notes payable and other borrowings	273,255			1,132		1.66		422,146			2,274		2.17
Secured borrowings—owed to securitization investors	—			—		—		407,259			1,743		1.72
Subordinated notes	13,187			52		1.58		23,791			126		2.10
Junior subordinated notes	249,493			3,142		4.98		249,493			3,138		4.97
Total interest-bearing liabilities	$	12,736,929		$	20,822	0.65	%	$	12,432,220		$	27,421	0.89	%
Non-interest bearing deposits	2,379,315							1,993,880
Other liabilities	308,476							197,667
Equity	1,859,265							1,695,440
Total liabilities and shareholders’ equity	$	17,283,985						$	16,319,207
Interest rate spread ^{(5) (7)}						3.39	%						3.36	%
Net free funds/contribution ⁽⁶⁾	$	2,887,243				0.11	%	$	2,340,449				0.15	%
Net interest income/Net interest margin ⁽⁷⁾				$	136,409	3.50	%				$	128,741	3.51	%


(1)	Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended June 30, 2013 and 2012 were $585,000 and $471,000, respectively.


(3)	Other earning assets include brokerage customer receivables and trading account securities.


(4)	Loans, net of unearned income, include loans held-for-sale and non-accrual loans.


(5)	Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.


(6)	Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.


(7)	See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

The net interest margin in the second quarter of 2013 declined by one basis point when compared to the second quarter of 2012 . This decrease resulted as the yield on total average earning assets declined 21 basis points and the contribution from net free funds declined by four basis points, partially offset by a 24 basis point decrease on the rate on total average interest-bearing liabilities. The decline in the yield on average earning assets includes lower yields on our non-covered loan portfolio which was negatively impacted by competitive and economic pricing pressures. Additionally, the Company experienced lower yields on the covered

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loan portfolio. However, decreases in the rate on average interest-bearing liabilities primarily attributed to the positive repricing of retail interest-bearing deposits, which partially offset the lower loan portfolio yields.

Quarter Ended June 30, 2013 compared to the Quarter Ended March 31, 2013



	For the three months ended June 30, 2013							For the three months ended March 31, 2013
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,560,118		$	10,823	1.70	%	$	2,797,310		$	10,363	1.50	%
Other earning assets ^{(2) (3) (7)}	25,775			201		3.13		24,205			180		3.02
Loans, net of unearned income ^{(2) (4) (7)}	12,546,676			137,139		4.38		12,252,558			131,740		4.36
Covered loans	491,603			9,068		7.40		536,284			10,524		7.96
Total earning assets ⁽⁷⁾	$	15,624,172		$	157,231	4.04	%	$	15,610,357		$	152,807	3.97	%
Allowance for loan and covered loan losses	(126,455		)					(125,221		)
Cash and due from banks	225,712							217,345
Other assets	1,560,556							1,554,362
Total assets	$	17,283,985						$	17,256,843

Interest-bearing deposits	$	11,766,422		$	13,675	0.47	%	$	11,857,400		$	14,504	0.50	%
Federal Home Loan Bank advances	434,572			2,821		2.60		414,092			2,764		2.71
Notes payable and other borrowings	273,255			1,132		1.66		297,151			1,154		1.57
Subordinated notes	13,187			52		1.58		15,000			59		1.56
Junior subordinated notes	249,493			3,142		4.98		249,493			3,119		5.00
Total interest-bearing liabilities	$	12,736,929		$	20,822	0.65	%	$	12,833,136		$	21,600	0.68	%
Non-interest bearing deposits	2,379,315							2,290,725
Other liabilities	308,476							314,855
Equity	1,859,265							1,818,127
Total liabilities and shareholders’ equity	$	17,283,985						$	17,256,843
Interest rate spread ^{(5) (7)}						3.39	%						3.29	%
Net free funds/contribution ⁽⁶⁾	$	2,887,243				0.11	%	$	2,777,221				0.12	%
Net interest income/Net interest margin ⁽⁷⁾				$	136,409	3.50	%				$	131,207	3.41	%


(1)	Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended June 30, 2013 and March 31, 2013 were $585,000 and $494,000, respectively.


(3)	Other earning assets include brokerage customer receivables and trading account securities.


(4)	Loans, net of unearned income, include loans held-for-sale and non-accrual loans.


(5)	Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.


(6)	Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.


(7)	See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

The net interest margin in the second quarter of 2013 increased by nine basis points when compared to the first quarter of 2013 . This increase resulted from a three basis point decrease in the rate on total average interest-bearing liabilities and a seven basis point increase in the yield on total average earning assets, partially offset by a one basis point decline from the contribution of net free funds.

The contribution from re-pricing retail deposits and maturing wholesale funding has diminished when compared to previous quarters. Pressure on the net interest margin will be applied more from the pricing/re-pricing of loan volumes as the low rate environment impedes further meaningful declines in interest-bearing deposits rates.

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Six Months Ended June 30, 2013 compared to the Six Months Ended June 30,2012

The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the first six months of 2013 as compared to the first six months of 2012:



	For the six months ended June 30, 2013							For the six months ended June 30, 2012
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,678,059		$	21,186	1.60	%	$	2,769,282		$	24,733	1.80	%
Other earning assets ^{(2) (3) (7)}	24,995			381		3.07		30,631			457		3.00
Loans, net of unearned income ^{(2) (4) (7)}	12,400,429			268,879		4.37		11,074,205			259,077		4.70
Covered loans	513,820			19,592		7.69		663,512			28,847		8.74
Total earning assets ⁽⁷⁾	$	15,617,303		$	310,038	4.00	%	$	14,537,630		$	313,114	4.33	%
Allowance for loan and covered loan losses	(125,841		)					(132,923		)
Cash and due from banks	221,552							147,993
Other assets	1,557,475							1,524,579
Total assets	$	17,270,489						$	16,077,279

Interest-bearing deposits	$	11,811,659		$	28,179	0.48	%	$	10,648,420		$	35,303	0.67	%
Federal Home Loan Bank advances	424,389			5,585		2.65		492,429			6,451		2.63
Notes payable and other borrowings	285,137			2,286		1.62		463,980			5,376		2.33
Secured borrowings—owed to securitization investors	—			—		—		461,091			4,292		1.87
Subordinated notes	14,088			111		1.57		29,396			295		1.98
Junior subordinated notes	249,493			6,261		4.99		249,493			6,295		4.99
Total interest-bearing liabilities	$	12,784,766		$	42,422	0.67	%	$	12,344,809		$	58,012	0.94	%
Non-interest bearing deposits	2,335,265							1,913,253
Other liabilities	311,648							189,166
Equity	1,838,810							1,630,051
Total liabilities and shareholders’ equity	$	17,270,489						$	16,077,279
Interest rate spread ^{(5) (7)}						3.33	%						3.39	%
Net free funds/contribution ⁽⁶⁾	$	2,832,537				0.13	%	$	2,192,821				0.14	%
Net interest income/Net interest margin ⁽⁷⁾				$	267,616	3.46	%				$	255,102	3.53	%


(1)	Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the six months ended June 30, 2013 and June 30, 2012 were $1.1 million and $937,000, respectively.


(3)	Other earning assets include brokerage customer receivables and trading account securities.


(4)	Loans, net of unearned income, include loans held-for-sale and non-accrual loans.


(5)	Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.


(6)	Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.


(7)	See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

The net interest margin for the first six months of 2013 was 3.46% compared to 3.53% in the first six months of 2012, a decrease of seven basis points. The decrease was the result of a 33 basis point decline from the yield on average earning assets and a one basis point decline from the contribution on net free funds, partially offset by a 27 basis point decline on interest-bearing liabilities.

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Analysis of Changes in Tax-equivalent Net Interest Income

The following table presents an analysis of the changes in the Company’s tax-equivalent net interest income comparing the three month periods ended June 30, 2013 and March 31, 2013 , the first six months ended June 30, 2013 and June 30, 2012 , and the three month periods ended June 30, 2013 and 2012. The reconciliations set forth the changes in the tax-equivalent net interest income as a result of changes in volumes, changes in rates and differing number of days in each period:



	Second Quarter of 2013 Compared to First Quarter of 2013		First Six Months of 2013 Compared to First Six Months of 2012			Second Quarter of 2013 Compared to Second Quarter of 2012
(Dollars in thousands)	Second Quarter of 2013 Compared to First Quarter of 2013					Second Quarter of 2013 Compared to Second Quarter of 2012
Tax-equivalent net interest income for comparative period	$	131,207	$	255,102		$	128,741
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)	1,684		29,739			13,153
Change due to interest rate fluctuations (rate)	2,076		(15,816		)	(5,485		)
Change due to number of days in each period	1,442		(1,409		)	—
Tax-equivalent net interest income for the period ended June 30, 2013	$	136,409	$	267,616		$	136,409

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Non-interest Income

For the second quarter of 2013 , non-interest income totaled $64.0 million , an increase of $13.1 million , or 26% , compared to the second quarter of 2012 . On a year-to-date basis, non-interest income for the first six months of 2013 totaled $121.4 million and increased $23.4 million , or 24% , compared to the same period in 2012.

The following table presents non-interest income by category for the periods presented:



	Three months ended June 30,					$			%
(Dollars in thousands)	2013		2012			Change			Change
Brokerage	$	7,426	$	6,396		$	1,030		16
Trust and asset management	8,466		6,997			1,469			21
Total wealth management	15,892		13,393			2,499			19
Mortgage banking	31,734		25,607			6,127			24
Service charges on deposit accounts	5,035		3,994			1,041			26
Gains on available-for-sale securities, net	2		1,109			(1,107		)	(100	)
Fees from covered call options	993		3,114			(2,121		)	(68	)
Gain on bargain purchases, net	—		(55		)	55			(100	)
Trading gains (losses), net	3,260		(928		)	4,188			NM
Other:
Interest rate swap fees	1,638		2,337			(699		)	(30	)
Bank Owned Life Insurance	902		505			397			79
Administrative services	832		823			9			1
Miscellaneous	3,707		1,036			2,671			NM
Total Other	7,079		4,701			2,378			51
Total Non-Interest Income	$	63,995	$	50,935		$	13,060		26



	Six months ended June 30,					$			%
(Dollars in thousands)	2013		2012			Change			Change
Brokerage	$	14,692	$	12,718		$	1,974		16
Trust and asset management	16,028		13,076			2,952			23
Total wealth management	30,720		25,794			4,926			19
Mortgage banking	61,879		44,141			17,738			40
Service charges on deposit accounts	9,828		8,202			1,626			20
Gains on available-for-sale securities, net	253		1,925			(1,672		)	(87	)
Fees from covered call options	2,632		6,237			(3,605		)	(58	)
Gain on bargain purchases, net	—		785			(785		)	(100	)
Trading gains (losses), net	2,825		(782		)	3,607			NM
Other:
Interest rate swap fees	3,909		4,848			(939		)	(19	)
Bank Owned Life Insurance	1,747		1,424			323			23
Administrative services	1,569		1,589			(20		)	(1	)
Miscellaneous	6,012		3,795			2,217			58
Total Other	13,237		$	11,656		$	1,581		14
Total Non-Interest Income	$	121,374	$	97,958		$	23,416		24

NM—Not Meaningful

The significant changes in non-interest income for the three and six months ended June 30, 2013 compared to the periods ended June 30, 2012 are discussed below.

Wealth management revenue totaled $15.9 million in the second quarter of 2013 compared to $13.4 million in the second quarter of 2012 , an increase of 19% . On a year-to-date basis, wealth management revenues totaled $30.7 million for the first six months of 2013, compared to $25.8 million in the first six months of 2012. The increases in current year periods are mostly attributable

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to growth in assets from new customers and new financial advisors, as well as an increase in existing customer activity and market appreciation. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors and the brokerage commissions, money managed fees and insurance product commissions at Wayne Hummer Investments.

For the quarter ended June 30, 2013 , mortgage banking revenue totaled $31.7 million , an increase of $6.1 million when compared to the second quarter of 2012 . For the six months ended June 30, 2013, mortgage banking revenue totaled $61.9 million as compared to $44.1 million for the six months ended June 30, 2012. The increase in mortgage banking revenue in the three and six months ended June, 30 2013 as compared to the prior year periods resulted primarily from higher origination volumes from both new home purchases, due to the general improvement in the overall economy (increased housing starts, home sales, and median price of homes) and a continued active refinance market. Mortgage loan originations were $1.1 billion in the second quarter of 2013 as compared to $853.6 million in the prior year quarter. On a year-to-date basis, mortgage loan originations were $2.0 billion for the six months ended June 30, 2013 compared to $1.6 billion for the same period of the prior year. In addition to higher origination volume, pricing also improved creating higher margins in the current periods. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real-estate loans for the secondary market.

A summary of the mortgage banking components is shown below:



	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2013			2012			2013		2012
Mortgage loans originated and sold	$	1,050,799		$	853,585		$	2,025,231	$	1,568,240
Mortgage loans serviced for others	996,621			980,534
Fair value of mortgage servicing rights (MSRs)	8,636			6,647
MSRs as a percentage of loans serviced	0.87		%	0.68		%

The Company recognized $3.3 million in trading gains in the second quarter of 2013 compared to trading losses of $928,000 in the second quarter of 2012. On a year-to-date basis, trading gains totaled $2.8 million in the first six months of 2013 as compared to a $782,000 trading loss in the same period of 2012. The increase in trading gains resulted primarily from fair value adjustments related to interest rate derivatives not designated as hedges, primarily interest rate cap instruments that the Company uses to manage interest rate risk, specifically in the event of future increases in short-term interest rates. The change in value of the cap derivatives reflects the present value of expected cash flows over the remaining life of the caps. These expected cash flows are derived from the expected path for and a measure of volatility for short-term interest rates.

Fees from covered call option transactions decreased in the three and six month periods ended June 30, 2013 by $2.1 million and $3.6 million, respectively. Fees from covered call options decreased primarily as a result of fewer option transactions entered in 2013 compared to 2012 resulting in lower premiums received by the Company. The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Historically, the Company has effectively entered into these transactions with the goal of enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to increase the total return associated with holding certain investment securities that do not qualify as hedges pursuant to accounting guidance.

Other non-interest income for the second quarter of 2013 totaled $7.1 million, an increase of $2.4 million compared to the second quarter of 2012. On a year-to-date basis, other non-interest income totaled $13.2 million in 2013, an increase of $1.6 million as compared to $11.7 million recorded in the first six months of 2012. Miscellaneous income increased in 2013 compared to the prior year periods primarily as a result of higher net gains on CRA and partnership investments in 2013.

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Non-interest Expense

Non-interest expense for the second quarter of 2013 totaled $128.2 million and increased approximately $11.0 million , or 9 %, compared to the second quarter of 2012 . On a year-to-date basis, non-interest expense for the first six months of 2013 totaled $248.3 million and increased $13.4 million , or 6% , compared to the same period in 2012.

The following table presents non-interest expense by category for the periods presented:



	Three months ended June 30,				$			%
(Dollars in thousands)	2013		2012		Change			Change
Salaries and employee benefits:
Salaries	$	41,671	$	37,237	$	4,434		12
Commissions and bonus	25,143		19,388		5,755			30
Benefits	12,411		11,514		897			8
Total salaries and employee benefits	79,225		68,139		11,086			16
Equipment	6,413		5,466		947			17
Occupancy, net	8,707		7,728		979			13
Data processing	4,358		3,840		518			13
Advertising and marketing	2,722		2,179		543			25
Professional fees	4,191		3,847		344			9
Amortization of other intangible assets	1,164		1,089		75			7
FDIC insurance	3,003		3,477		(474		)	(14	)
OREO expenses, net	2,284		5,848		(3,564		)	(61	)
Other:
Commissions—3rd party brokers	1,128		1,069		59			6
Postage	1,464		1,330		134			10
Stationery and supplies	887		1,035		(148		)	(14	)
Miscellaneous	12,641		12,138		503			4
Total other	16,120		15,572		548			4
Total Non-Interest Expense	$	128,187	$	117,185	$	11,002		9



	Six months ended June 30,				$			%
(Dollars in thousands)	2013		2012		Change			Change
Salaries and employee benefits:
Salaries	$	83,502	$	75,170	$	8,332		11
Commissions and bonus	46,419		36,190		10,229			28
Benefits	26,817		25,809		1,008			4
Total salaries and employee benefits	156,738		137,169		19,569			14
Equipment	12,597		10,866		1,731			16
Occupancy, net	17,560		15,790		1,770			11
Data processing	8,957		7,458		1,499			20
Advertising and marketing	4,762		4,185		577			14
Professional fees	7,412		7,451		(39		)	(1	)
Amortization of other intangible assets	2,284		2,138		146			7
FDIC insurance	6,447		6,834		(387		)	(6	)
OREO expenses, net	664		13,026		(12,362		)	(95	)
Other:
Commissions—3rd party brokers	2,362		2,090		272			13
Postage	2,713		2,753		(40		)	(1	)
Stationery and supplies	1,821		1,954		(133		)	(7	)
Miscellaneous	23,989		23,230		759			3
Total other	30,885		30,027		858			3
Total Non-Interest Expense	$	248,306	$	234,944	$	13,362		6

NM - Not Meaningful

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The significant changes in non-interest expense for the three and six months ended June 30, 2013 compared to the periods ended June 30, 2012 are discussed below.

Salaries and employee benefits expense increased $11.1 million , or 16% , in the second quarter of 2013 compared to the second quarter of 2012 primarily as a result of a $5.8 million increase in bonus and commissions primarily attributable to the increase in variable pay based revenue and the Company's long-term incentive program, a $4.4 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows and a $897,000 increase in employee benefits. On a year-to-date basis, salaries and employee benefits expense increased $19.6 million , or 14% , in the first six months of 2013 compared to the first six months of 2012 primarily as a result of a $8.3 million increase in salaries cause by the addition of employees from the various acquisitions and larger staffing as the company grows, a $10.2 million increase in bonus and commissions primarily attributable to the increase in variable pay based revenue and the Company's long-term incentive program and a $1.0 million increase from employee benefits (primarily health plan and payroll taxes related).

Equipment expense totaled $6.4 million for the second quarter of 2013 , an increase of $947,000 compared to the second quarter of 2012 . On a year-to-date basis, equipment expense totaled $12.6 million for the first six months of 2013 as compared to $10.9 million for the first six months of 2012. The increase is primarily related to additional equipment depreciation as a result of acquisitions as well as increased software license fees. Equipment expense includes depreciation on equipment, maintenance and repairs, equipment rental and software license fees.

Occupancy expense for the second quarter of 2013 was $8.7 million , an increase of $979,000 , or 13% , compared to the same period in 2012 . On a year-to-date basis, occupancy expense totaled $17.6 million for the first six months of 2013 as compared to $15.8 million for the first six months of 2012. The increase is primarily the result of depreciation and maintenance and repairs on owned locations which were obtained in the Company's acquisitions. Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for leased premises.

Data processing expenses increased $518,000 in the second quarter of 2013 totaling $4.4 million compared to $3.8 million recorded in the second quarter of 2012 . On a year-to-date basis, data processing expenses totaled $9.0 million for the first six months of 2013, as compared to $7.5 million for the first six months of 2012. The amount of data processing expenses incurred fluctuates based on the overall growth of loan and deposit accounts as well as additional expenses recorded related to bank acquisition transactions. Data processing expenses increased in the current quarter and six month period compared to the previous year quarter and six month period, primarily due to growth in the Company.

OREO expense totaled $2.3 million in the second quarter of 2013 compared to OREO expense of $5.8 million recorded in the second quarter of 2012 . The decrease in total OREO expenses is primarily due to fewer negative valuation adjustments on properties held in OREO. On a year-to-date basis, OREO expense totaled $664,000 for the first six months of 2013, a decrease of $12.4 million , as compared to $13.0 million in the first six months of 2012. The decrease in the first six months of 2013 as compared to the same period of 2012 is a result of a $3.4 million gain recognized on a covered OREO property sale as well as fewer negative valuation adjustments on properties held in OREO. OREO costs include all costs related to obtaining, maintaining and selling other real estate owned properties.

Miscellaneous expenses in the second quarter of 2013 increased $503,000 , or 4% , compared to the second quarter in the prior year. On a year-to-date basis, miscellaneous expense increased by $759,000 to $24.0 million for the first six months of 2013, as compared to $23.2 million in the prior year period. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.

Two ratios the Company uses to measure expense management are the efficiency ratio and the net overhead ratio. The Company believes that these measures provide a more meaningful view of the Company's operating efficiency and expense management. The efficiency ratio, based on pre-tax adjusted earnings, was 63.78% for the second quarter of 2013 , compared to 61.35% in the second quarter of 2012 . The net overhead ratio, based on pre-tax adjusted earnings, was 1.51% for the second quarter of 2013 , compared to 1.46% in the second quarter of 2012 . See "Supplemental Financial Measures/Ratios" section earlier in this document for further detail on these non-GAAP measures/ratios.

Income Taxes

The Company recorded income tax expense of $21.9 million for the three months ended June 30, 2013 , compared to $15.7 million for same period of 2012 . Income tax expense was $42.2 million and $30.3 million for the six months ended June 30, 2013 and 2012 , respectively. The effective tax rates were 39.0% and 38.1% for the second quarters of 2013 and 2012 , respectively, and

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38.9% and 38.3% for the 2013 and 2012 year-to-date periods, respectively. The slightly higher effective tax rates in the 2013 periods reflect a lower level of tax credits in 2013 as compared to 2012.

Operating Segment Results

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. The net interest income of the community banking segment includes interest income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations.

Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. (See “wealth management deposits” discussion in the Deposits section of this report for more information on these deposits).

The community banking segment’s net interest income for the quarter ended June 30, 2013 totaled $127.5 million as compared to $123.0 million for the same period in 2012 , an increase of $4.5 million , or 4% . On a year-to-date basis, net interest income totaled $250.9 million for the first six months of 2013, an increase of $6.8 million , or 3% , as compared to the $244.2 million recorded in the first six months of 2012. The increases for both the three and six month periods are primarily attributable to growth in earning assets, including those obtained in acquisitions as well as the ability to gather interest-bearing deposits at more reasonable rates. The community banking segment’s non-interest income totaled $42.6 million in the second quarter of 2013 , an increase of $5.6 million , or 15% , when compared to the second quarter of 2012 total of $37.0 million . On a year-to-date basis, the segment's non-interest income totaled $82.5 million for the first six months of 2013, an increase of $13.7 million , or 20% , when compared to the first six months of 2012 total of $68.8 million . Both the increase in the current quarter and the first six months of 2013 can be primarily attributed to higher mortgage banking revenue resulting from higher origination volumes as well as the general improvement in the overall economy (increased housing starts, home sales and median price of homes). The community banking segment’s after-tax profit for the quarter ended June 30, 2013 totaled $34.2 million , an increase of $4.8 million as compared to after-tax profit in the second quarter of 2012 of $29.4 million . The after-tax profit for the six months ended June 30, 2013, totaled $67.9 million , an increase of $11.5 million , or 20% as compared to the prior year total of $56.4 million .

Net interest income for the specialty finance segment totaled $31.5 million for the quarter ended June 30, 2013 , compared to $28.7 million for the same period in 2012 , an increase of $2.8 million or 10% . On a year-to-date basis, net interest income totaled $62.6 million for the first six months of 2013, an increase of $6.3 million , or 11% , as compared to the $56.3 million recorded last year. The specialty finance segment’s non-interest income for the three and six month periods ending June 30, 2013 totaled $1.8 million and $3.5 million , respectively compared to the three and six month periods ending June 30, 2012 total of $1.6 million and $2.9 million . The increases in both net interest income and non-interest income in the current quarter and first six months are primarily attributable to revenues from the Company’s Canadian insurance premium finance subsidiary acquired near the end of the second quarter of 2012. Our commercial premium finance operations, life insurance finance operations and accounts receivable finance operations accounted for 62%, 32% and 6%, respectively, of the total revenues of our specialty finance business for the six month period ending June 30, 2013 . The after-tax profit of the specialty finance segment for the quarter ended June 30, 2013 totaled $13.8 million as compared to $11.0 million for the quarter ended June 30, 2012 . The specialty finance segment's after-tax profit for the six months ended June 30, 2013 totaled $27.6 million , an increase of $4.2 million , or 18% , as compared to the prior year total of $23.4 million .

The wealth management segment reported net interest income of $2.4 million for the second quarter of 2013 compared to $2.7 million in the same quarter of 2012 . On a year-to-date basis, net interest income totaled $3.7 million for the first six months of 2013, a decrease of $756,000 , or 17% , as compared to the $4.4 million recorded last year. Net interest income for this segment is comprised of the net interest earned on brokerage customer receivables at WHI and an allocation of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks (“wealth management deposits”). The allocated net interest income included in this segment’s profitability was $2.3 million ($1.4 million after tax) and $3.4 million ($2.0 million after tax) for the three and six month periods ended June 30, 2013 , compared to $2.5 million ($1.5 million after tax) and $4.1 million ($2.4 million after tax) in the comparable periods of 2012. This segment recorded non-interest income of $19.1 million for the second quarter of 2013 compared to $16.0 million for the second quarter of 2012 . On a year-to-date basis, non interest income totaled $36.9 million , an increase of $5.7 million compared to the prior year period total of $31.2 million . The increase in the second quarter and first six months of 2013 as compared to the second quarter and first six months of 2012 is mostly attributable growth in assets from new customers and new financial advisors, as well as an increase in existing customer activity and market appreciation. The wealth management segment’s after-tax profit totaled $3.2 million for the second quarter of 2013 compared to after-tax profit of $2.5 million for the second quarter of 2012 .

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This segment's after-tax profit for the six months ended June 30, 2013 totaled $5.4 million compared to $4.0 million for the six months ended June 30, 2012.

Financial Condition

Total assets were $17.6 billion at June 30, 2013 , representing an increase of $1.0 billion , or 6% , when compared to June 30, 2012 and an increase of approximately $539.3 million , or 13% on an annualized basis, when compared to March 31, 2013 . Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $15.5 billion at June 30, 2013 , $14.6 billion at June 30, 2012 and $14.9 billion at March 31, 2013 . See Notes 5, 6, 10, 11 and 12 of the Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

Interest-Earning Assets

The following table sets forth, by category, the composition of average earning asset balances and the relative percentage of total average earning assets for the periods presented:



	Three Months Ended
	June 30, 2013				March 31, 2013				June 30, 2012
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Loans:
Commercial	$	2,937,443	19	%	$	2,841,360	18	%	$	2,573,103	17	%
Commercial real-estate	4,061,849		26		3,916,871		25		3,608,218		24
Home equity	762,772		5		774,772		5		830,936		6
Residential real-estate ⁽¹⁾	756,703		5		751,473		5		785,304		5
Premium finance receivables	3,844,482		25		3,777,563		24		3,315,378		22
Indirect consumer loans	67,059		—		73,238		1		70,420		1
Other loans	116,368		1		117,281		1		117,036		1
Total loans, net of unearned income excluding covered loans ⁽²⁾	$	12,546,676	81	%	$	12,252,558	79	%	$	11,300,395	76	%
Covered loans	491,603		3		536,284		3		659,783		4
Total average loans ⁽²⁾	$	13,038,279	84	%	$	12,788,842	82	%	$	11,960,178	80	%
Liquidity management assets ⁽³⁾	$	2,560,118	16	%	$	2,797,310	18	%	2,781,730		19	%
Other earning assets ⁽⁴⁾	25,775		—		24,205				30,761		1
Total average earning assets	$	15,624,172	100	%	$	15,610,357	100	%	$	14,772,669	100	%
Total average assets	$	17,283,985			$	17,256,843			$	16,319,207
Total average earning assets to total average assets			90	%			90	%			91	%


(1)	Includes mortgage loans held-for-sale


(2)	Includes loans held-for-sale and non-accrual loans


(3)	Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements


(4)	Other earning assets include brokerage customer receivables and trading account securities

Total average earning assets for the second quarter of 2013 increased $851.5 million , or 6% , to $15.6 billion , compared to the second quarter of 2012 , and increased $13.8 million , or less than 1% on an annualized basis, compared to the first quarter of 2013. Average earning assets comprised 90% of average total assets at June 30, 2013 and March 31, 2013 , and 91% of average total assets at June 30, 2012 .

Average total loans, net of unearned income, totaled $13.0 billion in the second quarter of 2013 , increasing $1.1 billion , or 9% , from the second quarter of 2012 and $249.4 million , or 8% on an annualized basis, from the first quarter of 2013. Average commercial loans totaled $2.9 billion in the second quarter of 2013 , and increased $364.3 million , or 14% , over the average balance in the same period of 2012, while average commercial real-estate loans totaled $4.1 billion in the second quarter of 2013 , increasing $453.6 million , or 13% , compared to the second quarter of 2012 . Combined, these categories comprised 54% and 52% of the average loan portfolio in the first quarters of 2013 and 2012, respectively. The growth realized in these categories for the second quarter of 2013 as compared to the prior year period is primarily attributable to increased business development efforts and the acquisitions of FNBI in the second quarter of 2013 and Hyde Park Bank at the end of the fourth quarter of 2012. Average balances

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increased compared to the quarter ended March 31, 2013 , with average commercial loans increasing by $96.1 million , or 14% annualized, and average commercial real-estate loans increasing by $145.0 million , or 15% annualized.

Home equity loans averaged $762.8 million in the second quarter of 2013 , and decreased $68.2 million , or 8% , when compared to the average balance in the same period of 2012 and $12.0 million , or 6% annualized, when compared to quarter ended March 31, 2013 . 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 when originating new home equity loans. The number of home equity line of credit commitments originated by us has decreased due to declines in housing valuations that have decreased the amount of equity against which homeowners may borrow, and a decline in homeowners' desire to use their remaining equity as collateral.

Residential real-estate loans averaged $756.7 million in the second quarter of 2013 , and decreased $28.6 million , or 4% from the average balance of $785.3 million in same period of 2012. Additionally, compared to the quarter ended March 31, 2013 , the average balance increased $5.2 million , or 3% on an annualized basis. This category includes mortgage loans held-for-sale. By selling residential mortgage loans into the secondary market, the Company eliminates the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provides a source of non-interest revenue. Mortgage loans held-for-sale increased since the same period of 2012 as a result of higher origination volumes due to an improving new home purchase market and an active mortgage refinance market.

Average premium finance receivables totaled $3.8 billion in the second quarter of 2013 , and accounted for 29% of the Company’s average total loans. Premium finance receivables consist of a commercial portfolio and a life portfolio, comprising approximately 54% and 46% , respectively, of the average total balance of premium finance receivables for the second quarter of 2013 , compared to both comprising approximately 50% for the same period in 2012. In the second quarter of 2013 , average premium finance receivables increased $529.1 million , or 16% , from the average balance of $3.3 billion at the same period of 2012. Additionally, the average balance increased $66.9 million , or 7% on an annualized basis, from the average balance of $3.8 billion in the quarter ended March 31, 2013 . The increase during 2013 compared to both periods was the result of continued originations within the portfolio due to the effective marketing and customer servicing. Additionally, the increase during 2013 compared to 2012 was the result of the acquisition of Macquarie Premium Funding Inc. Approximately $1.5 billion of premium finance receivables were originated in the second quarter of 2013 compared to $1.2 billion during the same period of 2012.

Indirect consumer loans are comprised primarily of automobile loans originated at Hinsdale Bank. These loans were financed from networks of unaffiliated automobile dealers located throughout the Chicago metropolitan area with which the Company has established relationships. The risks associated with the Company’s portfolios are diversified among many individual borrowers. Like other consumer loans, the indirect consumer loans are subject to the Banks’ established credit standards. Management regards substantially all of these loans as prime quality loans. In the fourth quarter of 2012, the Company ceased the origination of indirect automobile loans through Hinsdale Bank as a result of competitive pricing pressures. During the first quarter of 2013 and 2012, average indirect consumer loans totaled $67.1 million and $70.4 million , respectively.

Other loans represent a wide variety of personal and consumer loans to individuals as well as high-yielding short-term accounts receivable financing to clients in the temporary staffing industry located throughout the United States. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk due to the type and nature of the collateral. Additionally, short-term accounts receivable financing may also involve greater credit risks than generally associated with the loan portfolios of more traditional community banks depending on the marketability of the collateral.

Covered loans averaged $491.6 million in the second quarter of 2013 , and decreased $168.2 million , or 25% , when compared to the average balance in the same period of 2012 and decreased $44.7 million , or 33% annualized, when compared to quarter ended March 31, 2013 . Covered loans represent loans acquired in FDIC-assisted transactions. These loans are subject to loss sharing agreements with the FDIC. The FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, foreclosed real estate, and certain other assets. See Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of these acquisitions, including the aggregation of these loans by risk characteristics when determining the initial and subsequent fair value.

Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes. Average liquidity management assets accounted for 16% of total average earning assets in the second quarter of 2013 compared to 18% in the first quarter of 2013 and 19% in the second quarter of 2012. Average liquidity management assets decreased $221.6 million in the second quarter of 2013 compared to the same period 2012, and decreased $237.2 million compared to the first quarter of 2013. In the second quarter of 2013, a portion of the Company's liquidity was used to fund continued strong loan growth, particularly in our commercial and commercial real estate portfolios.

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Other earning assets include brokerage customer receivables and trading account securities. In the normal course of business, Wayne Hummer Investments, LLC (“WHI”) activities involve the execution, settlement, and financing of various securities transactions. WHI’s customer securities activities are transacted on either a cash or margin basis. In margin transactions, WHI, under an agreement with an 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 the agreement with the outsourced securities firm, may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligations. WHI seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. WHI monitors required margin levels daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.



	Average Balances for the Six Months Ended
	June 30, 2013				June 30, 2012
(Dollars in thousands)	Balance		Percent		Balance		Percent
Loans:
Commercial	$	2,889,667	19	%	$	2,508,349	17	%
Commercial real estate	3,989,761		26	%	3,573,477		25	%
Home equity	768,739		5	%	841,216		6	%
Residential real estate ⁽¹⁾	754,102		5	%	705,963		5	%
Premium finance receivables	3,811,207		24	%	3,257,203		22	%
Indirect consumer loans	70,131		—	%	68,003		1	%
Other loans	116,822		1	%	119,994		1	%
Total loans, net of unearned income excluding covered loans ⁽²⁾	$	12,400,429	80	%	$	11,074,205	77	%
Covered loans	513,820		3	%	663,512		5	%
Total average loans ⁽²⁾	$	12,914,249	83	%	$	11,737,717	82	%
Liquidity management assets ⁽³⁾	$	2,678,059	17	%	2,769,282		18	%
Other earning assets ⁽⁴⁾	24,995		—	%	30,631		—	%
Total average earning assets	$	15,617,303	100	%	$	14,537,630	100	%
Total average assets	$	17,270,489			$	16,077,279
Total average earning assets to total average assets			90	%			90	%


(1)	Includes mortgage loans held-for-sale


(2)	Includes loans held-for-sale and non-accrual loans


(3)	Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements


(4)	Other earning assets include brokerage customer receivables and trading account securities

Total average loans for the first six months of 2013 increased $1.2 billion , or 10% , over the previous year period. Similar to the quarterly discussion above, approximately $381.3 million of this increase relates to the commercial portfolio, $416.3 million of this increase relates to the commercial real estate portfolio and $554.0 million of this increase relates to the premium finance receivables portfolio.

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Deposits

Total deposits at June 30, 2013 were $14.4 billion an increase of $1.3 billion , or 10% , compared to total deposits at June 30, 2012 . See Note 10 to the financial statements presented under Item 1 of this report for a summary of period end deposit balances.

The following table sets forth, by category, the maturity of time certificates of deposit as of June 30, 2013 :



Time Certificates of Deposit Maturity/Re-pricing Analysis As of June 30, 2013 (Dollars in thousands)	CDARs & Brokered Certificates of Deposit ⁽¹⁾		MaxSafe Certificates of Deposit ⁽¹⁾		Variable Rate Certificates of Deposit ⁽²⁾		Other Fixed Rate Certificates of Deposit ⁽¹⁾		Total Time Certificates of Deposits		Weighted-Average Rate of Maturing Time Certificates of Deposit ⁽³⁾
1-3 months	$	105,323	$	68,812	$	159,196	$	714,055	$	1,047,386	0.67	%
4-6 months	4,667		60,954		—		611,410		677,031		0.67	%
7-9 months	40,000		53,837		—		613,219		707,056		0.80	%
10-12 months	4,952		24,894		—		514,234		544,080		0.70	%
13-18 months	16,444		32,638		—		428,685		477,767		1.03	%
19-24 months	131,649		9,973		—		226,145		367,767		1.69	%
24+ months	20,000		24,974		—		476,260		521,234		1.49	%
Total	$	323,035	$	276,082	$	159,196	$	3,584,008	$	4,342,321	0.92	%


(1)	This category of certificates of deposit is shown by contractual maturity date.


(2)	This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis.


(3)	Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

The following table sets forth, by category, the composition of average deposit balances and the relative percentage of total average deposits for the periods presented:



	Three Months Ended
	June 30, 2013				March 31, 2013				June 30, 2012
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Non-interest bearing	$	2,379,315	17	%	$	2,290,725	16	%	$	1,993,880	16	%
NOW	2,115,414		15		2,005,668		14		1,762,463		14
Wealth management deposits	874,101		6		966,219		7		941,509		7
Money market	2,923,602		21		2,804,256		20		2,288,148		18
Savings	1,284,411		9		1,251,759		9		944,924		7
Time certificates of deposit	4,568,894		32		4,829,498		34		4,877,974		38
Total average deposits	$	14,145,737	100	%	$	14,148,125	100	%	$	12,808,898	100	%

Total average deposits for the second quarter of 2013 were $14.1 billion , an increase of $1.3 billion , or 10% , from the second quarter of 2012 . The increase in average deposits is primarily attributable to the Company’s acquisition activity in 2012 and 2013, as well as deposits added which are associated with the increased commercial lending relationships. The Company continues to see a beneficial shift in its deposit mix as average non-interest bearing deposits increased $385.4 million , or 19% , in the second quarter of 2013 compared to the second quarter of 2012 .

Wealth management deposits are funds from the brokerage customers of WHI, the trust and asset management customers of CTC and brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks (“wealth management deposits” in the table above). Wealth Management deposits consist primarily of money market accounts. Consistent with reasonable interest rate risk parameters, these funds have generally been invested in loan production of the banks as well as other investments suitable for banks.

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Brokered Deposits

While the Company obtains a portion of its total deposits through brokered deposits, the Company does so primarily as an asset-liability management tool to assist in the management of interest rate risk. The Company does not consider brokered deposits to be a vital component of its current liquidity resources. Historically, brokered deposits have represented a small component of the Company’s total deposits outstanding, as set forth in the table below:



	June 30,						December 31,
(Dollars in thousands)	2013			2012			2012			2011			2010
Total deposits	$	14,365,854		$	13,057,581		$	14,428,544		$	12,307,267		$	10,803,673
Brokered deposits	623,955			870,617			787,812			674,013			639,687
Brokered deposits as a percentage of total deposits	4.3		%	6.7		%	5.5		%	5.5		%	5.9		%

Brokered deposits include certificates of deposit obtained through deposit brokers, deposits received through the Certificate of Deposit Account Registry Program (“CDARS”), and wealth management deposits of brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks.

Other Funding Sources

Although deposits are the Company’s primary source of funding its interest-earning assets, the Company’s ability to manage the types and terms of deposits is somewhat limited by customer preferences and market competition. As a result, in addition to deposits and the issuance of equity securities and the retention of earnings, the Company uses several other funding sources to support its growth. These sources include short-term borrowings, notes payable, Federal Home Loan Bank advances, subordinated debt, secured borrowings and junior subordinated debentures. The Company evaluates the terms and unique characteristics of each source, as well as its asset-liability management position, in determining the use of such funding sources.

The following table sets forth, by category, the composition of the average balances of other funding sources for the quarterly periods presented:



	Three Months Ended
	June 30,		March 31,		June 30,
(Dollars in thousands)	2013		2013		2012
Notes payable	$	18,104	$	3,424	$	22,418
Federal Home Loan Bank advances	434,572		414,092		514,513
Other borrowings:
Federal funds purchased	997		108		8,621
Securities sold under repurchase agreements	222,851		258,360		364,715
Other	31,303		35,259		26,392
Total other borrowings	$	255,151	$	293,727	$	399,728
Secured borrowings—owed to securitization investors	—		—		407,259
Subordinated notes	13,187		15,000		23,791
Junior subordinated debentures	249,493		249,493		249,493
Total other borrowings	$	970,507	$	975,736	$	1,617,202

Notes payable balances represent the balances on a loan agreement with unaffiliated banks and an unsecured promissory note as a result of the Great Lakes Advisors acquisition. The loan agreement is a $100.0 million revolving credit facility and a $1.0 million term loan available for corporate purposes such as to provide capital to fund continued growth at existing bank subsidiaries, possible future acquisitions and for other general corporate matters. At June 30, 2013 , the Company had $1.7 million of notes payable outstanding compared to $31.9 million at March 31, 2013 and $2.5 million at June 30, 2012 .

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. FHLB advances to the banks totaled $585.9 million at June 30, 2013 , compared to $414.0 million at March 31, 2013 and $564.3 million at June 30, 2012 .

Other borrowings include securities sold under repurchase agreements, federal funds purchased, debt issued by the Company in conjunction with its tangible equity unit offering in December 2010 and a fixed-rate promissory note entered into in August 2012

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related to an office building complex owned by the Company. These borrowings totaled $252.8 million , $256.2 million and $375.5 million at June 30, 2013 , March 31, 2013 and June 30, 2012 , respectively. Securities sold under repurchase agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks as well as short-term borrowings from banks and brokers. This funding category fluctuates based on customer preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries.

The average balance of secured borrowings represents the consolidation of a QSPE. In connection with the securitization, premium finance receivables—commercial were transferred to FIFC Premium Funding, LLC, a QSPE. Instruments issued by the QSPE included $600 million Class A notes that had an annual interest rate of LIBOR plus 1.45%. 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”). During the first and second quarters of 2012, the Company repurchased $172.0 million and $67.2 million , respectively, of the Notes in the open market effectively defeasing a portion of the Notes. During the third quarter of 2012, the QSPE completely paid-off the remaining portion of the these Notes resulting in no balance remaining at June 30, 2013 and March 31, 2013 , compared to $360.8 million at June 30, 2012 .

The Company borrowed $75.0 million under three separate $25.0 million subordinated note agreements. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year of the note and has a term of ten years with final maturity dates in 2012, 2013, and 2015. During the second quarter of 2012, two subordinated notes issued in October 2002 and April 2003 with remaining balances of $5.0 million and $10.0 million , respectively, were paid off prior to maturity. Subject to certain limitations, the remaining note qualifies as Tier 2 regulatory capital. Subordinated notes totaled $10.0 million at June 30, 2013 , and $15.0 million at March 31, 2013 and June 30, 2012 .

The Company had $249.5 million of junior subordinated debentures outstanding as of June 30, 2013 , March 31, 2013 and June 30, 2012 . The amounts reflected on the balance sheet represent the junior subordinated debentures 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, currently qualify as Tier 1 regulatory capital. Interest expense on these debentures is deductible for tax purposes, resulting in a cost-efficient form of regulatory capital.

See Notes 8, 11 and 12 of the Financial Statements presented under Item 1 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 first six months of 2013 as compared to December 31, 2012.

Shareholders’ Equity

Total shareholders’ equity was $1.8 billion at June 30, 2013 , reflecting an increase of $114.6 million since June 30, 2012 and $32.0 million since December 31, 2012 . The increase from December 31, 2012 was the result of net income of $ 66.4 million less common stock dividends of $ 3.3 million and preferred stock dividends of $ 5.2 million , $ 4.6 million credited to surplus for stock-based compensation costs, $26.8 million from the issuance of shares of the Company’s common stock (and related tax benefit) related to an acquisition during the period and pursuant to various stock compensation plans and $ 2.2 million net unrealized gains from cash flow hedges, net of tax, offset by $ 47.9 million in net unrealized losses from available-for-sale securities, net of tax, $ 11.2 million of foreign currency translation adjustments, net of tax, and $376,000 of common stock repurchases by the Company.

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:



	June 30, 2013		March 31, 2013		June 30, 2012
Leverage ratio	10.4	%	10.2	%	10.2	%
Tier 1 capital to risk-weighted assets	12.0		12.4		12.2
Total capital to risk-weighted assets	12.9		13.5		13.4
Total average equity-to-total average assets ⁽¹⁾	10.8		10.5		10.4


(1)	Based on quarterly average balances.



	Minimum Capital Requirements		Well Capitalized
Leverage ratio	4.0	%	5.0	%
Tier 1 capital to risk-weighted assets	4.0		6.0
Total capital to risk-weighted assets	8.0		10.0

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The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt and additional common or preferred 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, 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.

The Company’s Board of Directors approves dividends from time to time, however, the ability to declare a dividend is limited by the Company's financial condition, the terms of the Company's 5.00% non-cumulative perpetual convertible preferred stock, Series C, the terms of the Company’s Trust Preferred Securities offerings, the Company’s 7.5% tangible equity units and under certain financial covenants in the Company’s credit agreement. In January and July of 2013, Wintrust declared a semi-annual cash dividend of $0.09 per common share. In each of January and July of 2012, Wintrust declared a semi-annual cash dividend of $0.09 per common share.

See Note 17 and Note 18 of the Financial Statements presented under Item 1 of this report for details on the Company’s issuance of Series C preferred stock in March 2012, tangible equity units in December 2010 and Series A preferred stock in August 2008, and the conversion of Series A preferred stock into the Company's common stock in July 2013.

Basel III Capital Rules

In July 2013, the Federal Reserve Bank, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (the “Agencies”) published final Basel III Capital rules for U.S. banking organizations. The Company had estimated that it would have been “well-capitalized" if the fully-phased in capital requirements of the original proposal were adopted.

The Company will become subject to the new rules on January 1, 2015 and certain provisions of the new rules will be phased in from 2015 through 2019. A summary of the new rules are as follows:


•	Revises regulatory capital definitions and minimum ratios


•	Redefines Tier 1 Capital as two components


◦	Common Equity Tier 1 Capital


◦	Additional Tier 1 Capital


•	Creates a new capital ratio - Common Equity Tier 1 Risk-based Capital Ratio


•	Implements a capital conservation buffer


•	Revises prompt corrective action (“PCA”) thresholds and adds the new ratio to the PCA framework


•	Changes risk weights for certain assets and off-balance sheet exposures

The Company is currently evaluating the final rules and their expected impact on the Company.

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LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio

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



	June 30, 2013				December 31, 2012				June 30, 2012
			% of				% of				% of
(Dollars in thousands)	Amount		Total		Amount		Total		Amount		Total
Commercial	$	3,120,576	24	%	$	2,914,798	24	%	$	2,673,181	23	%
Commercial real-estate	4,093,983		31		3,864,118		31		3,666,519		31
Home equity	758,260		6		788,474		6		820,991		7
Residential real-estate	384,961		3		367,213		3		375,494		3
Premium finance receivables—commercial	2,165,734		16		1,987,856		16		1,830,044		15
Premium finance receivables—life insurance	1,821,147		14		1,725,166		14		1,656,200		14
Indirect consumer	64,521		1		77,333		1		72,482		1
Other loans	107,710		1		103,985		1		107,931		1
Total loans, net of unearned income, excluding covered loans	$	12,516,892	96	%	$	11,828,943	96	%	$	11,202,842	95	%
Covered loans	454,602		4		560,087		4		614,062		5
Total loans	$	12,971,494	100	%	$	12,389,030	100	%	$	11,816,904	100	%

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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 (excluding covered loans) as of June 30, 2013 and 2012:



As of June 30, 2013			% of				> 90 Days Past Due		Allowance For Loan
As of June 30, 2013			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,452,128	20.1	%	$	15,432	$	—	$	15,955
Franchise	202,240		2.8		—		—		1,647
Mortgage warehouse lines of credit	174,422		2.4		—		—		1,571
Community Advantage—homeowner associations	83,003		1.2		—		—		208
Aircraft	13,174		0.2		—		—		33
Asset-based lending	930,454		12.9		1,816		100		7,834
Tax exempt	151,492		2.1		—		—		1,233
Leases	102,409		1.4		—		—		255
Other	98		—		—		—		1
Purchased non-covered commercial loans ⁽¹⁾	11,156		0.2		—		190		—
Total commercial	$	3,120,576	43.3	%	$	17,248	$	290	$	28,737
Commercial Real-Estate:
Residential construction	$	39,299	0.5	%	$	2,659	$	3,263	$	1,220
Commercial construction	138,043		1.9		7,857		—		2,053
Land	116,853		1.6		5,742		—		3,525
Office	597,757		8.3		6,324		—		6,030
Industrial	615,501		8.5		5,773		—		6,064
Retail	607,391		8.4		7,471		—		5,418
Multi-family	533,568		7.4		3,337		—		11,738
Mixed use and other	1,378,160		19.2		15,662		—		15,701
Purchased non-covered commercial real-estate ⁽¹⁾	67,411		0.9		—		6,466		201
Total commercial real-estate	$	4,093,983	56.7	%	$	54,825	$	9,729	$	51,950
Total commercial and commercial real-estate	$	7,214,559	100.0	%	$	72,073	$	10,019	$	80,687

Commercial real-estate—collateral location by state:
Illinois	$	3,460,398	84.5	%
Wisconsin	346,230		8.5
Total primary markets	$	3,806,628	93.0	%
Florida	65,928		1.6
Arizona	17,927		0.4
Indiana	78,871		1.9
Other (no individual state greater than 0.5%)	124,629		3.1
Total	$	4,093,983	100.0	%


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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			% of				> 90 Days Past Due		Allowance For Loan
As of June 30, 2012			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,621,061	25.6	%	$	27,911	$	—	$	17,477
Franchise	178,619		2.8		1,792		—		1,764
Mortgage warehouse lines of credit	123,804		2.0		—		—		913
Community Advantage—homeowner associations	73,289		1.2		—		—		183
Aircraft	22,803		0.4		428		—		151
Asset-based lending	489,207		7.7		342		—		5,457
Tax exempt	79,708		1.3		—		—		784
Leases	77,806		1.2		—		—		241
Other	1,842		—		—		—		13
Purchased non-covered commercial loans ⁽¹⁾	5,042		0.1		—		486		—
Total commercial	$	2,673,181	42.3	%	$	30,473	$	486	$	26,983
Commercial Real-Estate:
Residential construction	$	44,726	0.7	%	$	892	$	—	$	1,215
Commercial construction	156,695		2.5		3,011		—		3,666
Land	165,269		2.6		13,459		—		6,848
Office	570,434		9.0		4,796		—		6,176
Industrial	598,217		9.4		1,820		—		5,721
Retail	562,783		8.9		8,158		—		5,940
Multi-family	337,781		5.3		3,312		—		9,624
Mixed use and other	1,179,152		18.5		20,629		—		14,611
Purchased non-covered commercial real-estate ⁽¹⁾	51,462		0.8		—		2,232		—
Total commercial real-estate	$	3,666,519	57.7	%	$	56,077	$	2,232	$	53,801
Total commercial and commercial real-estate	$	6,339,700	100.0	%	$	86,550	$	2,718	$	80,784

Commercial real-estate—collateral location by state:
Illinois	$	3,015,007	82.2	%
Wisconsin	337,186		9.2
Total primary markets	$	3,352,193	91.4	%
Florida	56,479		1.5
Arizona	39,219		1.1
Indiana	48,682		1.3
Other (no individual state greater than 0.5%)	169,946		4.7
Total	$	3,666,519	100.0	%


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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; 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. As a result of higher specific impairment reserves within the overall commercial portfolio, our allowance for loan losses in our commercial loan portfolio is $28.7 million as of June 30, 2013 compared to $27.0 million as of June 30, 2012 .

Our commercial real-estate 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 metropolitan area and southeastern Wisconsin, 93.0% of our commercial

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real-estate loan portfolio is located in this region. Commercial real-estate market conditions continued to be under stress in the second quarter of 2013 , however we have been able to effectively manage our total non-performing commercial real-estate loans. As of June 30, 2013 , our allowance for loan losses related to this portfolio is $52.0 million compared to $53.8 million as of June 30, 2012 .

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. 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. Amounts advanced with respect to any particular mortgage loan are usually required to be repaid within 21 days. Due to the continuation of the late 2012 robust refinance market into 2013 as well as the general improvement in the overall economy (increased housing starts, home sales and median price of homes) mortgage warehouse lines increased to $174.4 million as of June 30, 2013 from $123.8 million as of June 30, 2012 . Our allowance for loan losses with respect to these loans is $1.6 million as of June 30, 2013 .

Home equity loans. Our home equity loans and lines of credit are originated by each of our banks in their local markets where we have a strong understanding of the underlying real estate value. Our banks monitor and manage these loans, and we conduct an automated review of all home equity loans and lines of credit at least twice per year. This review collects current credit performance for each home equity borrower and identifies situations where the credit strength of the borrower is declining, or where there are events that may influence repayment, such as tax liens or judgments. Our banks use this information to manage loans that may be higher risk and to determine whether to obtain additional credit information or updated property valuations. As a result of this work and general market conditions, we have modified our home equity offerings and changed our policies regarding home equity renewals and requests for subordination. In a limited number of situations, the unused availability on home equity lines of credit was frozen.

The rates we offer on new home equity lending are based on several factors, including appraisals and valuation due diligence, in order to reflect inherent risk, and we place additional scrutiny on larger home equity requests. In a limited number of cases, we issue home equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined basis. It is not our practice to advance more than 85% of the appraised value of the underlying asset, which ratio we refer to as the loan-to-value ratio, or LTV ratio, and a majority of the credit we previously extended, when issued, had an LTV ratio of less than 80%.

Our home equity loan portfolio has performed well in light of the deterioration in the overall residential real-estate market. The number of new home equity line of credit commitments originated by us has decreased due to declines in housing valuations that have decreased the amount of equity against which homeowners may borrow, and a decline in homeowners’ desire to use their remaining equity as collateral.

Residential real-estate mortgages. Our residential real-estate portfolio predominantly includes one to four-family adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. As of June 30, 2013 , our residential loan portfolio totaled $385.0 million , or 3% of our total outstanding loans.

Our adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southeastern Wisconsin or vacation homes owned by local residents, and may have terms based on differing indexes. These adjustable rate mortgages are often non-agency conforming because the outstanding balance of these loans exceeds the maximum balance that can be sold into the secondary market. Adjustable rate mortgage loans decrease the interest rate risk we face on our mortgage portfolio. However, this risk is not eliminated because, among other things, such loans generally provide for periodic and lifetime limits on the interest rate adjustments. Additionally, adjustable rate mortgages may pose a higher risk of delinquency and default because they require borrowers to make larger payments when interest rates rise. To date, we have not seen a significant elevation in delinquencies and foreclosures in our residential loan portfolio. As of June 30, 2013 , $10.2 million of our residential real-estate mortgages, or 2.7% of our residential real-estate loan portfolio, excluding loans acquired with evidence of credit quality deterioration since origination, were classified as nonaccrual, $3.7 million were 30 to 89 days past due (1.0%) and $368.7 million were current ( 96.3% ). We believe that since our loan portfolio consists primarily of locally originated loans, and since the majority of our borrowers are longer-term customers with lower LTV ratios, we face a relatively low risk of borrower default and delinquency.

While we generally do not originate loans for our own portfolio with long-term fixed rates due to interest rate risk considerations, we can accommodate customer requests for fixed rate loans by originating such loans and then selling them into the secondary market, for which we receive fee income, or by selectively retaining certain of these loans within the banks’ own portfolios where they are non-agency conforming, or where the terms of the loans make them favorable to retain. A portion of the loans we sold into the secondary market were sold with the servicing of those loans retained. The amount of loans serviced for others as of

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June 30, 2013 and 2012 was $996.6 million and $980.5 million , respectively. All other mortgage loans sold into the secondary market were sold without the retention of servicing rights.

It is not our current practice to underwrite, and we have no plans to underwrite, subprime, Alt A, no or little documentation loans, or option ARM loans. As of June 30, 2013 , approximately $17.7 million of our mortgage loans consist of interest-only loans.

Premium finance receivables – commercial. FIFC and FIFC Canada originated approximately $1.3 billion in commercial insurance premium finance receivables during the second quarter of 2013 compared to $1.1 billion in the same period of 2012. During the six months ending June 30, 2013 and 2012, FIFC and FIFC Canada originated approximately $2.5 billion and $2.1 billion, respectively, in commercial insurance premium finance receivables. FIFC and FIFC Canada makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by working through independent medium and large insurance agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance.

During the second quarter of 2012, the Company completed its acquisition of Macquarie Premium Funding Inc. Through this transaction, the Company acquired approximately $213 million of gross premium finance receivables outstanding. See Note 3 of the Consolidated Financial Statements presented under Item 8 of this report for a discussion of this acquisition.

This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending through third party agents and brokers and because the borrowers are located nationwide and in Canada, this segment is more susceptible to third party fraud than relationship lending. The Company performs ongoing credit and other reviews of the agents and brokers, and performs various internal audit steps to mitigate against the risk of any fraud.

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. 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. During the first and second quarter of 2012, the Company completely paid-off these notes. See Note 8 of the Consolidated Financial Statements presented under Item 8 of this report for a discussion of this securitization transaction.

Premium finance receivables—life insurance. In 2007, FIFC began financing life insurance policy premiums generally for high net-worth individuals. In 2009, FIFC expanded this niche lending business segment when it purchased a portfolio of domestic life insurance premium finance loans for a total aggregate purchase price of $745.9 million.

FIFC originated approximately $136.3 million in life insurance premium finance receivables in the second quarter of 2013 as compared to $96.4 million of originations in the second quarter of 2012. For the six months ending June 30, 2013 and 2012, FIFC originated $222.0 million and $209.3 million, respectively, in life insurance premium finance receivables. The Company has experienced increased competition and pricing pressure within the current market in 2013. 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.

Indirect consumer loans. As part of its strategy to pursue specialized earning asset niches to augment loan generation within the Banks’ target markets, the Company established fixed-rate automobile loan financing at Hinsdale Bank funded indirectly through unaffiliated automobile dealers. The risks associated with the Company’s portfolios are diversified among many individual borrowers. Like other consumer loans, the indirect consumer loans are subject to the Banks’ established credit standards. Management regards substantially all of these loans as prime quality loans. In the fourth quarter of 2012, the Company ceased the origination of indirect automobile loans through Hinsdale Bank as a result of competitive pricing pressures.

Other Loans. Included in the other loan category is a wide variety of personal and consumer loans to individuals as well as high yielding short-term accounts receivable financing to clients in the temporary staffing industry located throughout the United States. The Banks originate consumer loans in order to provide a wider range of financial services to their customers.

Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans due to the type and nature of the collateral. Additionally, short-term accounts receivable financing may also involve greater credit risks than generally associated with the loan portfolios of more traditional community banks depending on the marketability of the collateral.

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Variable Rate Loan Repricing and Rate Floors

The following table classifies the commercial and commercial real-estate loan portfolio at June 30, 2013 by date at which the loans reprice and the type of rate:



As of June 30, 2013	One year or less		From one to five years		Over five years
(Dollars in thousands)	One year or less		From one to five years		Over five years		Total
Commercial
Fixed rate	$	75,998	$	346,566	$	138,859	$	561,423
Variable rate
With floor feature	707,380		—		—		707,380
Without floor feature	1,850,708		1,065		—		1,851,773
Total commercial	2,634,086		347,631		138,859		3,120,576
Commercial real-estate
Fixed rate	$	409,772	$	1,231,417	$	140,158	$	1,781,347
Variable rate
With floor feature	649,545		7,466		—		657,011
Without floor feature	1,630,526		25,099		—		1,655,625
Total commercial real-estate	2,689,843		1,263,982		140,158		4,093,983

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 10 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 Accrual (Loss Potential distinct possibility that the bank may sustain some loss, but no discernable impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt)

8 Rating —		Substandard Non-accrual (Loss Potential well documented probability of loss, including potential impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt)

9 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)

10 Rating —		Loss (fully charged-off) (Loans in this category are considered fully 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 and/or concurrence credit officer. 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

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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 are also reviewed by our internal audit staff.

The Company’s problem loan reporting system automatically includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible or an impairment reserve may be established. The Company’s impairment analysis utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real-estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions. An appraisal is ordered at least once a year for these loans, or 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 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The 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.

The Company’s approach to workout plans and restructuring loans is built on the credit-risk rating process. A modification of a loan with an existing credit risk rating of six or worse or a modification of any other credit, which will result in a restructured credit risk rating of six or worse must be reviewed for troubled debt restructuring (“TDR”) classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of a loan is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is five or better both before and after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is five or better are not experiencing financial difficulties and therefore, are not considered TDRs.

TDRs, which are by definition considered impaired loans, are reviewed at the time of modification and on a quarterly basis to determine if a specific reserve is needed. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific reserve.

For non-TDR loans, 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 loan is considered impaired, and a specific impairment reserve analysis is performed and if necessary, a specific reserve is established. In determining the appropriate reserve for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

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Non-performing Assets, excluding covered assets

The following table sets forth Wintrust’s non-performing assets, excluding covered assets, and loans acquired with credit quality deterioration since origination, as of the dates shown:



(Dollars in thousands)	June 30, 2013			March 31, 2013			December 31, 2012			June 30, 2012
Loans past due greater than 90 days and still accruing ⁽¹⁾ :
Commercial	$	100		$	—		$	—		$	—
Commercial real-estate	3,263			—			—			—
Home equity	25			—			100			—
Residential real-estate	—			—			—			—
Premium finance receivables—commercial	6,671			7,677			10,008			5,184
Premium finance receivables—life insurance	1,212			2,256			—			—
Indirect consumer	217			145			189			234
Consumer and other	—			—			32			—
Total loans past due greater than 90 days and still accruing	11,488			10,078			10,329			5,418
Non-accrual loans ⁽²⁾ :
Commercial	17,248			18,373			21,737			30,473
Commercial real-estate	54,825			61,807			49,973			56,077
Home equity	12,322			14,891			13,423			10,583
Residential real-estate	10,213			9,606			11,728			9,387
Premium finance receivables—commercial	13,605			12,068			9,302			7,404
Premium finance receivables—life insurance	16			20			25			—
Indirect consumer	91			95			55			132
Consumer and other	1,677			1,695			1,511			1,446
Total non-accrual loans	109,997			118,555			107,754			115,502
Total non-performing loans:
Commercial	17,348			18,373			21,737			30,473
Commercial real-estate	58,088			61,807			49,973			56,077
Home equity	12,347			14,891			13,523			10,583
Residential real-estate	10,213			9,606			11,728			9,387
Premium finance receivables—commercial	20,276			19,745			19,310			12,588
Premium finance receivables—life insurance	1,228			2,276			25			—
Indirect consumer	308			240			244			366
Consumer and other	1,677			1,695			1,543			1,446
Total non-performing loans	$	121,485		$	128,633		$	118,083		$	120,920
Other real estate owned	46,169			50,593			56,174			66,532
Other real estate owned—obtained in acquisition	10,856			5,584			6,717			6,021
Other repossessed assets	1,032			4,315			—			—
Total non-performing assets	$	179,542		$	189,125		$	180,974		$	193,473
TDRs performing under the contractual terms of the loan agreement	93,810			97,122			106,119			156,590
Total non-performing loans by category as a percent of its own respective category’s period-end balance:
Commercial	0.56		%	0.64		%	0.75		%	1.14		%
Commercial real-estate	1.42			1.55			1.29			1.53
Home equity	1.63			1.96			1.72			1.29
Residential real-estate	2.65			2.66			3.19			2.50
Premium finance receivables—commercial	0.94			0.99			0.97			0.69
Premium finance receivables—life insurance	0.07			0.13			—			—
Indirect consumer	0.48			0.35			0.32			0.51
Consumer and other	1.56			1.74			1.48			1.34
Total non-performing loans	0.97		%	1.08		%	1.00		%	1.08		%
Total non-performing assets, as a percentage of total assets	1.02		%	1.11		%	1.03		%	1.17		%
Allowance for loan losses as a percentage of total non-performing loans	87.95		%	85.79		%	90.91		%	92.56		%

(1) As of the dates shown, no TDRs were past due greater than 90 days and still accruing interest.

(2) Non-accrual loans included TDRs totaling $32.4 million , $19.2 million , $20.4 million and $15.7 million as of June 30, 2013, March 31, 2013, December 31, 2012 and June 30, 2012, respectively.

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Non-performing Commercial and Commercial Real-Estate

Commercial non-performing loans totaled $17.3 million as of June 30, 2013 compared to $21.7 million as of December 31, 2012 and $30.5 million as of June 30, 2012 . Commercial real-estate non-performing loans totaled $58.1 million as of June 30, 2013 compared to $50.0 million as of December 31, 2012 and $56.1 million as of June 30, 2012 .

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Non-performing Residential Real-Estate and Home Equity

Non-performing residential real-estate and home equity loans totaled $22.6 million as of June 30, 2013 . The balance decreased $2.7 million from December 31, 2012 and increased $2.6 million from June 30, 2012 . The June 30, 2013 non-performing balance is comprised of $10.2 million of residential real-estate ( 56 individual credits) and $12.3 million of home equity loans ( 59 individual credits). On average, this is approximately eight non-performing residential real-estate loans and home equity loans per chartered bank within the Company. The Company believes control and collection of these loans is very manageable. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Non-performing Commercial Premium Finance Receivables

The table below presents the level of non-performing property and casualty premium finance receivables as of June 30, 2013 and 2012, and the amount of net charge-offs for the quarters then ended.



(Dollars in thousands)	June 30, 2013			June 30, 2012
Non-performing premium finance receivables—commercial	$	20,276		$	12,588
- as a percent of premium finance receivables—commercial outstanding	0.94		%	0.69		%
Net charge-offs of premium finance receivables—commercial	$	1,027		$	591
- annualized as a percent of average premium finance receivables—commercial	0.20		%	0.15		%

Fluctuations in this category may occur due to timing and nature of account collections from insurance carriers. The Company’s underwriting standards, regardless of the condition of the economy, have remained consistent. We anticipate that net charge-offs and non-performing asset levels in the near term will continue to be at levels that are within acceptable operating ranges for this category of loans. Management is comfortable with administering the collections at this level of non-performing property and casualty premium finance receivables and believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Due to the nature of collateral for commercial premium finance receivables, it customarily takes 60-150 days to convert the collateral into cash. Accordingly, the level of non-performing commercial premium finance receivables is not necessarily indicative of the loss inherent in the portfolio. In the event of default, Wintrust has the power to cancel the insurance policy and collect the unearned portion of the premium from the insurance carrier. In the event of cancellation, the cash returned in payment of the unearned premium by the insurer should generally be sufficient to cover the receivable balance, the interest and other charges due. Due to notification requirements and processing time by most insurance carriers, many receivables will become delinquent beyond 90 days while the insurer is processing the return of the unearned premium. Management continues to accrue interest until maturity as the unearned premium is ordinarily sufficient to pay-off the outstanding balance and contractual interest due.

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Loan Portfolio Aging

The following table shows, as of June 30, 2013 , only 1.0% of the entire portfolio, excluding covered loans, is non-accrual or greater than 90 days past due and still accruing interest with only 0.9% , either one or two payments past due. In total, 98.1% of the Company’s total loan portfolio, excluding covered loans, as of June 30, 2013 is current according to the original contractual terms of the loan agreements.

The tables below show the aging of the Company’s loan portfolio at June 30, 2013 and March 31, 2013 :



			90+ days		60-89		30-59
As of June 30, 2013			and still		days past		days past
(Dollars in thousands)	Nonaccrual		accruing		due		due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	15,432	$	—	$	2,940	$	9,933	$	1,423,823	$	1,452,128
Franchise	—		—		—		450		201,790		202,240
Mortgage warehouse lines of credit	—		—		—		—		174,422		174,422
Community Advantage—homeowners association	—		—		—		—		83,003		83,003
Aircraft	—		—		—		—		13,174		13,174
Asset-based lending	1,816		100		2,305		7,127		919,106		930,454
Tax exempt	—		—		—		—		151,492		151,492
Leases	—		—		—		—		102,409		102,409
Other	—		—		—		—		98		98
Purchased non-covered commercial ⁽¹⁾	—		190		—		1,632		9,334		11,156
Total commercial	17,248		290		5,245		19,142		3,078,651		3,120,576
Commercial real-estate
Residential construction	2,659		3,263		379		—		32,998		39,299
Commercial construction	7,857		—		1,271		70		128,845		138,043
Land	5,742		—		330		4,141		106,640		116,853
Office	6,324		—		4,210		2,720		584,503		597,757
Industrial	5,773		—		4,597		4,984		600,147		615,501
Retail	7,471		—		1,760		2,031		596,129		607,391
Multi-family	3,337		—		401		3,149		526,681		533,568
Mixed use and other	15,662		—		2,183		10,379		1,349,936		1,378,160
Purchased non-covered commercial real-estate ⁽¹⁾	—		6,466		3,430		6,226		51,289		67,411
Total commercial real-estate	54,825		9,729		18,561		33,700		3,977,168		4,093,983
Home equity	12,322		25		2,085		5,821		738,007		758,260
Residential real-estate	10,213		—		1,896		1,836		368,696		382,641
Purchased non-covered residential real-estate ⁽¹⁾	—		—		46		260		2,014		2,320
Premium finance receivables
Commercial insurance loans	13,605		6,671		6,592		11,386		2,127,480		2,165,734
Life insurance loans	16		1,212		7,896		—		1,337,573		1,346,697
Purchased life insurance loans ⁽¹⁾	—		—		—		—		474,450		474,450
Indirect consumer	91		217		28		428		63,757		64,521
Consumer and other	1,677		—		484		156		105,055		107,372
Purchased non-covered consumer and other ⁽¹⁾	—		28		—		—		310		338
Total loans, net of unearned income, excluding covered loans	$	109,997	$	18,172	$	42,833	$	72,729	$	12,273,161	$	12,516,892
Covered loans	3,982		97,000		10,568		4,852		338,200		454,602
Total loans, net of unearned income	$	113,979	$	115,172	$	53,401	$	77,581	$	12,611,361	$	12,971,494


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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Aging as a % of Loan Balance: As of June 30, 2013	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Commercial
Commercial and industrial	1.1	%	—		0.2	%	0.7	%	98.0	%	100.0	%
Franchise	—		—		—		0.2		99.8		100.0
Mortgage warehouse lines of credit	—		—		—		—		100.0		100.0
Community Advantage—homeowners association	—		—		—		—		100.0		100.0
Aircraft	—		—		—		—		100.0		100.0
Asset-based lending	0.2		—		0.2		0.8		98.8		100.0
Tax exempt	—		—		—		—		100.0		100.0
Leases	—		—		—		—		100.0		100.0
Other	—		—		—		—		100.0		100.0
Purchased non-covered commercial ⁽¹⁾	—		1.7		—		14.6		83.7		100.0
Total commercial	0.6		—		0.2		0.6		98.6		100.0
Commercial real-estate
Residential construction	6.8		8.3		1.0		—		83.9		100.0
Commercial construction	5.7		—		0.9		0.1		93.3		100.0
Land	4.9		—		0.3		3.5		91.3		100.0
Office	1.1		—		0.7		0.5		97.7		100.0
Industrial	0.9		—		0.7		0.8		97.6		100.0
Retail	1.2		—		0.3		0.3		98.2		100.0
Multi-family	0.6		—		0.1		0.6		98.7		100.0
Mixed use and other	1.1		—		0.2		0.8		97.9		100.0
Purchased non-covered commercial real-estate ⁽¹⁾	—		9.6		5.1		9.2		76.1		100.0
Total commercial real-estate	1.3		0.2		0.5		0.8		97.2		100.0
Home equity	1.6		—		0.3		0.8		97.3		100.0
Residential real-estate	2.7		—		0.5		0.5		96.3		100.0
Purchased non-covered residential real-estate ⁽¹⁾	—		—		2.0		11.2		86.8		100.0
Premium finance receivables
Commercial insurance loans	0.6		0.3		0.3		0.5		98.3		100.0
Life insurance loans	—		0.1		0.6		—		99.3		100.0
Purchased life insurance loans ⁽¹⁾	—		—		—		—		100.0		100.0
Indirect consumer	0.1		0.3		—		0.7		98.9		100.0
Consumer and other	1.6		—		0.5		0.1		97.8		100.0
Purchased non-covered consumer and other ⁽¹⁾	—		8.3		—		—		91.7		100.0
Total loans, net of unearned income, excluding covered loans	0.9	%	0.1	%	0.3	%	0.6	%	98.1	%	100.0	%
Covered loans	0.9		21.3		2.3		1.1		74.4		100.0
Total loans, net of unearned income	0.9	%	0.9	%	0.4	%	0.6	%	97.2	%	100.0	%


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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As of March 31, 2013 (Dollars in thousands)	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	17,717	$	—	$	1,150	$	16,710	$	1,533,999	$	1,569,576
Franchise	125		—		—		76		194,310		194,511
Mortgage warehouse lines of credit	—		—		—		—		131,970		131,970
Community Advantage—homeowners association	—		—		—		—		82,763		82,763
Aircraft	—		—		—		—		14,112		14,112
Asset-based lending	531		—		483		5,518		680,723		687,255
Tax exempt	—		—		—		—		89,508		89,508
Leases	—		—		—		844		97,186		98,030
Other	—		—		—		—		127		127
Purchased non-covered commercial ⁽¹⁾	—		449		—		—		4,394		4,843
Total commercial	18,373		449		1,633		23,148		2,829,092		2,872,695
Commercial real-estate
Residential construction	3,094		—		945		—		33,044		37,083
Commercial construction	1,086		—		9,521		—		151,751		162,358
Land	17,976		—		—		11,563		104,039		133,578
Office	3,564		—		8,990		4,797		567,333		584,684
Industrial	7,137		—		—		986		587,402		595,525
Retail	7,915		—		6,970		5,953		565,963		586,801
Multi-family	2,088		—		1,036		4,315		505,346		512,785
Mixed use and other	18,947		—		1,573		13,560		1,288,754		1,322,834
Purchased non-covered commercial real-estate ⁽¹⁾	—		1,866		251		3,333		49,367		54,817
Total commercial real-estate	61,807		1,866		29,286		44,507		3,852,999		3,990,465
Home equity	14,891		—		1,370		4,324		738,633		759,218
Residential real-estate	9,606		—		782		8,680		340,751		359,819
Purchased non-covered residential real-estate ⁽¹⁾	—		—		198		—		635		833
Premium finance receivables
Commercial insurance loans	12,068		7,677		4,647		19,323		1,953,445		1,997,160
Life insurance loans	20		2,256		—		1,340		1,250,165		1,253,781
Purchased life insurance loans ⁽¹⁾	—		—		—		—		499,731		499,731
Indirect consumer	95		145		127		221		68,657		69,245
Consumer and other	1,695		—		160		493		92,379		94,727
Purchased non-covered consumer and other ⁽¹⁾	—		—		—		20		2,618		2,638
Total loans, net of unearned income, excluding covered loans	$	118,555	$	12,393	$	38,203	$	102,056	$	11,629,105	$	11,900,312
Covered loans	1,820		115,482		1,454		12,268		387,637		518,661
Total loans, net of unearned income	$	120,375	$	127,875	$	39,657	$	114,324	$	12,016,742	$	12,418,973


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

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Aging as a % of Loan Balance: As of March 31, 2013	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Commercial
Commercial and industrial	1.1	%	—	%	0.1	%	1.1	%	97.7	%	100.0	%
Franchise	0.1		—		—		—		99.9		100.0
Mortgage warehouse lines of credit	—		—		—		—		100.0		100.0
Community Advantage—homeowners association	—		—		—		—		100.0		100.0
Aircraft	—		—		—		—		100.0		100.0
Asset-based lending	0.1		—		0.1		0.8		99.0		100.0
Tax exempt	—		—		—		—		100.0		100.0
Leases	—		—		—		0.9		99.1		100.0
Other	—		—		—		—		100.0		100.0
Purchased non-covered commercial ⁽¹⁾	—		9.3		—		—		90.7		100.0
Total commercial	0.6		—		0.1		0.8		98.5		100.0
Commercial real-estate
Residential construction	8.3		—		2.6		—		89.1		100.0
Commercial construction	0.7		—		5.9		—		93.4		100.0
Land	13.5		—		—		8.7		77.8		100.0
Office	0.6		—		1.5		0.8		97.1		100.0
Industrial	1.2		—		—		0.2		98.6		100.0
Retail	1.4		—		1.2		1.0		96.4		100.0
Multi-family	0.4		—		0.2		0.8		98.6		100.0
Mixed use and other	1.4		—		0.1		1.0		97.5		100.0
Purchased non-covered commercial real-estate ⁽¹⁾	—		3.4		0.5		6.1		90.0		100.0
Total commercial real-estate	1.6		0.1		0.7		1.1		96.5		100.0
Home equity	2.0		—		0.2		0.6		97.2		100.0
Residential real-estate	2.7		—		0.2		2.4		94.7		100.0
Purchased non-covered residential real-estate ⁽¹⁾	—		—		23.8		—		76.2		100.0
Premium finance receivables
Commercial insurance loans	0.6		0.4		0.2		1.0		97.8		100.0
Life insurance loans	—		0.2		—		0.1		99.7		100.0
Purchased life insurance loans ⁽¹⁾	—		—		—		—		100.0		100.0
Indirect consumer	0.1		0.2		0.2		0.3		99.2		100.0
Consumer and other	1.8		—		0.2		0.5		97.5		100.0
Purchased non-covered consumer and other ⁽¹⁾	—		—		—		0.8		99.2		100.0
Total loans, net of unearned income, excluding covered loans	1.0	%	0.1	%	0.3	%	0.9	%	97.7	%	100.0	%
Covered loans	0.4		22.3		0.3		2.4		74.6		100.0
Total loans, net of unearned income	1.0	%	1.0	%	0.3	%	0.9	%	96.8	%	100.0	%


(1)	Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

As of June 30, 2013 , only $42.8 million of all loans, excluding covered loans, or 0.3% , were 60 to 89 days past due and $72.7 million or 0.6% , were 30 to 59 days (or one payment) past due. As of March 31, 2013 , $38.2 million of all loans, excluding covered loans, or 0.3% , were 60 to 89 days past due and $102.1 million , or 0.9% , were 30 to 59 days (or one payment) past due. The majority of the commercial and commercial real-estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly

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basis. Commercial and commercial real estate loans with delinquencies from 30 to 89 days past-due decreased $21.9 million since March 31, 2013 .

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at June 30, 2013 that are current with regard to the contractual terms of the loan agreement represent 97.3% of the total home equity portfolio. Residential real-estate loans, excluding loans acquired with evidence of credit quality deterioration since origination, at June 30, 2013 that are current with regards to the contractual terms of the loan agreements comprise 96.3% of total residential real-estate loans outstanding.

Nonperforming Loans Rollforward

The table below presents a summary of non-performing loans, excluding covered loans, and loans acquired with credit quality deterioration since origination, for the periods presented:



	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(Dollars in thousands)	2013			2012			2013			2012
Balance at beginning of period	$	128,633		$	113,621		$	118,083		$	120,084
Additions, net	21,348			35,860			49,378			53,727
Return to performing status	(817		)	(1,116		)	(817		)	(2,038		)
Payments received	(10,552		)	(9,823		)	(14,673		)	(14,463		)
Transfer to OREO	(5,271		)	(6,555		)	(12,161		)	(13,156		)
Charge-offs	(11,325		)	(11,637		)	(20,473		)	(22,944		)
Net change for niche loans ⁽¹⁾	(531		)	570			2,148			(290		)
Balance at end of period	$	121,485		$	120,920		$	121,485		$	120,920


(1)	This includes activity for premium finance receivables and indirect consumer loans.

See Note 7 of the Financial Statements presented under Item 1 of this report for further discussion of non-performing loans and the loan aging during the respective periods.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of the probable and reasonably estimable loan losses that our loan portfolio is expected to incur. The allowance for loan losses is determined quarterly using a methodology that incorporates important risk characteristics of each loan, as described below under “ How We Determine the Allowance for Credit Losses .” This process is subject to 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.

Management determined that the allowance for loan losses was appropriate at June 30, 2013 , and that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. This process involves a high degree of management judgment, however the allowance for credit losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total nonperforming loans, portfolio mix, portfolio concentrations, current geographic risks and overall levels of net charge-offs. Historical trending of both the Company’s results and the industry peers is also reviewed to analyze comparative significance.

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Allowance for Credit Losses, excluding covered loans

The following table summarizes the activity in our allowance for credit losses during the periods indicated.



	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2013			2012			2013			2012
Allowance for loan losses at beginning of period	$	110,348		$	111,023		$	107,351		$	110,381
Provision for credit losses	15,133			18,394			30,500			33,548
Other adjustments	(309		)	(272		)	(538		)	(510		)
Reclassification from/(to) allowance for unfunded lending-related commitments	65			175			(148		)	327
Charge-offs:
Commercial	1,093			6,046			5,633			9,308
Commercial real-estate	14,947			9,226			18,246			17,455
Home equity	1,785			1,732			4,182			4,322
Residential real-estate	517			388			2,245			563
Premium finance receivables—commercial	1,306			744			2,374			1,581
Premium finance receivables—life insurance	—			3			—			16
Indirect consumer	16			33			48			84
Consumer and other	112			51			209			361
Total charge-offs	19,776			18,223			32,937			33,690
Recoveries:
Commercial	268			246			563			503
Commercial real-estate	584			174			952			305
Home equity	171			171			333			333
Residential real-estate	18			3			23			5
Premium finance receivables—commercial	279			153			564			430
Premium finance receivables—life insurance	—			18			9			39
Indirect consumer	17			21			32			51
Consumer and other	44			37			138			198
Total recoveries	1,381			823			2,614			1,864
Net charge-offs	(18,395		)	(17,400		)	(30,323		)	(31,826		)
Allowance for loan losses at period end	$	106,842		$	111,920		$	106,842		$	111,920
Allowance for unfunded lending-related commitments at period end	3,563			12,903			3,563			12,903
Allowance for credit losses at period end	$	110,405		$	124,823		$	110,405		$	124,823
Annualized net charge-offs by category as a percentage of its own respective category’s average:
Commercial	0.11		%	0.91		%	0.35		%	0.71		%
Commercial real-estate	1.42			1.01			0.87			0.97
Home equity	0.85			0.76			1.01			0.95
Residential real-estate	0.26			0.20			0.59			0.16
Premium finance receivables—commercial	0.20			0.14			0.18			0.15
Premium finance receivables—life insurance	—			—			—			—
Indirect consumer	(0.01		)	0.07			0.05			0.10
Consumer and other	0.24			0.05			0.12			0.27
Total loans, net of unearned income, excluding covered loans	0.59		%	0.62		%	0.49		%	0.58		%
Net charge-offs as a percentage of the provision for credit losses	121.57		%	94.60		%	99.42		%	94.87		%
Loans at period-end, excluding covered loans							$	12,516,892		$	11,202,842
Allowance for loan losses as a percentage of loans at period end							0.85		%	1.00		%
Allowance for credit losses as a percentage of loans at period end							0.88		%	1.11		%

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of an allowance for loan losses, which is determined with respect to loans that we have originated, and an allowance for lending-related commitments. Our allowance for lending-related commitments is determined with respect to funds that we have committed to lend but for which funds have not yet been disbursed and is computed using a methodology similar to that used to determine the allowance for loan losses. The allowance for unfunded lending-related commitments totaled $3.6 million as of June 30, 2013 compared to $12.9

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million as of June 30, 2012. The decrease since the prior period was primarily attributable to the funding in the second quarter of 2013 of a letter of credit, which individually resulted in a decrease of $11.7 million in the allowance for unfunded lending-related commitments.

Additions to the allowance for loan losses are charged to earnings through the provision for credit losses. Charge-offs represent the amount of loans that have been determined to be uncollectible during a given period, and are deducted from the allowance for loan losses, and recoveries represent the amount of collections received from loans that had previously been charged off, and are credited to the allowance for loan losses. See Note 7 of the Financial Statements presented under Item 1 of this report for further discussion of activity within the allowance for loan losses during the period and the relationship with respective loan balances for each loan category and the total loan portfolio, excluding covered loans.

How We Determine the Allowance for Credit Losses

The allowance for loan losses includes an element for estimated probable but undetected losses and for imprecision in the credit risk models used to calculate the allowance. As part of the Problem Loan Reporting system review, the Company analyzes the loan for purposes of calculating our specific impairment reserves and a general reserve. See Note 7 of the Financial Statements presented under Item 1 of this report for further discussion of the specific impairment reserve and general reserve as it relates to the allowance for credit losses for each loan category and the total loan portfolio, excluding covered loans.

Specific Impairment Reserves:

Loans with a credit risk rating of a 6 through 9 are reviewed on a monthly basis to determine if (a) an amount is deemed uncollectible (a charge-off) or (b) it is probable that the Company will be unable to collect amounts due in accordance with the original contractual terms of the loan (impaired loan). If a loan is impaired, the carrying amount of the loan is compared to the expected payments to be reserved, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific impairment reserve.

At June 30, 2013 , the Company had $190.1 million of impaired loans with $96.5 million of this balance requiring $11.8 million of specific impairment reserves. At March 31, 2013 , the Company had $203.6 million of impaired loans with $101.6 million of this balance requiring $14.6 million of specific impairment reserves. The most significant fluctuations in impaired loans with specific impairment from March 31, 2013 to June 30, 2013 occurred within the land portfolios. The recorded investment of the land portfolio decreased $9.1 million , which was primarily the result of the charge-off of two credits totaling $8.3 million , which previously requiring a specific impairment. See Note 7 of the Financial Statements presented under Item 1 of this report for further discussion of impaired loans and the related specific impairment reserve.

General Reserves:

For loans with a credit risk rating of 1 through 7, reserves are established based on the type of loan collateral, if any, and the assigned credit risk rating. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on the average historical loss experience over a five-year period, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change.

We determine this component of the allowance for loan losses by classifying each loan into (i) categories based on the type of collateral that secures the loan (if any), and (ii) one of ten categories based on the credit risk rating of the loan, as described above under “ Past Due Loans and Non-Performing Assets .” Each combination of collateral and credit risk rating is then assigned a specific loss factor that incorporates the following factors:


•	historical underwriting loss factor;


•	changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;


•	changes in national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio;


•	changes in the nature and volume of the portfolio and in the terms of the loans;


•	changes in the experience, ability, and depth of lending management and other relevant staff;

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•	changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;


•	changes in the quality of the bank’s loan review system;


•	changes in the underlying collateral for collateral dependent loans;


•	the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and


•	the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the bank’s existing portfolio.

In the second quarter of 2012, the Company modified its historical loss experience analysis to incorporate three-year average loss rate assumptions. Prior to this, the Company employed a five-year average loss rate assumption analysis. The three-year average loss rate assumption analysis is computed for each of the Company’s collateral codes. The historical loss experience is combined with the specific loss factor for each combination of collateral and credit risk rating which is then applied to each individual loan balance to determine an appropriate general reserve. The historical loss rates are updated on a quarterly basis and are driven by the performance of the portfolio and any changes to the specific loss factors are driven by management judgment and analysis of the factors described above.

The reasons for the migration to a three-year average historical loss rate from the previous five-year average historical loss rate analysis are:

•

The three-year average is more relevant to the inherent losses in the core bank loan portfolio as the charge-off rates from earlier periods are no longer as relevant in comparison to the more recent periods. Earlier periods had historically low credit losses which then built up to a peak in credit losses as a result of the stressed economic environment and depressed real estate valuations that affected both the U.S. economy, generally, and the Company’s local markets, specifically during that time. Since the end of 2009 there has been no evidence in the Company’s loan portfolio of a return to the level of charge-offs experienced at the height of the credit crisis.


•	Migrating to a three-year historical average loss rate reduces the need for management judgment factors related to national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio as the three year average is now more closely aligned with the credit risk in our portfolio today.

The Company also analyzes the four- and five-year average historical loss rates on a quarterly basis as a comparison.

Home Equity and Residential Real-Estate Loans:

The determination of the appropriate allowance for loan losses for residential real-estate and home equity loans differs slightly from the process used for commercial and commercial real-estate loans. The same credit risk rating system, Problem Loan Reporting system, collateral coding methodology and loss factor assignment are used. The only significant difference is in how the credit risk ratings are assigned to these loans.

The home equity loan portfolio is reviewed on a loan by loan basis by analyzing current FICO scores of the borrowers, line availability, recent line usage and the aging status of the loan. Certain of these factors, or combination of these factors, may cause a portion of the credit risk ratings of home equity loans across all banks to be downgraded. Similar to commercial and commercial real-estate loans, once a home equity loan’s credit risk rating is downgraded to a 6 through 9, the Company’s Managed Asset Division reviews and advises the subsidiary banks as to collateral valuations and as to the ultimate resolution of the credits that deteriorate to a non-accrual status to minimize losses.

Residential real-estate loans that are downgraded to a credit risk rating of 6 through 9 also enter the Problem Loan Reporting system and have the underlying collateral evaluated by the Managed Assets Division.

Premium Finance Receivables and Indirect Consumer Loans:

The determination of the appropriate allowance for loan losses for premium finance receivables and indirect consumer loans is based solely on the aging (collection status) of the portfolios. Due to the large number of generally smaller sized and homogenous credits in these portfolios, these loans are not individually assigned a credit risk rating. Loss factors are assigned to each delinquency category in order to calculate an allowance for credit losses. The allowance for loan losses for these categories is entirely a general reserve.

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Effects of Economic Recession and Real Estate Market:

The Company’s primary markets, which are mostly in suburban Chicago, have not experienced the same levels of credit deterioration in residential mortgage and home equity loans as certain other major metropolitan markets, such as Miami, Phoenix or Southern California, however the Company’s markets have clearly been under stress. As of June 30, 2013 , home equity loans and residential mortgages comprised 6% and 3% , respectively, of the Company’s total loan portfolio. At June 30, 2013 , approximately 3.2% of all of the Company’s residential mortgage loans, excluding covered loans and loans acquired with evidence of credit quality deterioration since origination, and approximately 1.9% of all of the Company’s home equity loans, are on nonaccrual status or more than one payment past due. Current delinquency statistics of these two portfolios, demonstrate that although there is stress in the Chicago metropolitan and southeastern Wisconsin markets, our portfolios of residential mortgages and home equity loans are performing reasonably well as reflected in the aging of the Company’s loan portfolio table shown earlier in this section.

Methodology in Assessing Impairment and Charge-off Amounts

In determining the amount of impairment or charge-offs associated with collateral dependent loans, the Company values the loan generally by starting with a valuation obtained from an appraisal of the underlying collateral and then deducting estimated selling costs to arrive at a net appraised value. We obtain the appraisals of the underlying collateral typically on an annual basis from one of a pre-approved list of independent, third party appraisal firms. Types of appraisal valuations include “as-is”, “as-complete”, “as-stabilized”, bulk, fair market, liquidation and “retail sell-out” values.

In many cases, the Company simultaneously values the underlying collateral by marketing the property to market participants interested in purchasing properties of the same type. If the Company receives offers or indications of interest, we will analyze the price and review market conditions to assess whether in light of such information the appraised value overstates the likely price and that a lower price would be a better assessment of the market value of the property and would enable us to liquidate the collateral. Additionally, the Company takes into account the strength of any guarantees and the ability of the borrower to provide value related to those guarantees in determining the ultimate charge-off or reserve associated with any impaired loans. Accordingly, the Company may charge-off a loan to a value below the net appraised value if it believes that an expeditious liquidation is desirable in the circumstance and it has legitimate offers or other indications of interest to support a value that is less than the net appraised value. Alternatively, the Company may carry a loan at a value that is in excess of the appraised value if the Company has a guarantee from a borrower that the Company believes has realizable value. In evaluating the strength of any guarantee, the Company evaluates the financial wherewithal of the guarantor, the guarantor’s reputation, and the guarantor’s willingness and desire to work with the Company. The Company then conducts a review of the strength of a guarantee on a frequency established as the circumstances and conditions of the borrower warrant.

In circumstances where the Company has received an appraisal but has no third party offers or indications of interest, the Company may enlist the input of realtors in the local market as to the highest valuation that the realtor believes would result in a liquidation of the property given a reasonable marketing period of approximately 90 days. To the extent that the realtors’ indication of market clearing price under such scenario is less than the net appraised valuation, the Company may take a charge-off on the loan to a valuation that is less than the net appraised valuation.

The Company may also charge-off a loan below the net appraised valuation if the Company holds a junior mortgage position in a piece of collateral whereby the risk to acquiring control of the property through the purchase of the senior mortgage position is deemed to potentially increase the risk of loss upon liquidation due to the amount of time to ultimately market the property and the volatile market conditions. In such cases, the Company may abandon its junior mortgage and charge-off the loan balance in full.

In other cases, the Company may allow the borrower to conduct a “short sale,” which is a sale where the Company allows the borrower to sell the property at a value less than the amount of the loan. Many times, it is possible for the current owner to receive a better price than if the property is marketed by a financial institution which the market place perceives to have a greater desire to liquidate the property at a lower price. To the extent that we allow a short sale at a price below the value indicated by an appraisal, we may take a charge-off beyond the value that an appraisal would have indicated.

Other market conditions may require a reserve to bring the carrying value of the loan below the net appraised valuation such as litigation surrounding the borrower and/or property securing our loan or other market conditions impacting the value of the collateral.

Having determined the net value based on the factors such as those noted above and compared that value to the book value of the loan, the Company arrives at a charge-off amount or a specific reserve included in the allowance for loan losses. In summary, for collateral dependent loans, appraisals are used as the fair value starting point in the estimate of net value. Estimated costs to sell are deducted from the appraised value to arrive at the net appraised value. Although an external appraisal is the primary source of valuation utilized for charge-offs on collateral dependent loans, alternative sources of valuation may become available between

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appraisal dates. As a result, we may utilize values obtained through these alternating sources, which include purchase and sale agreements, legitimate indications of interest, negotiated short sales, realtor price opinions, sale of the note or support from guarantors, as the basis for charge-offs. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. In addition, if an appraisal is not deemed current, a discount to appraised value may be utilized. Any adjustments from appraised value to net value are detailed and justified in an impairment analysis, which is reviewed and approved by the Company’s Managed Assets Division.

TDRs

At June 30, 2013 , the Company had $126.2 million in loans modified in TDRs. The $126.2 million in TDRs represents 167 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay. The balance increased from $116.3 million representing 167 credits at March 31, 2013 and decreased from $172.3 million representing 185 credits at June 30, 2012.

These actions were taken on a case-by-case basis working with these borrowers to find a concession that would assist them in retaining their businesses or their homes and attempt to keep these loans in an accruing status for the Company. Typical concessions include reduction of the loan interest rate to a rate considered lower than market and other modification of terms including forgiveness of all or a portion of the loan balance, extension of the maturity date, and/or modifications from principal and interest payments to interest-only payments for a certain period. See Note 7 of the Financial Statements presented under Item 1 of this report for further discussion regarding the effectiveness of these modifications in keeping the modified loans current based upon contractual terms.

Subsequent to its restructuring, any TDR with a below market rate concession that becomes nonaccrual, will remain classified by the Company as a TDR for its duration and will be included in the Company’s nonperforming loans. Each TDR was reviewed for impairment at June 30, 2013 and approximately $4.0 million of impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses. Additionally, at June 30, 2013 , the Company was committed to lend additional funds to borrowers totaling $792,000 under the contractual terms of TDRs.

The table below presents a summary of restructured loans for the respective periods, presented by loan category and accrual status:



	June 30,			March 31,			June 30,
(Dollars in thousands)	2013			2013			2012
Accruing TDRs:
Commercial	$	7,316		$	9,073		$	21,478
Commercial real-estate	82,072			83,396			128,662
Residential real-estate and other	4,422			4,653			6,450
Total accruing TDRs	$	93,810		$	97,122		$	156,590
Non-accrual TDRs: ⁽¹⁾
Commercial	$	1,904		$	2,764		$	1,562
Commercial real-estate	28,552			14,907			13,215
Residential real-estate and other	1,930			1,552			939
Total non-accrual TDRs	$	32,386		$	19,223		$	15,716
Total TDRs:
Commercial	$	9,220		$	11,837		$	23,040
Commercial real-estate	110,624			98,303			141,877
Residential real-estate and other	6,352			6,205			7,389
Total TDRs	$	126,196		$	116,345		$	172,306
Weighted-average contractual interest rate of TDRs	4.06		%	4.14		%	4.19		%


(1)	Included in total non-performing loans.

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TDR Rollforward

The table below presents a summary of TDRs as of June 30, 2013 and 2012, and shows the changes in the balance during those periods:



Three Months Ended June 30, 2013 (Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	11,837		$	98,303		$	6,205		$	116,345
Additions during the period	—			14,067			401			14,468
Reductions:
Charge-offs	(27		)	(371		)	(240		)	(638		)
Transferred to OREO and other repossessed assets	—			(670		)	—			(670		)
Removal of TDR loan status ⁽¹⁾	(2,231		)	—			—			(2,231		)
Payments received	(359		)	(705		)	(14		)	(1,078		)
Balance at period end	$	9,220		$	110,624		$	6,352		$	126,196



Three Months Ended June 30, 2012 ( Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	10,789		$	146,321		$	7,936		$	165,046
Additions during the period	12,765			7,860			29			20,654
Reductions:
Charge-offs	(161		)	(1,316		)	(294		)	(1,771		)
Transferred to OREO and other repossessed assets	—			—			—			—
Removal of TDR loan status ⁽¹⁾	(200		)	(1,414		)	(273		)	(1,887		)
Payments received	(153		)	(9,574		)	(9		)	(9,736		)
Balance at period end	$	23,040		$	141,877		$	7,389		$	172,306


(1)	Loan was previously classified as a TDR and subsequently performed in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate at the time of restructuring. Per our TDR policy, the TDR classification is removed.

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Six Months Ended June 30, 2013 (Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	17,995		$	102,415		$	6,063		$	126,473
Additions during the period	708			15,259			778			16,745
Reductions:
Charge-offs	(2,169		)	(1,743		)	(257		)	(4,169		)
Transferred to OREO and other repossessed assets	(3,800		)	(837		)	(103		)	(4,740		)
Removal of TDR loan status ⁽¹⁾	(2,840		)	—			—			(2,840		)
Payments received	(674		)	(4,470		)	(129		)	(5,273		)
Balance at period end	$	9,220		$	110,624		$	6,352		$	126,196



Six Months Ended June 30, 2012 ( Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	10,834		$	112,796		$	6,888		$	130,518
Additions during the period	12,883			46,379			1,089			60,351
Reductions:
Charge-offs	(161		)	(2,658		)	(294		)	(3,113		)
Transferred to OREO and other repossessed assets	—			(2,129		)	—			(2,129		)
Removal of TDR loan status ⁽¹⁾	(200		)	(1,877		)	(273		)	(2,350		)
Payments received	(316		)	(10,634		)	(21		)	(10,971		)
Balance at period end	$	23,040		$	141,877		$	7,389		$	172,306


(1)	Loan was previously classified as a TDR and subsequently performed in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate at the time of restructuring. Per our TDR policy, the TDR classification is removed.

Other Real Estate Owned

In certain circumstances, the Company is required to take action against the real estate collateral of specific loans. The Company uses foreclosure only as a last resort for dealing with borrowers experiencing financial hardships. The Company employs extensive contact and restructuring procedures to attempt to find other solutions for our borrowers. The tables below presents a summary of other real estate owned, excluding covered other real estate owned, and shows the activity for the respective periods and the balance for each property type:



	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Balance at beginning of period	$	56,177		$	76,236		$	62,891		$	86,523
Disposal/resolved	(9,488		)	(7,523		)	(16,986		)	(19,204		)
Transfers in at fair value, less costs to sell	7,262			8,850			9,390			15,726
Additions from acquisition	6,818			—			6,818			—
Fair value adjustments	(3,744		)	(5,010		)	(5,088		)	(10,492		)
Balance at end of period	$	57,025		$	72,553		$	57,025		$	72,553



	Period End
(Dollars in thousands)	June 30, 2013		March 31, 2013		June 30, 2012
Residential real-estate	$	7,327	$	7,312	$	7,830
Residential real-estate development	6,950		10,133		13,464
Commercial real-estate	42,748		38,732		51,259
Total	$	57,025	$	56,177	$	72,553

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Other Repossessed Assets

At June 30, 2013 , the Company had $1.0 million of other repossessed assets compared to $4.3 million as of March 31, 2013. The decrease in other repossessed assets during the period was primarily attributable to the sale in the second quarter of 2013 of an airplane repossessed at a fair value of $3.8 million in the first quarter of 2013.

LIQUIDITY

Wintrust manages the liquidity position of its banking operations to ensure that sufficient funds are available to meet customers’ needs for loans and deposit withdrawals. The liquidity to meet these demands is provided by maturing assets, liquid assets that can be converted to cash and the ability to attract funds from external sources. Liquid assets refer to money market assets such as Federal funds sold and interest bearing deposits with banks, as well as available-for-sale debt securities which are not pledged to secure public funds.

The Company believes that it has sufficient funds and access to funds to meet its working capital and other needs. Please refer to the Interest-Earning Assets, Deposits, Other Funding Sources and Shareholders’ Equity discussions of this report for additional information regarding the Company’s liquidity position.

INFLATION

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company. An analysis of the Company’s asset and liability structure provides the best indication of how the organization is positioned to respond to changing interest rates. See “Quantitative and Qualitative Disclosures About Market Risks” section of this report for additional information.

FORWARD-LOOKING STATEMENTS

This document contains, and the documents into which it may be incorporated by reference may contain, forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “point,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2012 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:


•	negative economic conditions that adversely affect the economy, housing prices, the job market and other factors that may affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;


•	the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;


•	estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;


•	the financial success and economic viability of the borrowers of our commercial loans;


•	market conditions in the commercial real-estate market in the Chicago metropolitan area;


•	the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for loan and lease losses;

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•	changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;


•	competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services);


•	failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;


•	unexpected difficulties and losses related to FDIC-assisted acquisitions, including those resulting from our loss- sharing arrangements with the FDIC;


•	any negative perception of the Company’s reputation or financial strength;


•	ability to raise additional capital on acceptable terms when needed;


•	disruption in capital markets, which may lower fair values for the Company’s investment portfolio;


•	ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations;


•	adverse effects on our information technology systems resulting from failures, human error or tampering;


•	accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;


•	ability of the Company to attract and retain senior management experienced in the banking and financial services industries;


•	environmental liability risk associated with lending activities;


•	the impact of any claims or legal actions, including any effect on our reputation;


•	losses incurred in connection with repurchases and indemnification payments related to mortgages;


•	the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;


•	the soundness of other financial institutions;


•	the possibility that certain European Union member states will default on their debt obligations, which may affect the Company’s liquidity, financial conditions and results of operations;


•	examinations and challenges by tax authorities;


•	changes in accounting standards, rules and interpretations and the impact on the Company’s financial statements;


•	the ability of the Company to receive dividends from its subsidiaries;


•	a decrease in the Company’s regulatory capital ratios, including as a result of further declines in the value of its loan portfolios, or otherwise;


•	legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those resulting from the Dodd-Frank Act;


•	restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;


•	increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including the Dodd-Frank Act;


•	changes in capital requirements;


•	increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;


•	delinquencies or fraud with respect to the Company’s premium finance business;


•	credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;


•	the Company’s ability to comply with covenants under its credit facility; and


•	fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Asset-liability management policies are established and monitored by management in conjunction with the boards of directors of the banks, subject to general oversight by the Risk Management Committee of the Company’s Board of Directors. The policies establish guidelines for acceptable limits on the sensitivity of the market value of assets and liabilities to changes in interest rates.

Interest rate risk arises when the maturity or repricing periods and interest rate indices of the interest earning assets, interest bearing liabilities, and derivative financial instruments are different. It is the risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest earning assets, interest bearing liabilities and derivative financial instruments. The Company continuously monitors not only the organization’s current net interest margin, but also the historical trends of these margins. In addition, management attempts to identify potential adverse changes in net interest income in future years as a result of interest rate fluctuations by performing simulation analysis of various interest rate environments. If a potential adverse change in net interest margin and/or net income is identified, management would take appropriate actions with its asset-liability structure to mitigate these potentially adverse situations. Please refer to Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the net interest margin.

Since the Company’s primary source of interest bearing liabilities is from customer deposits, the Company’s ability to manage the types and terms of such deposits may be somewhat limited by customer preferences and local competition in the market areas in which the banks operate. The rates, terms and interest rate indices of the Company’s interest earning assets result primarily from the Company’s strategy of investing in loans and securities that permit the Company to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving an acceptable interest rate spread.

The Company’s exposure to interest rate risk is reviewed on a regular basis by management and the Risk Management Committees of the boards of directors of the banks and the Company. The objective is to measure the effect on net income and to adjust balance sheet and derivative financial instruments to minimize the inherent risk while at the same time maximize net interest income.

Management measures its exposure to changes in interest rates using many different interest rate scenarios. One interest rate scenario utilized is to measure the percentage change in net interest income assuming a ramped increase and decrease of 100 and 200 basis points that occurs in equal steps over a twelve-month time horizon. Utilizing this measurement concept, the interest rate risk of the Company, expressed as a percentage change in net interest income over a one-year time horizon due to changes in interest rates, at June 30, 2013 , December 31, 2012 and June 30, 2012 is as follows:



	+200 Basis Points		+100 Basis Points		-100 Basis Points		-200 Basis Points
Percentage change in net interest income due to a ramped 100 and 200 basis point shift in the yield curve:
June 30, 2013	5.8	%	2.4	%	(3.8	)%	(8.1	)%
December 31, 2012	5.1	%	2.4	%	(3.5	)%	(7.6	)%
June 30, 2012	3.4	%	1.6	%	(2.2	)%	(4.9	)%

This simulation analysis is based upon actual cash flows and repricing characteristics for balance sheet instruments and incorporates management’s projections of the future volume and pricing of each of the product lines offered by the Company as well as other pertinent assumptions. Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

One method utilized by financial institutions to manage interest rate risk is to enter into derivative financial instruments. A derivative financial instrument includes interest rate swaps, interest rate caps and floors, futures, forwards, option contracts and other financial instruments with similar characteristics. Additionally, the Company enters into commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors. See Note 14 of the Financial Statements presented under Item 1 of this report for further information on the Company’s derivative financial instruments.

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During the second quarter of 2013 , the Company entered into covered call option transactions related to certain securities held by the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts, such as interest rate floors) to increase the total return associated with the related securities. Although the revenue received from these options is recorded as non-interest income rather than interest income, the increased return attributable to the related securities from these options contributes to the Company’s overall profitability. The Company’s exposure to interest rate risk may be impacted by these transactions. To mitigate this risk, the Company may acquire fixed rate term debt or use financial derivative instruments. There were no covered call options outstanding as of June 30, 2013 .

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ITEM 4

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer carried out an evaluation under their supervision, with the participation of other members of management as they deemed appropriate, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Company (and its consolidated subsidiaries) required to be included in the periodic reports the Company is required to file and submit to the SEC under the Exchange Act.

There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II —

Item 1A: Risk Factors

There were no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 31, 2012 .

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

No purchases of the Company’s common shares were made by or on behalf of the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during the three months ended June 30, 2012. There is currently no authorization to repurchase shares of outstanding common stock.

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Item 6: Exhibits:


(a)	Exhibits



10.1		Form of Performance Share Unit Award - Stock Settled under the Company's 2007 Stock Incentive Plan.

10.2		Form of Performance Share Unit Award - Cash Settled under the Company's 2007 Stock Incentive Plan.

10.3		Form of Performance Cash Award under the Company's 2007 Stock Incentive Plan.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document *

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

•

Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 , formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		WINTRUST FINANCIAL CORPORATION (Registrant)
Date:	August 8, 2013	/s/ DAVID L. STOEHR
		David L. Stoehr
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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Part I Item 1. Financial Statements Part II Item 1A: Risk Factors Item 2: Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6: Exhibits:

WTFC 10-Q Quarter ended June 30, 2013