WTFC 10-Q Quarterly Report Sept. 30, 2013

WINTRUST FINANCIAL CORP

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10-Q 1 wtfc-20130930x10q.htm 10-Q WTFC-2013.09.30-10Q

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 September 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 , 39,933,549 shares, as of October 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	58
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	108
ITEM 4.	Controls and Procedures	110
	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings	111
ITEM 1A.	Risk Factors	111
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	111
ITEM 3.	Defaults Upon Senior Securities	NA
ITEM 4.	Mine Safety Disclosures	NA
ITEM 5.	Other Information	NA
ITEM 6.	Exhibits	112
	Signatures	113

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)	September 30, 2013			December 31, 2012			September 30, 2012
Assets
Cash and due from banks	$	322,866		$	284,731		$	186,752
Federal funds sold and securities purchased under resale agreements	7,771			30,297			26,062
Interest-bearing deposits with other banks	681,834			1,035,743			934,430
Available-for-sale securities, at fair value	1,781,883			1,796,076			1,256,768
Trading account securities	259			583			635
Federal Home Loan Bank and Federal Reserve Bank stock	76,755			79,564			80,687
Brokerage customer receivables	29,253			24,864			30,633
Mortgage loans held-for-sale, at fair value	329,186			385,033			548,300
Mortgage loans held-for-sale, at lower of cost or market	5,159			27,167			21,685
Loans, net of unearned income, excluding covered loans	12,581,039			11,828,943			11,489,900
Covered loans	415,988			560,087			657,525
Total loans	12,997,027			12,389,030			12,147,425
Less: Allowance for loan losses	107,188			107,351			112,287
Less: Allowance for covered loan losses	12,924			13,454			21,926
Net loans	12,876,915			12,268,225			12,013,212
Premises and equipment, net	517,942			501,205			461,905
FDIC indemnification asset	100,313			208,160			238,305
Accrued interest receivable and other assets	576,121			511,617			557,884
Trade date securities receivable	—			—			307,295
Goodwill	357,309			345,401			331,634
Other intangible assets	18,982			20,947			22,405
Total assets	$	17,682,548		$	17,519,613		$	17,018,592
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	2,622,518		$	2,396,264		$	2,162,215
Interest bearing	12,024,928			12,032,280			11,685,750
Total deposits	14,647,446			14,428,544			13,847,965
Notes payable	1,546			2,093			2,275
Federal Home Loan Bank advances	387,852			414,122			414,211
Other borrowings	246,870			274,411			377,229
Secured borrowings—owed to securitization investors	—			—			—
Subordinated notes	10,000			15,000			15,000
Junior subordinated debentures	249,493			249,493			249,493
Trade date securities payable	—			—			412
Accrued interest payable and other liabilities	265,775			331,245			350,707
Total liabilities	15,808,982			15,714,908			15,257,292
Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series A - $1,000 liquidation value; No shares issued and outstanding at September 30, 2013, and 50,000 shares issued and outstanding at December 31, 2012 and September 30, 2012	—			49,906			49,871
Series C - $1,000 liquidation value; 126,500 shares issued and outstanding at September 30, 2013, December 31, 2012 and September 30, 2012	126,500			126,500			126,500
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at September 30, 2013, December 31, 2012, and September 30, 2012; 39,992,300 shares issued at September 30, 2013, 37,107,684 shares issued at December 31, 2012, and 36,647,154 shares issued at September 30, 2012	39,992			37,108			36,647
Surplus	1,118,550			1,036,295			1,018,417
Treasury stock, at cost, 261,257 shares at September 30, 2013, 249,329 shares at December 31, 2012, and 239,373 shares at September 30, 2012	(8,290		)	(7,838		)	(7,490		)
Retained earnings	643,228			555,023			527,550
Accumulated other comprehensive (loss) income	(46,414		)	7,711			9,805
Total shareholders’ equity	1,873,566			1,804,705			1,761,300
Total liabilities and shareholders’ equity	$	17,682,548		$	17,519,613		$	17,018,592

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands, except per share data)	2013			2012			2013		2012
Interest income
Interest and fees on loans	$	150,810		$	149,271		$	438,907	$	436,926
Interest bearing deposits with banks	229			362			1,209		813
Federal funds sold and securities purchased under resale agreements	4			7			23		25
Securities	9,224			7,691			27,335		30,048
Trading account securities	14			3			27		22
Federal Home Loan Bank and Federal Reserve Bank stock	687			649			2,064		1,894
Brokerage customer receivables	200			218			562		650
Total interest income	161,168			158,201			470,127		470,378
Interest expense
Interest on deposits	12,524			16,794			40,703		52,097
Interest on Federal Home Loan Bank advances	2,729			2,817			8,314		9,268
Interest on notes payable and other borrowings	910			2,024			3,196		7,400
Interest on secured borrowings—owed to securitization investors	—			795			—		5,087
Interest on subordinated notes	40			67			151		362
Interest on junior subordinated debentures	3,183			3,129			9,444		9,424
Total interest expense	19,386			25,626			61,808		83,638
Net interest income	141,782			132,575			408,319		386,740
Provision for credit losses	11,114			18,799			42,183		56,890
Net interest income after provision for credit losses	130,668			113,776			366,136		329,850
Non-interest income
Wealth management	16,057			13,252			46,777		39,046
Mortgage banking	25,682			31,127			87,561		75,268
Service charges on deposit accounts	5,308			4,235			15,136		12,437
Gains on available-for-sale securities, net	75			409			328		2,334
Fees from covered call options	285			2,083			2,917		8,320
Gain on bargain purchases, net	—			6,633			—		7,418
Trading (losses) gains, net	(1,655		)	(998		)	1,170		(1,780		)
Other	8,910			6,204			22,147		17,860
Total non-interest income	54,662			62,945			176,036		160,903
Non-interest expense
Salaries and employee benefits	78,007			75,280			234,745		212,449
Equipment	6,593			5,888			19,190		16,754
Occupancy, net	9,079			8,024			26,639		23,814
Data processing	4,884			4,103			13,841		11,561
Advertising and marketing	2,772			2,528			7,534		6,713
Professional fees	3,378			4,653			10,790		12,104
Amortization of other intangible assets	1,154			1,078			3,438		3,216
FDIC insurance	3,245			3,549			9,692		10,383
OREO expense, net	2,499			3,808			3,163		16,834
Other	15,637			15,637			46,522		45,664
Total non-interest expense	127,248			124,548			375,554		359,492
Income before taxes	58,082			52,173			166,618		131,261
Income tax expense	22,519			19,871			64,696		50,154
Net income	$	35,563		$	32,302		$	101,922	$	81,107
Preferred stock dividends and discount accretion	$	1,581		$	2,616		$	6,814	$	6,477
Net income applicable to common shares	$	33,982		$	29,686		$	95,108	$	74,630
Net income per common share—Basic	$	0.86		$	0.82		$	2.51	$	2.06
Net income per common share—Diluted	$	0.71		$	0.66		$	2.05	$	1.70
Cash dividends declared per common share	$	0.09		$	0.09		$	0.18	$	0.18
Weighted average common shares outstanding	39,331			36,381			37,939		36,305
Dilutive potential common shares	10,823			12,295			11,763		11,292
Average common shares and dilutive common shares	50,154			48,676			49,702		47,597

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						Nine Months Ended
	September 30,						September 30,
(In thousands)	2013			2012			2013			2012
Net income	$	35,563		$	32,302		$	101,922		$	81,107
Unrealized (losses) gains on securities
Before tax	(2,419		)	3,921			(81,337		)	8,661
Tax effect	959			(1,563		)	32,106			(3,447		)
Net of tax	(1,460		)	2,358			(49,231		)	5,214
Less: Reclassification of net gains included in net income
Before tax	75			409			328			2,334
Tax effect	(30		)	(162		)	(131		)	(934		)
Net of tax	45			247			197			1,400
Net unrealized (losses) gains on securities	(1,505		)	2,111			(49,428		)	3,814
Unrealized gains (losses) on derivative instruments
Before tax	647			(293		)	4,290			1,439
Tax effect	(257		)	119			(1,708		)	(568		)
Net unrealized gains (losses) on derivative instruments	390			(174		)	2,582			871
Foreign currency translation adjustment
Before tax	4,970			8,438			(9,575		)	11,139
Tax effect	(1,065		)	(2,541		)	2,296			(3,141		)
Net foreign currency translation adjustment	3,905			5,897			(7,279		)	7,998
Total other comprehensive income (loss)	2,790			7,834			(54,125		)	12,683
Comprehensive income	$	38,353		$	40,136		$	47,797		$	93,790

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	—			—		—			—			81,107			—			81,107
Other comprehensive income, net of tax	—			—		—			—			—			12,683			12,683
Cash dividends declared on common stock	—			—		—			—			(6,537		)	—			(6,537		)
Dividends on preferred stock	—			—		—			—			(6,374		)	—			(6,374		)
Accretion on preferred stock	103			—		—			—			(103		)	—			—
Stock-based compensation	—			—		7,260			—			—			—			7,260
Issuance of Series C preferred stock	126,500			—		(3,810		)	—			—			—			122,690
Common stock issued for:
Acquisitions	—			26		868			—			—			—			894
Exercise of stock options and warrants	—			439		10,050			(6,391		)	—			—			4,098
Restricted stock awards	—			123		(152		)	(987		)	—			—			(1,016		)
Employee stock purchase plan	—			55		1,777			—			—			—			1,832
Director compensation plan	—			22		1,108			—			—			—			1,130
Balance at September 30, 2012	$	176,371		$	36,647	$	1,018,417		$	(7,490	)	$	527,550		$	9,805		$	1,761,300
Balance at December 31, 2012	$	176,406		$	37,108	$	1,036,295		$	(7,838	)	$	555,023		$	7,711		$	1,804,705
Net income	—			—		—			—			101,922			—			101,922
Other comprehensive loss, net of tax	—			—		—			—			—			(54,125		)	(54,125		)
Cash dividends declared on common stock	—			—		—			—			(6,903		)	—			(6,903		)
Dividends on preferred stock	—			—		—			—			(6,744		)	—			(6,744		)
Accretion on preferred stock	70			—		—			—			(70		)	—			—
Conversion of Series A preferred stock to common stock	(49,976		)	1,944		48,032			—			—			—			—
Stock-based compensation	—			—		6,598			—			—			—			6,598
Common stock issued for:
Acquisitions	—			648		22,422			—			—			—			23,070
Exercise of stock options and warrants	—			79		2,161			(214		)	—			—			2,026
Restricted stock awards	—			135		140			(238		)	—			—			37
Employee stock purchase plan	—			47		1,801			—			—			—			1,848
Director compensation plan	—			31		1,101			—			—			—			1,132
Balance at September 30, 2013	$	126,500		$	39,992	$	1,118,550		$	(8,290	)	$	643,228		$	(46,414	)	$	1,873,566

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended
	September 30,
(In thousands)	2013			2012
Operating Activities:
Net income	$	101,922		$	81,107
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	42,183			56,890
Depreciation and amortization	21,061			17,624
Stock-based compensation expense	6,598			7,260
Tax benefit from stock-based compensation arrangements	188			1,279
Excess tax benefits from stock-based compensation arrangements	(349		)	(868		)
Net amortization of premium on securities	1,534			4,745
Mortgage servicing rights fair value change and amortization, net	(1,373		)	(3,469		)
Originations and purchases of mortgage loans held-for-sale	(2,966,058		)	(2,688,002		)
Proceeds from sales of mortgage loans held-for-sale	3,108,405			2,498,525
Bank owned life insurance income, net of claims	(2,372		)	(2,234		)
Decrease in trading securities, net	324			1,855
Net increase in brokerage customer receivables	(4,389		)	(2,708		)
Gains on mortgage loans sold	(64,492		)	(59,984		)
Gains on available-for-sale securities, net	(328		)	(2,334		)
Gain on bargain purchases, net	—			(7,418		)
(Gain) loss on sales of premises and equipment, net	(375		)	702
Net (gain) loss on sales and fair value adjustments of other real estate owned	(1,323		)	12,306
Decrease (increase) in accrued interest receivable and other assets, net	29,542			(13,335		)
(Decrease) increase in accrued interest payable and other liabilities, net	(50,290		)	140,857
Net Cash Provided by Operating Activities	220,408			42,798
Investing Activities:
Proceeds from maturities of available-for-sale securities	169,139			473,331
Proceeds from sales of available-for-sale securities	129,537			2,059,154
Purchases of available-for-sale securities	(240,640		)	(2,079,665		)
Net cash (paid) received for acquisitions	(9,350		)	30,220
Divestiture of operations	(149,100		)	—
Proceeds from sales of other real estate owned	76,506			65,902
Proceeds received from the FDIC related to reimbursements on covered assets	47,408			152,594
Net decrease (increase) in interest-bearing deposits with banks	412,638			(113,963		)
Net increase in loans	(589,402		)	(774,437		)
Purchases of premises and equipment, net	(24,239		)	(45,533		)
Net Cash Used for Investing Activities	(177,503		)	(232,397		)
Financing Activities:
Increase in deposit accounts	39,575			914,513
Decrease in other borrowings, net	(29,009		)	(118,552		)
Decrease in Federal Home Loan Bank advances, net	(26,000		)	(60,000		)
Repayment of subordinated notes	(5,000		)	(20,000		)
Payoff of secured borrowing	—			(600,000		)
Excess tax benefits from stock-based compensation arrangements	349			868
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	5,307			12,143
Common stock repurchases	(452		)	(7,378		)
Dividends paid	(12,066		)	(11,575		)
Net Cash (Used for) Provided by Financing Activities	(27,296		)	232,709
Net Increase in Cash and Cash Equivalents	15,609			43,110
Cash and Cash Equivalents at Beginning of Period	315,028			169,704
Cash and Cash Equivalents at End of Period	$	330,637		$	212,814

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 nine-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 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.

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(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 these three 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 Bank"), 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						Nine Months Ended
(Dollars in thousands)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Balance at beginning of period	$	137,681		$	222,568		$	208,160		$	344,251
Additions from acquisitions	—			65,100			—			78,264
Additions from reimbursable expenses	3,062			5,669			10,922			18,646
Amortization	(1,763		)	(1,139		)	(5,884		)	(3,919		)
Changes in expected reimbursements from the FDIC for changes in expected credit losses	(12,742		)	(16,579		)	(65,477		)	(46,343		)
Payments received from the FDIC	(25,925		)	(37,314		)	(47,408		)	(152,594		)
Balance at end of period	$	100,313		$	238,305		$	100,313		$	238,305

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 announcements in October 2013 of the acquisition of certain assets and assumption of certain liabilities of Surety Financial Services ("Surety") and the completion of its previously announced acquisition of 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:



	September 30, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	225,190	$	150	$	(14,438	)	$	210,902
U.S. Government agencies	954,050		2,213		(43,574		)	912,689
Municipal	152,010		1,983		(3,346		)	150,647
Corporate notes and other:
Financial issuers	132,320		2,252		(2,513		)	132,059
Other	7,011		126		(15		)	7,122
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	268,166		4,157		(12,861		)	259,462
Collateralized mortgage obligations	60,001		458		(728		)	59,731
Other equity securities	53,837		1,097		(5,663		)	49,271
Total available-for-sale securities	$	1,852,585	$	12,436	$	(83,138	)	$	1,781,883



	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



	September 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	$	25,045	$	211	$	—		$	25,256
U.S. Government agencies	626,725		3,833		(2,374		)	628,184
Municipal	96,696		2,711		(23		)	99,384
Corporate notes and other:
Financial issuers	142,158		2,550		(5,170		)	139,538
Other	17,200		251		—			17,451
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	225,393		13,733		—			239,126
Collateralized mortgage obligations	66,422		690		—			67,112
Other equity securities	43,737		216		(3,236		)	40,717
Total available-for-sale securities	$	1,243,376	$	24,195	$	(10,803	)	$	1,256,768


(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 September 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	$	185,734	$	(14,438	)	$	—	$	—		$	185,734	$	(14,438	)
U.S. Government agencies	413,113		(37,142		)	60,240		(6,432		)	473,353		(43,574		)
Municipal	78,209		(3,342		)	696		(4		)	78,905		(3,346		)
Corporate notes and other:
Financial issuers	16,530		(232		)	63,661		(2,281		)	80,191		(2,513		)
Other	985		(15		)	—		—			985		(15		)
Mortgage-backed:
Mortgage-backed securities	175,261		(12,861		)	—		—			175,261		(12,861		)
Collateralized mortgage obligations	33,511		(728		)	—		—			33,511		(728		)
Other equity securities	14,507		(614		)	20,350		(5,049		)	34,857		(5,663		)
Total	$	917,850	$	(69,372	)	$	144,947	$	(13,766	)	$	1,062,797	$	(83,138	)

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

The Company does not consider securities with unrealized losses at September 30, 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, agency bonds and auction rate securities included in other equity securities. The corporate securities of financial issuers in this category were comprised primarily of investment grade securities including six fixed-to-floating rate bonds and three trust-preferred securities. 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 September 30,						Nine months ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
Realized gains	$	118		$	413		$	434		$	2,350
Realized losses	(43		)	(4		)	(106		)	(16		)
Net realized gains	$	75		$	409		$	328		$	2,334
Other than temporary impairment charges	—			—			—			—
Gains on available-for-sale securities, net	$	75		$	409		$	328		$	2,334
Proceeds from sales of available-for-sale securities	$	45,078		$	694,608		$	129,537		$	2,059,154

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The amortized cost and fair value of securities as of September 30, 2013 , December 31, 2012 and September 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:



	September 30, 2013				December 31, 2012				September 30, 2012
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	285,746	$	286,066	$	188,594	$	189,015	$	83,658	$	83,863
Due in one to five years	316,076		316,474		419,588		419,654		471,863		471,747
Due in five to ten years	344,742		328,895		361,037		362,135		135,580		137,116
Due after ten years	524,017		481,984		501,177		503,999		216,723		217,087
Mortgage-backed	328,167		319,193		261,871		271,574		291,815		306,238
Other equity securities	53,837		49,271		52,846		49,699		43,737		40,717
Total available-for-sale securities	$	1,852,585	$	1,781,883	$	1,785,113	$	1,796,076	$	1,243,376	$	1,256,768

Securities having a carrying value of $1.2 billion at September 30, 2013 and $1.1 billion at both December 31, 2012 and September 30, 2012 , were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At September 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:



	September 30,			December 31,			September 30,
(Dollars in thousands)	2013			2012			2012
Balance:
Commercial	$	3,109,121		$	2,914,798		$	2,771,053
Commercial real-estate	4,146,110			3,864,118			3,699,712
Home equity	736,620			788,474			807,592
Residential real-estate	397,707			367,213			376,678
Premium finance receivables—commercial	2,150,481			1,987,856			1,982,945
Premium finance receivables—life insurance	1,869,739			1,725,166			1,665,620
Indirect consumer	57,236			77,333			77,378
Consumer and other	114,025			103,985			108,922
Total loans, net of unearned income, excluding covered loans	$	12,581,039		$	11,828,943		$	11,489,900
Covered loans	415,988			560,087			657,525
Total loans	$	12,997,027		$	12,389,030		$	12,147,425
Mix:
Commercial	24		%	24		%	23		%
Commercial real-estate	32			31			30
Home equity	6			6			7
Residential real-estate	3			3			3
Premium finance receivables—commercial	16			16			16
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	97		%	96		%	95		%
Covered loans	3			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 $40.6 million at September 30, 2013 , $41.1 million at December 31, 2012 and $39.5 million at September 30,

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2012 , 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.

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 $(1.5) million at September 30, 2013 , $13.2 million at December 31, 2012 and $14.3 million at September 30, 2012 . The net credit balance at September 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 throughout the United States and Canada 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:



	September 30, 2013				December 31, 2012
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	496,355	$	380,733	$	674,868	$	503,837
Life insurance premium finance loans acquisition	475,711		459,883		536,503		514,459

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the nine months ended September 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 September 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 September 30, 2013						Three Months Ended September 30, 2012
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	130,856		$	10,287		$	171,801		$	14,626
Acquisitions	—			—			6,052			—
Accretable yield amortized to interest income	(9,056		)	(1,943		)	(12,266		)	(2,309		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(8,279		)	—			(16,472		)	—
Reclassification from non-accretable difference ⁽²⁾	8,703			234			4,636			2,951
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(5,194		)	235			(1,951		)	158
Accretable yield, ending balance ⁽³⁾	$	117,030		$	8,813		$	151,800		$	15,426



	Nine Months Ended September 30, 2013						Nine Months Ended September 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			—			8,340			—
Accretable yield amortized to interest income	(27,980		)	(6,216		)	(40,545		)	(8,795		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(28,891		)	—			(55,912		)	—
Reclassification from non-accretable difference ⁽²⁾	44,907			1,241			53,827			4,096
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(16,207		)	733			12,970			1,264
Accretable yield, ending balance ⁽³⁾	$	117,030		$	8,813		$	151,800		$	15,426


(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 September 30, 2013, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $40.5 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 September 30, 2013 , December 31, 2012 and September 30, 2012 :



As of September 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	$	15,283	$	190	$	3,585	$	15,261	$	1,688,232	$	1,722,551
Franchise	—		—		113		—		213,215		213,328
Mortgage warehouse lines of credit	—		—		—		—		71,383		71,383
Community Advantage—homeowners association	—		—		—		—		90,504		90,504
Aircraft	—		—		—		—		12,601		12,601
Asset-based lending	2,364		—		693		3,926		732,585		739,568
Tax exempt	—		—		—		—		148,103		148,103
Leases	—		—		—		—		101,654		101,654
Other	—		—		—		—		90		90
Purchased non-covered commercial ⁽¹⁾	—		265		—		1,642		7,432		9,339
Total commercial	17,647		455		4,391		20,829		3,065,799		3,109,121
Commercial real-estate:
Residential construction	2,049		3,120		1,595		261		33,305		40,330
Commercial construction	7,854		—		—		—		138,234		146,088
Land	4,216		—		—		4,082		100,953		109,251
Office	4,318		—		3,965		1,270		624,967		634,520
Industrial	8,184		—		—		2,419		614,409		625,012
Retail	11,259		—		271		7,422		593,263		612,215
Multi-family	2,603		—		—		4,332		543,690		550,625
Mixed use and other	12,240		269		2,761		15,371		1,339,029		1,369,670
Purchased non-covered commercial real-estate ⁽¹⁾	—		9,607		3,380		2,702		42,710		58,399
Total commercial real-estate	52,723		12,996		11,972		37,859		4,030,560		4,146,110
Home equity	10,926		—		2,436		5,887		717,371		736,620
Residential real estate	14,126		—		1,749		2,844		377,489		396,208
Purchased non-covered residential real estate ⁽¹⁾	—		447		289		34		729		1,499
Premium finance receivables
Commercial insurance loans	10,132		11,751		5,307		14,628		2,108,663		2,150,481
Life insurance loans	14		592		6,428		—		1,402,822		1,409,856
Purchased life insurance loans ⁽¹⁾	—		—		—		—		459,883		459,883
Indirect consumer	80		100		97		231		56,728		57,236
Consumer and other	1,591		—		319		445		111,491		113,846
Purchased non-covered consumer and other ⁽¹⁾	—		28		—		19		132		179
Total loans, net of unearned income, excluding covered loans	$	107,239	$	26,369	$	32,988	$	82,776	$	12,331,667	$	12,581,039
Covered loans	8,602		81,430		9,813		9,216		306,927		415,988
Total loans, net of unearned income	$	115,841	$	107,799	$	42,801	$	91,992	$	12,638,594	$	12,997,027


(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 September 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	$	15,163	$	—	$	5,985	$	16,631	$	1,518,596	$	1,556,375
Franchise	1,792		—		—		—		177,914		179,706
Mortgage warehouse lines of credit	—		—		—		—		225,295		225,295
Community Advantage—homeowners association	—		—		—		—		73,881		73,881
Aircraft	428		—		—		150		20,866		21,444
Asset-based lending	328		—		1,211		5,556		525,966		533,061
Tax exempt	—		—		—		—		90,404		90,404
Leases	—		—		—		—		83,351		83,351
Other	—		—		—		—		1,576		1,576
Purchased non-covered commercial ⁽¹⁾	—		499		—		—		5,461		5,960
Total commercial	17,711		499		7,196		22,337		2,723,310		2,771,053
Commercial real-estate:
Residential construction	2,141		—		3,008		—		39,106		44,255
Commercial construction	3,315		—		163		13,072		152,993		169,543
Land	10,629		—		3,033		3,017		116,807		133,486
Office	6,185		—		5,717		7,237		565,182		584,321
Industrial	1,885		—		645		1,681		570,114		574,325
Retail	10,133		—		1,853		5,617		543,066		560,669
Multi-family	3,314		—		3,062		—		357,047		363,423
Mixed use and other	20,859		—		9,779		14,990		1,175,222		1,220,850
Purchased non-covered commercial real-estate ⁽¹⁾	—		1,066		150		389		47,235		48,840
Total commercial real-estate	58,461		1,066		27,410		46,003		3,566,772		3,699,712
Home equity	11,504		—		5,905		5,642		784,541		807,592
Residential real estate	15,393		—		3,281		2,637		354,711		376,022
Purchased non-covered residential real estate ⁽¹⁾	—		—		—		—		656		656
Premium finance receivables
Commercial insurance loans	7,488		5,533		5,881		14,369		1,949,674		1,982,945
Life insurance loans	29		—		—		—		1,128,559		1,128,588
Purchased life insurance loans ⁽¹⁾	—		—		—		—		537,032		537,032
Indirect consumer	72		215		74		344		76,673		77,378
Consumer and other	1,485		—		429		849		106,092		108,855
Purchased non-covered consumer and other ⁽¹⁾	—		—		—		—		67		67
Total loans, net of unearned income, excluding covered loans	$	112,143	$	7,313	$	50,176	$	92,181	$	11,228,087	$	11,489,900
Covered loans	910		129,257		6,521		14,571		506,266		657,525
Total loans, net of unearned income	$	113,053	$	136,570	$	56,697	$	106,752	$	11,734,353	$	12,147,425


(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 is 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 September 30, 2013 , December 31, 2012 and September 30, 2012 :



	Performing						Non-performing						Total
(Dollars in thousands)	September 30, 2013		December 31, 2012		September 30, 2012		September 30, 2013		December 31, 2012		September 30, 2012		September 30, 2013		December 31, 2012		September 30, 2012
Loan Balances:
Commercial
Commercial and industrial	$	1,707,078	$	1,608,794	$	1,541,212	$	15,473	$	19,409	$	15,163	$	1,722,551	$	1,628,203	$	1,556,375
Franchise	213,328		194,603		177,914		—		1,792		1,792		213,328		196,395		179,706
Mortgage warehouse lines of credit	71,383		215,076		225,295		—		—		—		71,383		215,076		225,295
Community Advantage—homeowners association	90,504		81,496		73,881		—		—		—		90,504		81,496		73,881
Aircraft	12,601		17,364		21,016		—		—		428		12,601		17,364		21,444
Asset-based lending	737,204		571,902		532,733		2,364		536		328		739,568		572,438		533,061
Tax exempt	148,103		91,824		90,404		—		—		—		148,103		91,824		90,404
Leases	101,654		90,443		83,351		—		—		—		101,654		90,443		83,351
Other	90		16,549		1,576		—		—		—		90		16,549		1,576
Purchased non-covered commercial ⁽¹⁾	9,339		5,010		5,960		—		—		—		9,339		5,010		5,960
Total commercial	3,091,284		2,893,061		2,753,342		17,837		21,737		17,711		3,109,121		2,914,798		2,771,053
Commercial real-estate
Residential construction	35,161		37,291		42,114		5,169		3,110		2,141		40,330		40,401		44,255
Commercial construction	138,234		168,796		166,228		7,854		2,159		3,315		146,088		170,955		169,543
Land	105,035		122,898		122,857		4,216		11,299		10,629		109,251		134,197		133,486
Office	630,202		565,515		578,136		4,318		4,196		6,185		634,520		569,711		584,321
Industrial	616,828		575,848		572,440		8,184		2,089		1,885		625,012		577,937		574,325
Retail	600,956		561,104		550,536		11,259		7,792		10,133		612,215		568,896		560,669
Multi-family	548,022		394,105		360,109		2,603		2,586		3,314		550,625		396,691		363,423
Mixed use and other	1,357,161		1,332,512		1,199,991		12,509		16,742		20,859		1,369,670		1,349,254		1,220,850
Purchased non-covered commercial real-estate ⁽¹⁾	58,399		56,076		48,840		—		—		—		58,399		56,076		48,840
Total commercial real-estate	4,089,998		3,814,145		3,641,251		56,112		49,973		58,461		4,146,110		3,864,118		3,699,712
Home equity	725,694		774,951		796,088		10,926		13,523		11,504		736,620		788,474		807,592
Residential real-estate	382,082		354,629		360,629		14,126		11,728		15,393		396,208		366,357		376,022
Purchased non-covered residential real-estate ⁽¹⁾	1,499		856		656		—		—		—		1,499		856		656
Premium finance receivables
Commercial insurance loans	2,128,598		1,968,546		1,969,924		21,883		19,310		13,021		2,150,481		1,987,856		1,982,945
Life insurance loans	1,409,250		1,210,682		1,128,559		606		25		29		1,409,856		1,210,707		1,128,588
Purchased life insurance loans ⁽¹⁾	459,883		514,459		537,032		—		—		—		459,883		514,459		537,032
Indirect consumer	57,056		77,089		77,091		180		244		287		57,236		77,333		77,378
Consumer and other	112,255		99,610		107,370		1,591		1,543		1,485		113,846		101,153		108,855
Purchased non-covered consumer and other ⁽¹⁾	179		2,832		67		—		—		—		179		2,832		67
Total loans, net of unearned income, excluding covered loans	$	12,457,778	$	11,710,860	$	11,372,009	$	123,261	$	118,083	$	117,891	$	12,581,039	$	11,828,943	$	11,489,900


(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 nine months ended September 30, 2013 and 2012 is as follows:



Three months ended September 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	$	28,737		$	51,950		$	14,205		$	4,825		$	5,268		$	263		$	1,594		$	106,842
Other adjustments	(15		)	(193		)	—			(4		)	7			—			—			(205		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			284			—			—			—			—			—			284
Charge-offs	(3,281		)	(6,982		)	(711		)	(328		)	(1,297		)	(23		)	(193		)	(12,815		)
Recoveries	756			272			43			64			316			12			39			1,502
Provision for credit losses	2,044			5,488			1,824			700			1,193			(51		)	382			11,580
Allowance for loan losses at period end	$	28,241		$	50,819		$	15,361		$	5,257		$	5,487		$	201		$	1,822		$	107,188
Allowance for unfunded lending-related commitments at period end	$	—		$	1,267		$	—		$	—		$	—		$	—		$	—		$	1,267
Allowance for credit losses at period end	$	28,241		$	52,086		$	15,361		$	5,257		$	5,487		$	201		$	1,822		$	108,455
Individually evaluated for impairment	5,498			5,892			2,447			886			—			—			252			14,975
Collectively evaluated for impairment	22,636			46,080			12,914			4,371			5,487			201			1,570			93,259
Loans acquired with deteriorated credit quality	107			114			—			—			—			—			—			221
Loans at period end
Individually evaluated for impairment	$	24,688		$	124,401		$	11,152		$	16,746		$	—		$	79		$	1,695		$	178,761
Collectively evaluated for impairment	3,075,094			3,963,310			725,468			379,462			3,560,337			57,157			112,151			11,872,979
Loans acquired with deteriorated credit quality	9,339			58,399			—			1,499			459,883			—			179			529,299



Three months ended September 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	$	26,983		$	53,801		$	13,878		$	6,724		$	8,522		$	640		$	1,372		$	111,920
Other adjustments	(138		)	(304		)	(2		)	(90		)	—			—			—			(534		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			626			—			—			—			—			—			626
Charge-offs	(3,315		)	(17,000		)	(1,543		)	(1,027		)	(886		)	(73		)	(93		)	(23,937		)
Recoveries	349			5,352			52			8			206			25			28			6,020
Provision for credit losses	3,862			12,610			1,215			1,938			(955		)	(323		)	(155		)	18,192
Allowance for loan losses at period end	$	27,741		$	55,085		$	13,600		$	7,553		$	6,887		$	269		$	1,152		$	112,287
Allowance for unfunded lending-related commitments at period end	$	—		$	12,627		$	—		$	—		$	—		$	—		$	—		$	12,627
Allowance for credit losses at period end	$	27,741		$	67,712		$	13,600		$	7,553		$	6,887		$	269		$	1,152		$	124,914
Individually evaluated for impairment	$	3,168		$	21,998		$	3,011		$	3,244		$	—		$	1		$	480		$	31,902
Collectively evaluated for impairment	$	24,573		$	45,714		$	10,589		$	4,306		$	6,887		$	268		$	672		$	93,009
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	3		$	—		$	—		$	—		$	3
Loans at period end
Individually evaluated for impairment	$	38,838		$	160,711		$	13,118		$	18,696		$	—		$	69		$	1,582		$	233,014
Collectively evaluated for impairment	2,726,255			3,490,161			794,474			357,326			3,111,533			77,309			107,273			10,664,331
Loans acquired with deteriorated credit quality	5,960			48,840			—			656			537,032			—			67			592,555

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Nine Months Ended September 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	(19		)	(621		)	—			(98		)	(5		)	—			—			(743		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			136			—			—			—			—			—			136
Charge-offs	(8,914		)	(25,228		)	(4,893		)	(2,573		)	(3,671		)	(71		)	(402		)	(45,752		)
Recoveries	1,319			1,224			376			87			889			44			177			4,116
Provision for credit losses	7,061			23,173			7,144			2,281			2,178			(39		)	282			42,080
Allowance for loan losses at period end	$	28,241		$	50,819		$	15,361		$	5,257		$	5,487		$	201		$	1,822		$	107,188
Allowance for unfunded lending-related commitments at period end	$	—		$	1,267		$	—		$	—		$	—		$	—		$	—		$	1,267
Allowance for credit losses at period end	$	28,241		$	52,086		$	15,361		$	5,257		$	5,487		$	201		$	1,822		$	108,455



Nine months ended September 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	(142		)	(787		)	(4		)	(111		)	—			—			—			(1,044		)
Reclassification from (to) allowance for unfunded lending-related commitments	45			908			—			—			—			—			—			953
Charge-offs	(12,623		)	(34,455		)	(5,865		)	(1,590		)	(2,483		)	(157		)	(454		)	(57,627		)
Recoveries	852			5,657			385			13			675			76			226			7,884
Provision for credit losses	8,372			27,357			11,372			4,213			1,481			(295		)	(760		)	51,740
Allowance for loan losses at period end	$	27,741		$	55,085		$	13,600		$	7,553		$	6,887		$	269		$	1,152		$	112,287
Allowance for unfunded lending-related commitments at period end	$	—		$	12,627		$	—		$	—		$	—		$	—		$	—		$	12,627
Allowance for credit losses at period end	$	27,741		$	67,712		$	13,600		$	7,553		$	6,887		$	269		$	1,152		$	124,914

Table of Contents

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



	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2013			2012			2013			2012
Balance at beginning of period	$	14,429		$	20,560		$	13,454		$	12,977
Provision for covered loan losses before benefit attributable to FDIC loss share agreements	(2,331		)	3,096			515			25,916
Benefit attributable to FDIC loss share agreements	1,865			(2,489		)	(412		)	(20,766		)
Net provision for covered loan losses	(466		)	607			103			5,150
(Decrease) increase in FDIC indemnification asset	(1,865		)	2,489			412			20,766
Loans charged-off	(3,237		)	(1,736		)	(8,294		)	(17,052		)
Recoveries of loans charged-off	4,063			6			7,249			85
Net recoveries (charge-offs)	826			(1,730		)	(1,045		)	(16,967		)
Balance at end of period	$	12,924		$	21,926		$	12,924		$	21,926

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.

Impaired Loans

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



	September 30,		December 31,		September 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⁾	$	99,437	$	89,983	$	120,060
Impaired loans with no allowance for loan loss required	76,861		114,562		112,954
Total impaired loans ⁽²⁾	$	176,298	$	204,545	$	233,014
Allowance for loan losses related to impaired loans	$	14,329	$	13,575	$	19,818
Troubled debt restructurings	$	115,003	$	126,473	$	147,196


(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.

Table of Contents

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



							For the Nine Months Ended
	As of September 30, 2013						September 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	$	10,599	$	12,226	$	3,915	$	11,155	$	558
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	2,287		2,296		1,549		2,299		86
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	377		377		49		379		19
Commercial construction	9,577		9,577		103		10,051		284
Land	12,161		15,486		947		12,321		445
Office	7,322		7,376		111		7,426		207
Industrial	3,352		3,417		177		3,402		124
Retail	18,583		18,662		1,942		18,859		564
Multi-family	3,715		4,188		260		3,809		143
Mixed use and other	19,451		19,711		1,721		18,569		669
Home equity	5,347		5,559		2,447		5,468		187
Residential real-estate	5,999		6,533		856		5,418		170
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	—		—		—		—		—
Consumer and other	667		668		252		661		25
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	10,858	$	15,320	$	—	$	13,841	$	683
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	76		1,416		—		87		57
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	3,267		3,426		—		3,954		122
Commercial construction	8,705		13,939		—		10,899		564
Land	4,980		6,094		—		3,869		181
Office	7,329		9,324		—		8,242		358
Industrial	7,668		7,833		—		7,772		357
Retail	6,230		6,549		—		6,270		257
Multi-family	1,149		2,983		—		1,868		115
Mixed use and other	9,205		11,256		—		8,181		362
Home equity	5,805		7,215		—		5,568		221
Residential real-estate	10,482		12,841		—		9,805		292
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	79		88		—		70		7
Consumer and other	1,028		1,564		—		1,058		72
Total loans, net of unearned income, excluding covered loans	$	176,298	$	205,924	$	14,329	$	181,301	$	7,129

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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 Nine Months Ended
	As of September 30, 2012						September 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	$	11,271	$	13,484	$	2,615	$	13,623	$	670
Franchise	1,792		1,792		386		1,792		91
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	428		428		95		428		22
Asset-based lending	306		1,624		72		558		67
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	2,637		2,712		540		2,637		102
Commercial construction	4,184		4,184		743		4,160		153
Land	13,689		15,459		1,576		13,986		460
Office	7,366		9,851		802		7,998		355
Industrial	752		804		295		778		34
Retail	17,933		18,060		1,257		18,024		626
Multi-family	5,588		5,588		859		5,598		213
Mixed use and other	30,921		32,005		3,842		31,582		1,145
Home equity	8,254		8,923		3,011		8,572		352
Residential real-estate	13,578		14,220		3,244		13,507		448
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	12		13		1		13		1
Consumer and other	1,349		1,349		480		1,351		64
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	25,019	$	28,581	$	—	$	27,829	$	1,076
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	22		57		—		81		5
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	3,603		3,719		—		4,389		134
Commercial construction	9,868		10,466		—		10,937		332
Land	13,330		17,331		—		15,866		648
Office	9,463		10,368		—		9,627		339
Industrial	3,080		3,164		—		3,115		107
Retail	16,610		16,876		—		17,070		613
Multi-family	1,926		2,672		—		2,371		87
Mixed use and other	19,761		21,819		—		20,970		861
Home equity	4,864		5,494		—		4,931		162
Residential real-estate	5,118		5,374		—		5,392		118
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Indirect consumer	57		71		—		67		5
Consumer and other	233		237		—		248		11
Total loans, net of unearned income, excluding covered loans	$	233,014	$	256,725	$	19,818	$	247,500	$	9,301

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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 September 30, 2013 and approximately $4.4 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 September 30, 2013 and 2012, the Company recorded $205,000 and $534,000 , respectively, in interest income representing this decrease in impairment. During the nine months ended September 30, 2013 and 2012, the Company recorded $727,000 and $1.0 million , respectively, in interest income representing this decrease in impairment.

Table of Contents

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



Three months ended September 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⁾
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Commercial real-estate
Residential construction	—	—			—		—	—		—	—		—	—
Commercial construction	—	—		—	—		—	—		—	—		—	—
Land	1	2,352		1	2,352		—	—		—	—		—	—
Office	1	556		1	556		1	556		—	—		—	—
Industrial	—	—		—	—		—	—		—	—		—	—
Retail	—	—		—	—		—	—		—	—		—	—
Multi-family	—	—		—	—		—	—		—	—		—	—
Mixed use and other	1	95		1	95		—	—		—	—		—	—
Residential real estate and other	1	1,000		1	1,000		—	—		—	—		1	1,000
Total loans	4	$	4,003	4	$	4,003	1	$	556	—	$	—	1	$	1,000


(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 September 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⁾
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	3	$	442	2	$	275	1	$	225	1	$	167	—	$	—
Commercial real-estate
Residential construction	1	496		1	496		1	496		1	496		—	—
Commercial construction	—	—		—	—		—	—		—	—		—	—
Land	—	—		—	—		—	—		—	—		—	—
Office	—	—		—	—		—	—		—	—		—	—
Industrial	—	—		—	—		—	—		—	—		—	—
Retail	2	4,653		2	4,653		—	—		2	4,654		—	—
Multi-family	1	380		—	—		1	380		1	380		—	—
Mixed use and other	7	3,108		2	858		5	2,250		5	2,699		—	—
Residential real estate and other	4	437		3	308		3	357		1	79		—	—
Total loans	18	$	9,516	10	$	6,590	11	$	3,708	11	$	8,475	—	$	—


(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 September 30, 2013 , 4 loans totaling $4.0 million were determined to be TDRs, compared to 18 loans totaling $9.5 million in the same period of 2012. Of these loans extended at below market terms, the weighted average extension had a term of approximately 26 months during the three months ended September 30, 2013 compared to 8 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 150 basis points and 293 basis points during the three months ending September 30, 2013 and 2012, respectively. No loans were modified to interest-only payment terms during the third quarter of 2013 compared to 11 loans totaling $8.5 million in the same period of 2012. Interest-only payment terms were approximately nine months during the three months ending September 30, 2012. Additionally, $1.0 million in principal balances were forgiven in the third quarter of 2013 compared to no principal balances forgiven during the same period of 2012.

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Nine months ended September 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⁾
	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	3	2,639		3	2,639		2	287		—	—		1	73
Office	4	4,021		4	4,021		1	556		—	—		—	—
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	3	3,628		3	3,628		2	3,533		—	—		—	—
Residential real estate and other	8	1,778		4	1,095		6	762		2	234		1	1,000
Total loans	30	$	20,748	25	$	19,930	18	$	7,545	7	$	6,539	2	$	1,073


(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.



Nine months ended September 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⁾
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	16	$	13,325	9	$	2,617	9	$	12,705	7	$	10,579	2	$	1,486
Commercial real-estate
Residential construction	3	2,147		3	2,147		1	496		1	496		—	—
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	7	13,286		7	13,286		5	8,633		6	12,897		—	—
Multi-family	1	380		—	—		1	380		1	380		—	—
Mixed use and other	13	6,745		8	4,495		9	5,680		8	3,974		—	—
Residential real estate and other	9	1,512		7	1,264		5	504		3	924		1	29
Total loans	68	$	69,853	53	$	56,267	46	$	59,581	41	$	56,383	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 nine months ended September 30, 2013 , 30 loans totaling $20.7 million were determined to be TDRs, compared to 68 loans totaling $69.9 million in the same period of 2012. Of these loans extended at below market terms, the weighted average extension had a term of approximately 19 months during the nine months ended September 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 199 basis points and 151 basis points during the nine months ending September 30, 2013 and 2012, respectively. Interest-only payment terms were approximately eleven months and five months during the nine months ending September 30, 2013 and 2012, respectively. Additionally, $1.0 million in balances were forgiven in the first nine 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 September 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 September 30, 2013			Three Months Ended September 30, 2013			Nine Months Ended September 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	8	$	1,694	1	$	161	2	$	181
Commercial real-estate
Residential construction	—	—		—	—		—	—
Commercial construction	3	6,120		—	—		—	—
Land	3	2,639		1	215		1	215
Office	4	4,021		1	1,648		1	1,648
Industrial	2	1,676		1	727		1	727
Retail	2	431		—	—		—	—
Multi-family	1	705		—	—		1	705
Mixed use and other	5	4,217		1	95		2	368
Residential real estate and other	9	1,904		1	126		1	126
Total loans	37	$	23,407	6	$	2,972	9	$	3,970


(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 September 30, 2012			Three Months Ended September 30, 2012			Nine Months Ended September 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	21	$	15,161	3	$	351	3	$	351
Commercial real-estate
Residential construction	4	3,252		—	—		—	—
Commercial construction	7	3,360		5	2,740		5	2,740
Land	21	37,860		1	651		2	1,925
Office	2	4,795		—	—		—	—
Industrial	2	1,313		1	990		1	990
Retail	15	28,097		—	—		1	1,605
Multi-family	6	4,247		1	264		1	264
Mixed use and other	27	12,342		2	914		5	3,197
Residential real estate and other	16	3,977		5	1,931		6	2,379
Total loans	121	$	114,404	18	$	7,841	24	$	13,451


(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 was 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. The securitization entity held no loans or borrowings but retained unrestricted cash of approximately $36,000 , as of September 30, 2013 and December 31, 2012, and $1.8 million as of September 30, 2012.

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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			September 30, 2013
Community banking	$	274,963	$	13,960	$	—	$	(1,496	)	$	287,427
Specialty finance	38,574		—		—		(556		)	38,018
Wealth management	31,864		—		—		—			31,864
Total	$	345,401	$	13,960	$	—	$	(2,052	)	$	357,309

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 $556,000 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. No significant events occurred during the third quarter of 2013 that would require the Company to re-evaluate that determination. 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 September 30, 2013 is as follows:



(Dollars in thousands)	September 30, 2013			December 31, 2012			September 30, 2012
Community banking segment:
Core deposit intangibles:
Gross carrying amount	$	39,350		$	38,176		$	38,501
Accumulated amortization	(28,143		)	(25,159		)	(24,178		)
Net carrying amount	$	11,207		$	13,017		$	14,323
Specialty finance segment:
Customer list intangibles:
Gross carrying amount	$	1,800		$	1,800		$	1,800
Accumulated amortization	(769		)	(645		)	(603		)
Net carrying amount	$	1,031		$	1,155		$	1,197
Wealth management segment:
Customer list and other intangibles:
Gross carrying amount	$	7,690		$	7,390		$	7,390
Accumulated amortization	(946		)	(615		)	(505		)
Net carrying amount	$	6,744		$	6,775		$	6,885
Total other intangible assets, net	$	18,982		$	20,947		$	22,405



Estimated amortization
Actual in nine months ended September 30, 2013	$	3,438
Estimated remaining in 2013	1,123
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.

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

The increase in 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 $3.4 million and $3.2 million for the nine months ended September 30, 2013 and 2012, respectively.

(10) Deposits

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



(Dollars in thousands)	September 30, 2013			December 31, 2012			September 30, 2012
Balance:
Non-interest bearing	$	2,622,518		$	2,396,264		$	2,162,215
NOW	1,922,906			2,022,957			1,841,743
Wealth management deposits	1,099,509			991,902			979,306
Money market	3,423,413			2,761,498			2,596,702
Savings	1,318,147			1,275,012			1,156,466
Time certificates of deposit	4,260,953			4,980,911			5,111,533
Total deposits	$	14,647,446		$	14,428,544		$	13,847,965
Mix:
Non-interest bearing	18		%	17		%	16		%
NOW	13			14			13
Wealth management deposits	8			7			7
Money market	23			19			19
Savings	9			9			8
Time certificates of deposit	29			34			37
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 and Subordinated Notes

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



(Dollars in thousands)	September 30, 2013		December 31, 2012		September 30, 2012
Notes payable	$	1,546	$	2,093	$	2,275
Federal Home Loan Bank advances	387,852		414,122		414,211
Other borrowings:
Securities sold under repurchase agreements	223,211		238,401		337,405
Other	23,659		36,010		39,824
Total other borrowings	246,870		274,411		377,229
Subordinated notes	10,000		15,000		15,000
Total notes payable, Federal Home Loan Bank advances, other borrowings and subordinated notes	$	646,268	$	705,626	$	808,715

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At September 30, 2013 , the Company had notes payable of $1.5 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 Amended and Restated Credit Agreement (“Agreement”) with unaffiliated banks. The Agreement consisted of a $100.0 million revolving credit facility, maturing on October 25, 2013 , and a $1.0 million term loan maturing on June 1, 2015 . At September 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. As more fully described in Note 18 - Subsequent Events, the Company amended the Agreement subsequent to September 30, 2013. Additionally, on November 7, 2013, the Company repaid and terminated its $1.0 million term loan.

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 September 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 Advisors shareholder (“Unsecured Promissory Note”) with an outstanding balance of $546,000 as of September 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 September 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 nine 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 September 30, 2013 and 2012, securities sold under repurchase agreements are comprised of $43.2 million and $70.8 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. The Company records securities sold under repurchase agreements at their gross value and does not offset positions on the Consolidated Statements of Condition. As of September 30, 2013 , the Company had pledged securities related to its customer balances in sweep accounts and short-term borrowings from brokers of $63.7 million and $197.5 million , respectively, which exceed the outstanding borrowings resulting in no net credit exposure. Securities pledged for customer balances in sweep accounts and short-term borrowings from brokers 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 September 30, 2013 and 2012 consist of 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 September 30, 2013 , these notes had an outstanding balance of $4.2 million . See Note 17 – Shareholders’ Equity and Earnings Per Share for further discussion of the TEUs. At September 30, 2013 the Fixed-rate Promissory Note had an outstanding balance of $19.5 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.

At September 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 prior to maturity. As of September 30, 2013 the remaining subordinated note requires annual principal payments of $5.0 million

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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 . On November 7, 2013, the Company repaid the subordinated note remaining balance of $10.0 million . See Note 18 - Subsequent Events.

(12) Junior Subordinated Debentures

As of September 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 September 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 9/30/2013		Issue Date	Maturity Date	Earliest Redemption Date
Wintrust Capital Trust III	$	774	$	25,000	$	25,774	L+3.25	3.52	%	04/2003	04/2033	04/2008
Wintrust Statutory Trust IV	619		20,000		20,619		L+2.80	3.05	%	12/2003	12/2033	12/2008
Wintrust Statutory Trust V	1,238		40,000		41,238		L+2.60	2.85	%	05/2004	05/2034	06/2009
Wintrust Capital Trust VII	1,550		50,000		51,550		L+1.95	2.20	%	12/2004	03/2035	03/2010
Wintrust Capital Trust VIII	1,238		40,000		41,238		L+1.45	1.70	%	08/2005	09/2035	09/2010
Wintrust Captial Trust IX	1,547		50,000		51,547		L+1.63	1.88	%	09/2006	09/2036	09/2011
Northview Capital Trust I	186		6,000		6,186		L+3.00	3.27	%	08/2003	11/2033	08/2008
Town Bankshares Capital Trust I	186		6,000		6,186		L+3.00	3.27	%	08/2003	11/2033	08/2008
First Northwest Capital Trust I	155		5,000		5,155		L+3.00	3.25	%	05/2004	05/2034	05/2009
Total					$	249,493		2.44	%

The junior subordinated debentures totaled $249.5 million at September 30, 2013 , December 31, 2012 and September 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 September 30, 2013 , the weighted average contractual interest rate on the junior subordinated debentures was 2.44% . The Company entered into interest rate swaps and caps with an aggregate notional value of $225 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 , replaced two interest rate swaps that matured in September 2013. The hedge-adjusted rate on the junior subordinated debentures as of September 30, 2013 , was 3.25% . Distributions on the common and preferred securities issued by the Trusts are payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.

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

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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 September 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 September 30,						$ Change in Contribution			% Change in Contribution
(Dollars in thousands)	2013			2012			$ Change in Contribution			% Change in Contribution
Net interest income:
Community banking	$	133,378		$	124,684		$	8,694		7	%
Specialty finance	32,742			32,182			560			2
Wealth management	1,624			524			1,100			NM
Parent and inter-segment eliminations	(25,962		)	(24,815		)	(1,147		)	(5	)
Total net interest income	$	141,782		$	132,575		$	9,207		7	%
Non-interest income:
Community banking	$	37,727		$	48,912		$	(11,185	)	(23	)%
Specialty finance	2,125			1,074			1,051			98
Wealth management	19,044			16,115			2,929			18
Parent and inter-segment eliminations	(4,234		)	(3,156		)	(1,078		)	(34	)
Total non-interest income	$	54,662		$	62,945		$	(8,283	)	(13	)%
Net revenue:
Community banking	$	171,105		$	173,596		$	(2,491	)	(1	)%
Specialty finance	34,867			33,256			1,611			5
Wealth management	20,668			16,639			4,029			24
Parent and inter-segment eliminations	(30,196		)	(27,971		)	(2,225		)	(8	)
Total net revenue	$	196,444		$	195,520		$	924		—	%
Segment profit:
Community banking	$	36,279		$	39,663		$	(3,384	)	(9	)%
Specialty finance	14,826			12,967			1,859			14
Wealth management	2,702			1,317			1,385			NM
Parent and inter-segment eliminations	(18,244		)	(21,645		)	3,401			16
Total segment profit	$	35,563		$	32,302		$	3,261		10	%
Segment assets:
Community banking	$	17,375,033		$	16,877,673		$	497,360		3	%
Specialty finance	4,222,537			3,796,745			425,792			11
Wealth management	101,707			95,128			6,579			7
Parent and inter-segment eliminations	(4,016,729		)	(3,750,954		)	(265,775		)	(7	)
Total segment assets	$	17,682,548		$	17,018,592		$	663,956		4	%

NM - Not Meaningful

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	Nine months ended September 30,						$ Change in Contribution			% Change in Contribution
(Dollars in thousands)	2013			2012			$ Change in Contribution			% Change in Contribution
Net interest income:
Community banking	$	384,327		$	368,834		$	15,493		4	%
Specialty finance	95,292			88,462			6,830			8
Wealth management	5,284			4,940			344			7
Parent and inter-segment eliminations	(76,584		)	(75,496		)	(1,088		)	(1	)
Total net interest income	$	408,319		$	386,740		$	21,579		6	%
Non-interest income:
Community banking	$	120,211		$	117,717		$	2,494		2	%
Specialty finance	5,607			4,012			1,595			40
Wealth management	55,971			47,316			8,655			18
Parent and inter-segment eliminations	(5,753		)	(8,142		)	2,389			29
Total non-interest income	$	176,036		$	160,903		$	15,133		9	%
Net revenue:
Community banking	$	504,538		$	486,551		$	17,987		4	%
Specialty finance	100,899			92,474			8,425			9
Wealth management	61,255			52,256			8,999			17
Parent and inter-segment eliminations	(82,337		)	(83,638		)	1,301			2
Total net revenue	$	584,355		$	547,643		$	36,712		7	%
Segment profit:
Community banking	$	104,153		$	96,052		$	8,101		8	%
Specialty finance	42,438			36,401			6,037			17
Wealth management	8,093			5,297			2,796			53
Parent and inter-segment eliminations	(52,762		)	(56,643		)	3,881			7
Total segment profit	$	101,922		$	81,107		$	20,815		26	%

(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 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 September 30, 2013:



(Dollars in thousands)
		Notional		Accounting	Fair Value as of
Effective Date	Maturity Date	Amount		Treatment	September 30, 2013
September 30, 2011	September 30, 2014	$	20,000	Cash Flow Hedging	$	—
September 30, 2011	September 30, 2014	40,000		Cash Flow Hedging	—
May 3, 2012	May 3, 2015	77,000		Non-Hedge Designated	17
May 3, 2012	May 3, 2016	215,000		Non-Hedge Designated	685
June 1, 2012	April 1, 2015	96,530		Non-Hedge Designated	20
August 29, 2012	August 29, 2016	216,500		Non-Hedge Designated	1,117
February 22, 2013	August 22, 2016	100,000		Non-Hedge Designated	602
March 21, 2013	March 21, 2017	100,000		Non-Hedge Designated	1,199
May 16, 2013	November 16, 2016	75,000		Non-Hedge Designated	607
September 15, 2013	September 15, 2017	50,000		Cash Flow Hedging	951
September 30, 2013	September 30, 2017	40,000		Cash Flow Hedging	787
		$	1,030,030		$	5,985

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 corroborated 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 September 30, 2013 , December 31, 2012 and September 30, 2012 :



	Derivative Assets						Derivative Liabilities
	Fair Value						Fair Value
(Dollars in thousands)	September 30, 2013		December 31, 2012		September 30, 2012		September 30, 2013		December 31, 2012		September 30, 2012
Derivatives designated as hedging instruments under ASC 815:
Interest rate derivatives designated as Cash Flow Hedges	$	1,738	$	2	$	6	$	3,444	$	7,988	$	9,491
Interest rate derivatives designated as Fair Value Hedges	$	82	$	104	$	153	$	2	$	—	$	—
Total derivatives designated as hedging instruments under ASC 815	$	1,820	$	106	$	159	$	3,446	$	7,988	$	9,491
Derivatives not designated as hedging instruments under ASC 815:
Interest rate derivatives	40,125		47,440		50,190		35,358		45,767		48,517
Interest rate lock commitments	15,599		6,069		15,614		5,097		937		10,392
Forward commitments to sell mortgage loans	23		277		16		5,373		3,057		11,568
Foreign exchange contracts	6		14		11		26		2		9
Total derivatives not designated as hedging instruments under ASC 815	$	55,753	$	53,800	$	65,831	$	45,854	$	49,763	$	70,486
Total derivatives	$	57,573	$	53,906	$	65,990	$	49,300	$	57,751	$	79,977

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 interest rate caps effective in September 2013 to replace interest rate swaps designated as cash flow hedges that matured in September 2013. As of September 30, 2013 , the Company had two interest rate swaps and four interest rate caps with an aggregate notional amount of $225 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 September 30, 2013 :



	September 30, 2013
(Dollars in thousands)	Notional		Fair Value
Maturity Date	Amount		Asset (Liability)
Interest Rate Swaps:
September 2016	50,000		(2,269		)
October 2016	25,000		(1,175		)
Total Interest Rate Swaps	75,000		(3,444		)
Interest Rate Caps:
September 2014	20,000		—
September 2014	40,000		—
September 2017	50,000		951
September 2017	40,000		787
Total Interest Rate Caps	150,000		1,738
Total Cash Flow Hedges	$	225,000	$	(1,706	)

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 nine months ended September 30, 2013 or September 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 September 30,						Nine months ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
Unrealized loss at beginning of period	$	(5,030	)	$	(9,901	)	$	(8,673	)	$	(11,633	)
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures	1,507			1,471			4,629			4,324
Amount of loss recognized in other comprehensive income	(859		)	(1,764		)	(338		)	(2,885		)
Unrealized loss at end of period	$	(4,382	)	$	(10,194	)	$	(4,382	)	$	(10,194	)

As of September 30, 2013 , the Company estimates that during the next twelve months, $2.0 million will be reclassified from accumulated other comprehensive income as an increase to interest expense.

Fair Value Hedges of Interest Rate Risk

Interest rate swaps designated as fair value hedges involve the payment of fixed amounts to a counterparty in exchange for the Company receiving variable payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2013, the Company has three interest rate swaps with an aggregate notional amount of 6.3 million that were designated as fair value hedges associated with fixed rate commercial franchise loans.

For derivatives designated and that qualify 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. The Company did not recognize any net gains related to hedge ineffectiveness during the current quarter and has recognized net gains of $9,000 in other income related to hedge ineffectiveness for the nine months ended September 30, 2013. The Company also recognized net decreases in interest income of $10,000 and $17,000 for the respective three and nine month periods ended September 30, 2013 related to net settlements on the derivatives.

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On June 1, 2013, the Company de-designated a $96.5 million cap which was previously designated as a fair value hedge of interest rate risk associated with an embedded cap in one of the Company’s floating rate loans. 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 and all changes in value subsequent to June 1, 2013 are recorded in earnings. Additionally, in the three and nine month periods ended September 30, 2013 the Company recorded amortization of the basis in the previously hedged item as a reduction to interest income of $43,000 and $149,000 , respectively.

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 September 30, 2013 and 2012:



(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 September 30,						Amount of Gain or (Loss) Recognized in Income on Hedged Item Three Months Ended September 30,				Income Statement Gain/ (Loss) due to Hedge Ineffectiveness Three Months Ended September 30,
		2013			2012			2013		2012		2013		2012
Interest rate products	Other income	$	(14	)	$	(229	)	$	14	$	266	$	—	$	37



(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 Nine Months Ended September 30,					Amount of Gain or (Loss) Recognized in Income on Hedged Item Nine Months Ended September 30,					Income Statement Gain/ (Loss) due to Hedge Ineffectiveness Nine Months Ended September 30,
		2013		2012			2013			2012		2013		2012
Interest rate products	Other income	$	42	$	(432	)	$	(33	)	$	482	$	9	$	50

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 September 30, 2013 , the Company had interest rate derivative transactions with an aggregate notional amount of approximately $2.7 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 October 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 September 30, 2013 , the Company had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $653.1 million and interest rate lock commitments with an aggregate notional amount of approximately $323.3 million . Additionally, the Company’s total mortgage loans held-for-sale at September 30, 2013 was $334.3 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

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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 September 30, 2013 the Company held foreign currency derivatives with an aggregate notional amount of approximately $2.6 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 September 30, 2013 , December 31, 2012 or September 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 September 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						Nine Months Ended
(Dollars in thousands)		September 30,						September 30,
Derivative	Location in income statement	2013			2012			2013			2012
Interest rate swaps and caps	Other income	$	(1,738	)	$	(1,025	)	$	1,182		$	(1,822	)
Mortgage banking derivatives	Mortgage banking revenue	(6,644		)	(295		)	4,352			2,068
Covered call options	Fees from covered call options	285			2,083			2,917			8,320
Foreign exchange contracts	Other income	33			2			(34		)	59

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 September 30, 2013 the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $31.7 million .

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.

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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)	September 30, 2013			December 31, 2012			September 30, 2012			September 30, 2013			December 31, 2012			September 30, 2012
Gross Amounts Recognized	$	41,945		$	47,546		$	50,349		$	38,804		$	53,755		$	58,008
Less: Amounts offset in the Statements of Financial Condition	$	—		$	—		$	—		$	—		$	—		$	—
Net amount presented in the Statements of Financial Condition	$	41,945		$	47,546		$	50,349		$	38,804		$	53,755		$	58,008
Gross amounts not offset in the Statements of Financial Condition
Offsetting Derivative Positions	(6,362		)	(339		)	(258		)	(6,362		)	(339		)	(258		)
Securities Collateral Posted ⁽¹⁾	—			—			—			(28,620		)	(46,811		)	(48,735		)
Cash Collateral Posted	—			—			—			—			(6,605		)	(7,138		)
Net Credit Exposure	$	35,583		$	47,207		$	50,091		$	3,822		$	—		$	1,877

(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 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

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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 September 30, 2013 , the Company classified $32.7 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 third 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 September 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 September 30, 2013 , the Company held $20.4 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 September 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 1.83% - 2.71% with an average of 2.28% 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 Bank ("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 September 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 September 30, 2013 was 10.17% with discount rates applied ranging from 10.0% - 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 13.55% used as an input to value the pool of mortgage servicing rights at September 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 corroborated 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.

Nonqualified deferred compensation assets —The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service.

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



	September 30, 2013
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	210,902	$	—	$	210,902	$	—
U.S. Government agencies	912,689		—		912,689		—
Municipal	150,647		—		117,959		32,688
Corporate notes and other	139,181		—		139,181		—
Mortgage-backed	319,193		—		319,193		—
Equity securities	49,271		—		28,829		20,442
Trading account securities	259		—		259		—
Mortgage loans held-for-sale	329,186		—		329,186		—
Mortgage servicing rights	8,608		—		—		8,608
Nonqualified deferred compensations assets	6,801		—		6,801		—
Derivative assets	57,573		—		57,573		—
Total	$	2,184,310	$	—	$	2,122,572	$	61,738
Derivative liabilities	$	49,300	$	—	$	49,300	$	—



	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	$	—



	September 30, 2012
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	25,256	$	—	$	25,256	$	—
U.S. Government agencies	628,184		—		628,184		—
Municipal	99,384		—		63,629		35,755
Corporate notes and other	156,989		—		156,989		—
Mortgage-backed	306,238		—		306,238		—
Equity securities	40,717		—		18,462		22,255
Trading account securities	635		—		635		—
Mortgage loans held-for-sale	548,300		—		548,300		—
Mortgage servicing rights	6,276		—		—		6,276
Nonqualified deferred compensations assets	5,438		—		5,438		—
Derivative assets	65,990		—		65,990		—
Total	$	1,883,407	$	—	$	1,819,121	$	64,286
Derivative liabilities	$	79,977	$	—	$	79,977	$	—

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The aggregate remaining contractual principal balance outstanding as of September 30, 2013 , December 31, 2012 and September 30, 2012 for mortgage loans held-for-sale measured at fair value under ASC 825 was $310.3 million , $379.5 million and $537.2 million , respectively, while the aggregate fair value of mortgage loans held-for-sale was $329.2 million , $385.0 million and $548.3 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 September 30, 2013 , December 31, 2012 and September 30, 2012 .

The changes in Level 3 assets measured at fair value on a recurring basis during the three and nine months ended September 30, 2013 and 2012 are summarized as follows:



				Equity securities			Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities			Mortgage servicing rights
Balance at June 30, 2013	$	32,432		$	22,428		$	8,636
Total net gains (losses) included in:
Net loss ⁽¹⁾	—			—			(28		)
Other comprehensive loss	(2		)	(1,986		)	—
Purchases	6,225			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(5,967		)	—			—
Net transfers into/(out of) Level 3	—			—			—
Balance at September 30, 2013	$	32,688		$	20,442		$	8,608


(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⁾	—			—			1,858
Other comprehensive loss	(316		)	(1,727		)	—
Purchases	8,572			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(6,338		)	—			—
Net transfers into/(out of) Level 3	—			—			—
Balance at September 30, 2013	$	32,688		$	20,442		$	8,608


(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 June 30, 2012	$	25,537	$	20,218	$	6,647
Total net gains (losses) included in:
Net loss ⁽¹⁾	—		—		(371		)
Other comprehensive income	14		2,037		—
Purchases	10,204		—		—
Issuances	—		—		—
Sales	—		—		—
Settlements	—		—		—
Net transfers into/(out of) Level 3	—		—		—
Balance at September 30, 2012	$	35,755	$	22,255	$	6,276


(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, 2012	$	24,211		$	18,971	$	6,700
Total net gains (losses) included in:
Net loss ⁽¹⁾	—			—		(424		)
Other comprehensive income	50			3,284		—
Purchases	14,044			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(148		)	—		—
Net transfers out of Level 3 ⁽²⁾	(2,402		)	—		—
Balance at September 30, 2012	$	35,755		$	22,255	$	6,276


(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 September 30, 2013 .



	September 30, 2013								Three Months Ended September 30, 2013 Fair Value Losses Recognized		Nine Months Ended September 30, 2013 Fair Value Losses Recognized
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Impaired loans—collateral based	$	97,093	$	—	$	—	$	97,093	$	8,380	$	24,430
Other real estate owned, including covered other real estate owned ⁽¹⁾	142,287		—		—		142,287		2,269		8,403
Mortgage loans held-for-sale, at lower of cost or market	5,159		—		5,159		—		—		—
Total	$	244,539	$	—	$	5,159	$	239,380	$	10,649	$	32,833


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

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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 September 30, 2013 , the Company had $176.3 million of impaired loans classified as Level 3. Of the $176.3 million of impaired loans, $97.1 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $79.2 million were valued based on discounted cash flows in accordance with ASC 310.

Other real estate owned (including covered other real estate owned) —Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based on third party appraisals and internal estimates and is therefore considered a Level 3 valuation.

The Company’s Managed Assets and Purchased Assets Divisions are primarily responsible for the valuation of Level 3 measurements for non-covered other real estate owned and covered other real estate owned, respectively. At September 30, 2013 , the Company had $142.3 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% - 48% of the carrying value prior to impairment adjustments at September 30, 2013 , with a weighted average input of 1.87% . 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 September 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

32,688

Bond pricing

Equivalent rating

BBB-AA+

N/A

Increase

Other Equity Securities

20,442

Discounted cash flows

Discount rate

1.83%-2.71%

2.28%

Decrease

Mortgage Servicing Rights

8,608

Discounted cash flows

Discount rate

10%-13.5%

10.17%

Decrease

Constant prepayment rate (CPR)

11%-17%

13.55%

Decrease

Measured at fair value on a non-recurring basis:

Impaired loans—collateral based

97,093

Appraisal value

N/A

Other real estate owned, including covered other real estate owned

142,287

Appraisal value

Property specific impairment adjustment

0%-48%

1.87%

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 September 30, 2013				At December 31, 2012				At September 30, 2012
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	330,637	$	330,637	$	315,028	$	315,028	$	212,814	$	212,814
Interest bearing deposits with banks	681,834		681,834		1,035,743		1,035,743		934,430		934,430
Available-for-sale securities	1,781,883		1,781,883		1,796,076		1,796,076		1,256,768		1,256,768
Trading account securities	259		259		583		583		635		635
Brokerage customer receivables	29,253		29,253		24,864		24,864		30,633		30,633
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	76,755		76,755		79,564		79,564		80,687		80,687
Mortgage loans held-for-sale, at fair value	329,186		329,186		385,033		385,033		548,300		548,300
Mortgage loans held-for-sale, at lower of cost or market	5,159		5,218		27,167		27,568		21,685		22,042
Total loans	12,997,027		13,576,959		12,389,030		13,053,101		12,147,425		12,835,354
Mortgage servicing rights	8,608		8,608		6,750		6,750		6,276		6,276
Nonqualified deferred compensation assets	6,801		6,801		5,532		5,532		5,438		5,438
Derivative assets	57,573		57,573		53,906		53,906		65,990		65,990
FDIC indemnification asset	100,313		100,313		208,160		208,160		238,305		238,305
Accrued interest receivable and other	165,209		165,209		157,157		157,157		157,923		157,923
Total financial assets	$	16,570,497	$	17,150,488	$	16,484,593	$	17,149,065	$	15,707,309	$	16,395,595
Financial Liabilities
Non-maturity deposits	$	10,386,493	10,386,493		$	9,447,633	$	9,447,633	$	8,736,432	$	8,736,432
Deposits with stated maturities	4,260,953		4,272,459		4,980,911		5,013,757		5,111,533		5,149,824
Notes payable	1,546		1,546		2,093		2,093		2,275		2,275
Federal Home Loan Bank advances	387,852		393,602		414,122		425,431		414,211		427,006
Subordinated notes	10,000		10,000		15,000		15,000		15,000		15,000
Other borrowings	246,870		246,870		274,411		274,411		377,229		377,229
Junior subordinated debentures	249,493		250,751		249,493		250,428		249,493		250,385
Derivative liabilities	49,300		49,300		57,751		57,751		79,977		79,977
Accrued interest payable and other	7,758		7,758		11,589		11,589		11,133		11,133
Total financial liabilities	$	15,600,265	$	15,618,779	$	15,453,003	$	15,498,093	$	14,997,283	$	15,049,261

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 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.

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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.

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 September 30, 2013 , assuming all performance-based shares will be issued at the maximum levels, 695,363 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 2012 and 2013. It is anticipated that LTIP awards will be granted annually, generally in January. 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 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.

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Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

The following table presents the weighted average assumptions used to determine the fair value of options granted in the nine month periods ending September 30, 2013 and 2012 .



	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2013		2012
Expected dividend yield	0.5	%	0.6	%
Expected volatility	59.1	%	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 $2.0 million and $2.6 million in the third quarters of 2013 and 2012 , respectively, and $6.5 million and $7.2 million for the 2013 and 2012 year-to-date periods, respectively.

A summary of the Plans' stock option activity for the nine months ended September 30, 2013 and September 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	235,002		37.97
Exercised	(78,184	)	28.50
Forfeited or canceled	(45,818	)	45.18
Outstanding at September 30, 2013	1,856,427		$	42.27	2.4	$	6,786
Exercisable at September 30, 2013	1,845,560		$	42.32	2.4	$	6,710



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	250,997		31.16
Exercised	(421,426	)	20.27
Forfeited or canceled	(50,235	)	36.42
Outstanding at September 30, 2012	1,843,870		$	42.09	3.2	$	5,029
Exercisable at September 30, 2012	1,840,731		$	42.11	3.2	$	5,010


(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.

The weighted average grant date fair value per share of options granted during the nine months ended September 30, 2013 and September 30, 2012 was $17.49 and $14.55 , respectively. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2013 and 2012 , was $777,000 and $4.9 million , respectively.

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



	Nine months ended September 30, 2013				Nine months ended September 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	10,617		40.86		109,557		32.31
Vested and issued	(135,767	)	31.97		(123,629	)	34.46
Forfeited	(1,236	)	35.02		(1,353	)	30.99
Outstanding at September 30	187,840		$	42.51	321,284		$	37.76
Vested, but not issuable at September 30	85,000		$	51.88	85,320		$	51.80

Performance-based Shares
Outstanding at January 1	153,915		$	31.78	72,158		$	33.25
Granted	105,825		37.87		119,476		31.10
Vested and issued	—		—		—		—
Net change due to estimated performance	(21,249	)	36.05		19,651		30.55
Forfeited	(6,115	)	34.29		(3,897	)	32.07
Outstanding at September 30	232,376		$	34.10	207,388		$	31.78

The number of performance-based shares granted is reflected in the above table at the 100% 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 September 30, 2013, the maximum number of performance-based shares that could be issued based on the grants made to date is approximately 625,000 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. Dividends on the Series A Preferred Stock were paid 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.

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 September 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. Of the 19,000 warrants previously outstanding, 18,000 were exercised in March 2012 and 1,000 were exercised in February 2013. As a result, there were no warrants outstanding at September 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 July 1, 2013	$	(41,213	)	$	(3,100	)	$	(4,891	)	$	(49,204	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	(1,460		)	(518		)	3,905			1,927
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(45		)	908			—			863
Net other comprehensive income (loss) during the period, net of tax	$	(1,505	)	$	390		$	3,905		$	2,790
Balance at September 30, 2013	$	(42,718	)	$	(2,710	)	$	(986	)	$	(46,414	)

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	(49,231		)	(206		)	(7,279		)	(56,716		)
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(197		)	2,788			—			2,591
Net other comprehensive income (loss) during the period, net of tax	$	(49,428	)	$	2,582		$	(7,279	)	$	(54,125	)
Balance at September 30, 2013	$	(42,718	)	$	(2,710	)	$	(986	)	$	(46,414	)

Balance at July 1, 2012	$	5,907		$	(6,037	)	$	2,101		$	1,971
Other comprehensive income (loss) during the period, net of tax, before reclassifications	2,358			(1,055		)	5,897			7,200
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(247		)	881			—			634
Net other comprehensive income (loss) during the period, net of tax	$	2,111		$	(174	)	$	5,897		$	7,834
Balance at September 30, 2012	$	8,018		$	(6,211	)	$	7,998		$	9,805

Balance at January 1, 2012	$	4,204		$	(7,082	)	$	—		$	(2,878	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	5,214			(1,718		)	7,998			11,494
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(1,400		)	2,589			—			1,189
Net other comprehensive income (loss) during the period, net of tax	$	3,814		$	871		$	7,998		$	12,683
Balance at September 30, 2012	$	8,018		$	(6,211	)	$	7,998		$	9,805

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	Amount Reclassified from Accumulated Other Comprehensive Income for the
Details Regarding the Component of	Three Months Ended September 30,						Nine Months Ended September 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	$	75		$	409		$	328		$	2,334		Gains on available-for-sale securities, net
	75			409			328			2,334			Income before taxes
Tax effect	$	(30	)	$	(162	)	$	(131	)	$	(934	)	Income tax expense
Net of tax	$	45		$	247		$	197		$	1,400		Net income

Accumulated unrealized losses on derivative instruments
Amount reclassified to interest expense on junior subordinated debentures	$	1,507		$	1,471		$	4,629		$	4,324		Interest on junior subordinated debentures
	(1,507		)	(1,471		)	(4,629		)	(4,324		)	Loss before taxes
Tax effect	$	599		$	590		$	1,841		$	1,735		Income tax benefit
Net of tax	$	(908	)	$	(881	)	$	(2,788	)	$	(2,589	)	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 September 30,				Nine Months Ended September 30,
(In thousands, except per share data)		2013		2012		2013		2012
Net income		$	35,563	$	32,302	$	101,922	$	81,107
Less: Preferred stock dividends and discount accretion		1,581		2,616		6,814		6,477
Net income applicable to common shares—Basic	(A)	33,982		29,686		95,108		74,630
Add: Dividends on convertible preferred stock, if dilutive		1,581		2,581		6,744		6,374
Net income applicable to common shares—Diluted	(B)	35,563		32,267		101,852		81,004
Weighted average common shares outstanding	(C)	39,331		36,381		37,939		36,305
Effect of dilutive potential common shares
Common stock equivalents		7,346		7,275		7,263		7,159
Convertible preferred stock, if dilutive		3,477		5,020		4,500		4,133
Total dilutive potential common shares		10,823		12,295		11,763		11,292
Weighted average common shares and effect of dilutive potential common shares	(D)	50,154		48,676		49,702		47,597
Net income per common share:
Basic	(A/C)	$	0.86	$	0.82	$	2.51	$	2.06
Diluted	(B/D)	$	0.71	$	0.66	$	2.05	$	1.70

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 October 1, 2013, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Surety of Sherman Oaks, California. Surety has five offices located in southern California, which originated approximately $1.0 billion in the twelve months prior to the acquisition date.

On October 18, 2013, the Company completed its previously announced acquisition of Diamond . Diamond is the parent company of Diamond Bank, FSB, which operated four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. Through this transaction, subject to final adjustments, the Company acquired approximately $169 million in assets and approximately $140 million in deposits. The aggregate purchase price was approximately $3 million . In the merger, outstanding shares of Diamond common stock were converted into cash. Following the acquisition, Diamond was merged into the Company's wholly-owned subsidiary, North Shore Community Bank & Trust Company ("North Shore").

On October 25, 2013, the Company entered into a Sixth Amendment Agreement (the “Sixth Amendment”) to the Agreement dated as of October 30, 2009 among the Company and unaffiliated banks. The Sixth Amendment extended the maturity date of the Agreement to November 24, 2013 .

On November 7, 2013, the Company entered into a Seventh Amendment Agreement, (the "Seventh Amendment") to the Agreement. The revolving commitment under the Agreement remained at a total revolving commitment of all lenders under the Agreement of $100.0 million and matures on November 6, 2014 . Pursuant to the Seventh Amendment, borrowings under the Agreement that are considered “Base Rate Loans” will bear interest at a rate equal to the greater of (1) 350 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 LIBOR rate for the applicable period plus 250 basis points (the “Eurodollar Rate”) and (2) 350 basis points . A commitment fee is payable quarterly equal to 0.375% of the actual daily amount by which the lenders’ commitment under the revolving note exceeded the amount outstanding under such facility.

As of the date hereof, the Company has no outstanding balance under the revolving credit facility. Additionally on November 7, 2013 the Company repaid and terminated its $1.0 million term facility with an unaffiliated bank and repaid the remaining $10.0 million outstanding under its subordinated note agreement.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition as of September 30, 2013 compared with December 31, 2012 and September 30, 2012 , and the results of operations for the three and nine month periods ended September 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

Third Quarter Highlights

The Company recorded net income of $35.6 million for the third quarter of 2013 compared to $32.3 million in the third quarter of 2012 . The results for the third 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 increased net interest margin, stable non-performing asset levels and the announcement of the acquisition of Diamond Bancorp. Additionally, the Company recently announced the acquisition of certain assets and liabilities of Surety Financial Services. For more information, see “Overview—Recent Acquisition Transactions.”

The Company increased its loan portfolio, excluding covered loans and loans held for sale, from $11.5 billion at September 30, 2012 and $11.8 billion at December 31, 2012 , to $12.6 billion at September 30, 2013 . The increase in the current quarter compared to the prior quarters 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 third 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. At September 30, 2013 , the Company had approximately $1.0 billion in overnight liquid funds and interest-bearing deposits with banks.

The Company recorded net interest income of $141.8 million in the third quarter of 2013 compared to $132.6 million in the third quarter of 2012 . The higher level of net interest income recorded in the third quarter of 2013 compared to the third quarter of 2012 resulted primarily from a $723.1 million increase in the balance of total average earning assets and a 21 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 13 basis point decline in the yield on earning assets, creating an increase in total interest income of $3.0 million in the third quarter of 2013 compared to the third quarter of 2012 . The increase in interest income of $3.0 million, combined with a reduction of interest expense of $6.2 million, resulted in a $9.2 million increase in net interest income.

Non-interest income totaled $54.7 million in the third quarter of 2013 a decrease of $8.3 million , or 13 %, compared to the third quarter of 2012 . The decrease in the third quarter of 2013 compared to the third quarter of 2012 was primarily attributable to bargain purchase gains recorded in the prior year quarter, lower mortgage banking revenues and a decrease in fees from covered call options, partially offset by higher wealth management revenues, increased FDIC indemnification asset accretion and foreign currency remeasurement gains. Mortgage banking revenue decreased $5.4 million when compared to the third quarter of 2012 . The decrease in mortgage banking revenue in the current quarter as compared to the third quarter of 2012 resulted primarily from decreased loan originations due to the impact of higher rates on refinancing activity as well as competitive pricing pressure. Loans sold to the secondary market were $940.8 million in the third quarter of 2013 compared to $1.1 billion in the third quarter of 2012 (see “Non-Interest Income” section later in this document for further detail). The increase in the FDIC indemnification asset

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accretion in the current quarter as compared to the third quarter of 2012 reflects a benefit arising from adjusting certain factors, primarily from an evaluation of our cumulative service costs, which in turn reduced our projected clawback liability.

Non-interest expense totaled $127.2 million in the third quarter of 2013 , increasing $2.7 million , or 2 %, compared to the third quarter of 2012 . The increase compared to the third quarter of 2012 was primarily attributable to higher salary and benefit costs and increased occupancy, data processing and equipment expenses, partially offset by a decrease in OREO expenses and professional fees. Salaries and employee benefits expense increased primarily as a result of a $2.6 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows and a $743,000 increase in employee benefits partially offset by a $632,000 decrease in bonus and commissions primarily attributable to the decrease in variable pay based revenue and the Company’s long-term incentive program,

The Current Economic Environment

The economic environment in the third 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. While management believes interest rates will rebound over time, the Company has employed certain strategies to manage net income in the current rate environment, including those discussed below.

Net Interest Income

The Company has leveraged its internal loan pipeline and external growth opportunities to grow its earning assets base. The Company has also continued its efforts to shift a greater portion of its deposit base to non-interest bearing. Non-interest bearing deposits as a percentage of total deposits was 18% in the third quarter of 2013 as compared to 16% in third quarter of 2012 . In the current quarter the Company was able to increase its net interest margin primarily due to a decrease in the rates on interest-bearing liabilities and a shift in earning assets to higher yielding loans. As a result of the growth in earning assets, increase in net interest margin and improvement in deposit mix the Company increased its net interest income by $9.2 million in the third quarter of 2013 compared to the third 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 third quarter of 2013 as compared to previous quarters, the Company recognized $285,000 in fees on covered call options. In accordance with accounting guidance, these fees are not recorded as a component of net interest income, however 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 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 September 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 third quarter of 2013 , volatility in interest rates resulted in decreased cap valuations as compared to the prior quarter. The Company recognized $1.7 million in trading losses in the third 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 $25.7 million in the third quarter of 2013 , representing 13% 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 third quarter of 2013 , approximately 71% of originations were mortgages associated with new home purchases while 29% of originations were related to refinancing of mortgages. As the housing market and economy have improved, a higher percentage of originations have been attributed to new home purchases.

The Company recently announced the acquisition of certain assets and liabilities of Surety Financial Services. Management believes that the addition of Surety will allow the Company to take advantage of an improving home purchase market as the refinance market softens. As a result, we anticipate that any decline in originations from our existing mortgage banking business in the fourth quarter of 2013 will be partially offset by origination activity added from the Surety acquisition.

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Non-Interest Expense

Management believes expense management is important amid the low interest rate environment and increased competition to enhance profitability. Cost control and an efficient infrastructure should position the Company appropriately as it continues its growth strategy. 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 a 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 in which we operate. 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 remained stable in the third quarter of 2013 , including improvements in the ratios of non-performing assets to total assets and non-performing loans to total loans, excluding covered loans, compared to December 31, 2012 and September 30, 2012. The Company has continued to address non-performing assets and remains disciplined in its approach to grow without sacrificing asset quality.

In particular:

•

The Company’s provision for credit losses, excluding covered loans, in the third quarter of 2013 totaled $11.6 million , a decrease of $6.6 million when compared to the third quarter of 2012 . Net charge-offs decreased to $11.3 million in the third quarter of 2013 (of which $6.7 million related to commercial real-estate loans) compared to $17.9 million for the same period in 2012 (of which $11.6 million related to commercial real-estate loans).

•

The Company’s allowance for loan losses, excluding covered loans, totaled $107.2 million at September 30, 2013 , reflecting a decrease of $5.1 million, or 5%, when compared to the same period in 2012 and a slight decrease of $163,000, when compared to December 31, 2012 . At September 30, 2013 , approximately $50.8 million, or 47%, of the allowance for loan losses, excluding covered loans was associated with commercial real-estate loans and another $28.2 million, or 26%, was associated with commercial loans.

•

The Company has significant exposure to commercial real-estate. At September 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 September 30, 2013 , the commercial real-estate loan portfolio was comprised of $295.7 million related to land, residential and commercial construction, $634.5 million related to office buildings, $612.2 million related to retail, $625.0 million related to industrial use, $550.6 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 September 30, 2013 , the Company had approximately $56.1 million of non-performing commercial real-estate loans representing approximately 1.4 % of the total commercial real-estate loan portfolio. $17.2 million, or 31%, 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 $123.3 million (of which $56.1 million , or 46%, was related to commercial real-estate) at September 30, 2013 , an increase of approximately $5.2 million and $5.4 million compared to December 31, 2012 and September 30, 2012 , respectively. However, the ratio of non-performing loans to total loans, excluding covered loans improved to 98 basis points in the current quarter as compared to 100 basis points and 103 basis points at December 31, 2012 and September 30, 2012 , respectively.


•	The Company’s other real estate owned, excluding covered other real estate owned, decreased to $55.3 million during the third quarter of 2013 , compared to $62.9 million at December 31, 2012 and $67.4 million at

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September 30, 2012 . The decrease in other real estate owned in the third quarter of 2013 compared to the prior periods is primarily a result of disposals. The $55.3 million of other real estate owned as of September 30, 2013 was comprised of $4.6 million of residential real-estate development property, $44.3 million of commercial real-estate property and $6.4 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 $142.1 million as of September 30, 2013 , decreasing $9.9 million compared to the balance of $152.0 million as of December 31, 2012 and decreasing $7.6 million compared to the balance of $149.7 million as of September 30, 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 September 30, 2013 , the Company had a $4.0 million estimated liability on loans expected to be repurchased from loans sold to investors compared to a $4.3 million liability and a $3.2 million liability for similar items as of December 31, 2012 and September 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 third quarter of 2013 , the Company modified $4.0 million of loans in troubled debt restructurings, by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At September 30, 2013 , approximately $115.0 million in loans had terms modified in TDRs, with $79.2 million of these TDRs in accruing status.

Trends in Our Three Operating Segments During the Third Quarter

Community Banking

Net interest income . Net interest income for the community banking segment totaled $133.4 million for the third quarter of 2013 compared to $127.5 million for the second quarter of 2013 and $124.7 million for the third quarter of 2012 . The increase in net interest income in the third quarter of 2013 compared to the second quarter of 2013 is primarily attributable to one additional day in the current quarter, growth in earning assets and a five basis point decrease on the rate paid on interest-bearing liabilities. The increase in net interest income in the current quarter compared to the third quarter of 2012 is attributable to growth in earning assets, including those obtained in acquisitions, as well as the ability to price interest-bearing deposits at lower 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. Non-performing loans increased in the third quarter of 2013 as compared to the second quarter of 2013 and the third quarter of 2012 . The Company remains committed to the timely resolution of non-performing loans. Other real estate owned decreased due to dispositions in the current quarter as compared to the second quarter of 2013 and the third quarter of 2012 .

Mortgage banking revenue. Mortgage banking revenue decreased $6.1 million when compared to the second quarter of 2013 and decreased $5.4 million when compared to the third quarter of 2012 . The decrease in the current quarter as compared to the second quarter of 2013 and the third quarter of 2012 resulted primarily from decreased loan originations due to the impact of higher rates on refinancing activity as well as competitive pricing pressure.

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 third quarter of 2013 , relatively unchanged as compared to U.S. commercial insurance premium finance loan originated in the second quarter of 2013 and up from originations of $936.2 million in the third quarter of 2012 . The Company acquired a Canadian insurance premium funding company in the second quarter of 2012. In the third quarter of 2013 , the Canadian insurance premium funding company originated approximately $170.4 million in commercial insurance premium finance loans as compared to $173.6 million in second quarter of 2013 and $173.3 million in the third quarter of 2012 . For more information on this acquisition, see “Overview—Recent Acquisition Transactions.”

Financing of Life Insurance Premiums . FIFC originated approximately $97.4 million in life insurance premium finance loans in the third quarter of 2013 compared to $136.3 million in the second quarter of 2013 , and compared to $79.9 million in the third quarter of 2012 . The decrease in originations in the third quarter of 2013 from the second quarter of 2013 can be attributed to seasonality. The increase in originations in the third quarter of 2013 compared to the third quarter of 2012 was a result of higher renewal volume in the current year coupled with higher average loan sizes on new business 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 third quarter of 2013 compared to the second quarter of 2013 and the third 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 event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect of

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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 was the parent company of First National Bank of Illinois, 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 was the parent company of Hyde Park Bank & Trust Company, an Illinois state 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., 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.

Acquisitions Completed After September 30, 2013

On October 18, 2013, the Company completed its previously announced acquisition of Diamond. Diamond was the parent company of Diamond Bank, FSB, which operated four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. Through this tra nsaction, subject to final adjustments, the Company acquired approximately $169 million in assets and assumed approximately $140 million in deposits. The aggregate purchase p rice was approximately $3 million. In the merger, outstanding

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shares of Diamond common stock were converted into cash. Immediately after the acquisition, Diamond was merged into the Company's wholly-owned subsidiary, North Shore Community Bank & Trust Company.

On October 1, 2013, the Company announced that its subsidiary, Barrington Bank through its division Wintrust Mortgage, acquired certain assets and assumed certain liabilities of the mortgage banking business of Surety Financial Services of Sherman Oaks, California. Surety has five offices located in southern California which originated approximately $1.0 billion in the twelve months prior to the acquisition date.

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 provided 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 nine months ended September 30, 2013 , as compared to the same periods last year, are shown below:



(Dollars in thousands, except per share data)	Three months ended September 30, 2013			Three months ended September 30, 2012			Percentage (%) or Basis Point (bp)Change
Net income	$	35,563		$	32,302		10	%
Net income per common share—Diluted	0.71			0.66			8
Pre-tax adjusted earnings ^{(2) (6)}	69,920			69,436			1
Net revenue ⁽¹⁾	196,444			195,520			—
Net interest income	141,782			132,575			7
Net interest margin ⁽²⁾	3.57		%	3.50		%	7 bp
Net overhead ratio ⁽²⁾ ⁽³⁾	1.65			1.47			18
Net overhead ratio, based on pre-tax adjusted earnings ^{(2) (3)}	1.61			1.50			11
Efficiency ratio ^{(2) (4)}	64.60			63.67			93
Efficiency ratio, based on pre-tax adjusted earnings ^{(2) (4)}	64.00			63.31			69
Return on average assets	0.81			0.77			4
Return on average common equity	7.85			7.57			28
Return on average tangible common equity	10.06			9.78			28



(Dollars in thousands, except per share data)	Nine months ended September 30, 2013			Nine months ended September 30, 2012			Percentage (%) or Basis Point (bp) Change
Net income	$	101,922		$	81,107		26	%
Net income per common share—Diluted	2.05			1.70			21
Net revenue ⁽¹⁾	584,355			547,643			7
Net interest income	408,319			386,740			6
Pre-tax adjusted earnings ^{(2) (6)}	209,103			202,431			3
Net interest margin ⁽²⁾	3.49		%	3.52		%	(3) bp
Net overhead ratio ⁽²⁾ ⁽³⁾	1.54			1.63			(9	)
Net overhead ratio, based on pre-tax adjusted earnings ^{(2) (3)}	1.54			1.51			3
Efficiency ratio ^{(2) (4)}	64.12			65.75			(163	)
Efficiency ratio, based on pre-tax adjusted earnings ^{(2) (4)}	63.75			62.30			145
Return on average assets	0.79			0.67			12
Return on average common equity	7.57			6.53			104
Return on average tangible common equity	9.71			8.40			131
At end of period
Total assets	$	17,682,548		$	17,018,592		4	%
Total loans, excluding loans held-for-sale, excluding covered loans	12,581,039			11,489,900			9
Total loans, including loans held-for-sale, excluding covered loans	12,915,384			12,059,885			7
Total deposits	14,647,446			13,847,965			6
Total shareholders’ equity	1,873,566			1,761,300			6
Tangible common equity ratio (TCE) ⁽²⁾	7.9		%	7.4		%	50 bp
Tangible common equity ratio, assuming full conversion of preferred stock ⁽²⁾	8.7			8.4			30
Book value per common share ⁽²⁾	$	38.09		$	37.25		2	%
Tangible common book value per share ⁽²⁾	29.89			28.93			3
Market price per common share	41.07			37.57			9
Excluding covered loans:
Allowance for credit losses to total loans ⁽⁵⁾	0.86			1.09			(23) bp
Non-performing loans to total loans	0.98			1.03			(5) 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 September 30,						Nine months ended September 30,
(Dollars and shares in thousands)	2013			2012			2013			2012
Calculation of Net Interest Margin and Efficiency Ratio
(A) Interest Income (GAAP)	$	161,168		$	158,201		$	470,127		$	470,378
Taxable-equivalent adjustment:
—Loans	241			148			616			417
—Liquidity management assets	361			352			1,060			1,014
—Other earning assets	7			1			12			7
Interest Income—FTE	$	161,777		$	158,702		$	471,815		$	471,816
(B) Interest Expense (GAAP)	19,386			25,626			61,808			83,638
Net interest income—FTE	142,391			133,076			410,007			388,178
(C) Net Interest Income (GAAP) (A minus B)	$	141,782		$	132,575		$	408,319		$	386,740
(D) Net interest margin (GAAP)	3.55		%	3.49		%	3.48		%	3.51		%
Net interest margin—FTE	3.57		%	3.50		%	3.49		%	3.52		%
(E) Efficiency ratio (GAAP)	64.80		%	63.83		%	64.30		%	65.92		%
Efficiency ratio—FTE	64.60		%	63.67		%	64.12		%	65.75		%
Efficiency ratio—Based on pre-tax adjusted earnings	64.00		%	63.31		%	63.75		%	62.30		%
(F) Net Overhead ratio (GAAP)	1.65		%	1.47		%	1.54		%	1.63		%
Net Overhead ratio—Based on pre-tax adjusted earnings	1.61		%	1.50		%	1.54		%	1.51		%
Calculation of Tangible Common Equity ratio (at period end)
Total shareholders’ equity	$	1,873,566		$	1,761,300
(G) Less: Preferred stock	(126,500		)	(176,371		)
Less: Intangible assets	(376,291		)	(354,039		)
(H) Total tangible common shareholders’ equity	$	1,370,775		$	1,230,890
Total assets	$	17,682,548		$	17,018,592
Less: Intangible assets	(376,291		)	(354,039		)
(I) Total tangible assets	$	17,306,257		$	16,664,553
Tangible common equity ratio (H/I)	7.9		%	7.4		%
Tangible common equity ratio, assuming full conversion of preferred stock ((H-G)/I)	8.7		%	8.4		%
Calculation of Pre-Tax Adjusted Earnings
Income before taxes	$	58,082		$	52,173		$	166,618		$	131,261
Add: Provision for credit losses	11,114			18,799			42,183			56,890
Add: OREO expense, net	2,499			3,808			3,163			16,834
Add: Recourse obligation on loans previously sold	(732		)	—			(672		)	—
Add: Covered loan collection expense	462			1,201			1,437			3,923
Add: Defeasance cost	—			—			—			996
Add: Seasonal payroll tax fluctuation	(1,112		)	(1,121		)	186			873
Add: FDIC indemnification asset (accretion) amortization	(1,209		)	513			15			979
Add: (Gain) loss on foreign currency remeasurement	(203		)	825			(148		)	825
Add: Fees for termination of repurchase agreements	—			—			—			—
Less: Gain from investment partnerships	(561		)	(718		)	(2,181		)	(2,178		)
Less: Gain on bargain purchases, net	—			(6,633		)	—			(7,418		)
Less: Trading losses (gains), net	1,655			998			(1,170		)	1,780
Less: Gains on available-for-sale securities, net	(75		)	(409		)	(328		)	(2,334		)
Pre-tax adjusted earnings	$	69,920		$	69,436		$	209,103		$	202,431
Calculation of book value per share
Total shareholders’ equity	$	1,873,566		$	1,761,300
Less: Preferred stock	(126,500		)	(176,371		)
(J) Total common equity	$	1,747,066		$	1,584,929
Actual common shares outstanding	39,731			36,411
Add: TEU conversion shares	6,133			6,133
(K) Common shares used for book value calculation	45,864			42,544
Book value per share (J/K)	$	38.09		$	37.25
Tangible common book value per share (H/K)	$	29.89		$	28.93
Calculation of return on average common equity
(L) Net income applicable to common shares	$	33,982		$	29,686		$	95,108		$	74,630
Total average shareholders' equity	1,853,122			1,736,740			1,843,633			1,665,874
Less: Average preferred stock	(136,278		)	(176,349		)	(162,904		)	(140,304		)
(M) Total average common shareholders' equity	1,716,844			1,560,391			1,680,729			1,525,570
Less: Average intangible assets	(376,667		)	(352,779		)	(371,697		)	(338,486		)
(N) Total average tangible common shareholders’ equity	1,340,177			1,207,612			1,309,032			1,187,084
Return on average common equity, annualized (L/M)	7.85		%	7.57		%	7.57		%	6.53		%
Return on average tangible common equity, annualized (L/N)	10.06		%	9.78		%	9.71		%	8.40		%

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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 September 30, 2013 totaled $35.6 million , an increase of $3.3 million , or 10% , compared to the third quarter of 2012 . On a per share basis, net income for the third quarter of 2013 totaled $0.71 per diluted common share compared to $0.66 in the third quarter of 2012 .

The most significant factors impacting net income for the third quarter of 2013 as compared to the same period in the prior year include an increase in net interest income as a result of growth in earning assets as well as reduced costs on interest-bearing deposits from a more favorable mix of the deposit funding base, lower provision for credit losses, and higher wealth management revenues due to an increased customer base and market appreciation. These improvements were partially offset by a decrease in bargain purchase gains, a reduction in mortgage banking revenue due to lower origination volumes, an increase in salary expense caused by the addition of employees from acquisitions, and a decrease in fees from covered call options. The return on average common equity for the third quarter of 2013 was 7.85%, compared to 7.57% for the prior year third 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 September 30, 2013 compared to the Quarter Ended September 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 third quarter of 2013 as compared to the third quarter of 2012 (linked quarters):



	For the three months ended September 30, 2013							For the three months ended September 30, 2012
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,262,839		$	10,504	1.84	%	$	2,565,151		$	9,061	1.41	%
Other earning assets ^{(2) (3) (7)}	27,426			221		3.19		31,142			222		2.83
Loans, net of unearned income ^{(2) (4) (7)}	13,113,138			142,085		4.30		11,922,450			137,022		4.57
Covered loans	435,961			8,967		8.16		597,518			12,397		8.25
Total earning assets ⁽⁷⁾	$	15,839,364		$	161,777	4.05	%	$	15,116,261		$	158,702	4.18	%
Allowance for loan and covered loan losses	(126,164		)					(138,740		)
Cash and due from banks	209,539							185,435
Other assets	1,566,832							1,542,473
Total assets	$	17,489,571						$	16,705,429

Interest-bearing deposits	$	11,817,636		$	12,524	0.42	%	$	11,261,184		$	16,794	0.59	%
Federal Home Loan Bank advances	454,563			2,729		2.38		441,445			2,817		2.54
Notes payable and other borrowings	256,318			910		1.41		426,675			2,024		1.89
Secured borrowings—owed to securitization investors	—			—		—		176,904			795		1.79
Subordinated notes	10,000			40		1.57		15,000			67		1.75
Junior subordinated notes	249,493			3,183		4.99		249,493			3,129		4.91
Total interest-bearing liabilities	$	12,788,010		$	19,386	0.60	%	$	12,570,701		$	25,626	0.81	%
Non-interest bearing deposits	2,552,182							2,092,028
Other liabilities	296,257							305,960
Equity	1,853,122							1,736,740
Total liabilities and shareholders’ equity	$	17,489,571						$	16,705,429
Interest rate spread ^{(5) (7)}						3.45	%						3.37	%
Net free funds/contribution ⁽⁶⁾	$	3,051,354				0.12	%	$	2,545,560				0.13	%
Net interest income/Net interest margin ⁽⁷⁾				$	142,391	3.57	%				$	133,076	3.50	%


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


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended September 30, 2013 and 2012 were $609,000 and $501,000, 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 third quarter of 2013 increased by seven basis points when compared to the third quarter of 2012 . This increase resulted in primarily from a 21 basis point decline in the rate paid on total interest bearing liabilities. This was partially offset by a decrease of 13 basis points in total earning assets and a one basis point decline from the contribution of net free funds. 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

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

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



	For the three months ended September 30, 2013							For the three months ended June 30, 2013
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,262,839		$	10,504	1.84	%	$	2,560,118		$	10,823	1.70	%
Other earning assets ^{(2) (3) (7)}	27,426			221		3.19		25,775			201		3.13
Loans, net of unearned income ^{(2) (4) (7)}	13,113,138			142,085		4.30		12,546,676			137,139		4.38
Covered loans	435,961			8,967		8.16		491,603			9,068		7.40
Total earning assets ⁽⁷⁾	$	15,839,364		$	161,777	4.05	%	$	15,624,172		$	157,231	4.04	%
Allowance for loan and covered loan losses	(126,164		)					(126,455		)
Cash and due from banks	209,539							225,712
Other assets	1,566,832							1,560,556
Total assets	$	17,489,571						$	17,283,985

Interest-bearing deposits	$	11,817,636		$	12,524	0.42	%	$	11,766,422		$	13,675	0.47	%
Federal Home Loan Bank advances	454,563			2,729		2.38		434,572			2,821		2.60
Notes payable and other borrowings	256,318			910		1.41		273,255			1,132		1.66
Subordinated notes	10,000			40		1.57		13,187			52		1.58
Junior subordinated notes	249,493			3,183		4.99		249,493			3,142		4.98
Total interest-bearing liabilities	$	12,788,010		$	19,386	0.60	%	$	12,736,929		$	20,822	0.65	%
Non-interest bearing deposits	2,552,182							2,379,315
Other liabilities	296,257							308,476
Equity	1,853,122							1,859,265
Total liabilities and shareholders’ equity	$	17,489,571						$	17,283,985
Interest rate spread ^{(5) (7)}						3.45	%						3.39	%
Net free funds/contribution ⁽⁶⁾	$	3,051,354				0.12	%	$	2,887,243				0.11	%
Net interest income/Net interest margin ⁽⁷⁾				$	142,391	3.57	%				$	136,409	3.50	%


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


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended September 30, 2013 and June 30, 2013 were $609,000 and $585,000, 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 third quarter of 2013 increased by seven basis points when compared to the second quarter of 2013 . This increase resulted from a five basis point decrease in the rate on total average interest-bearing liabilities, a one basis point increase in the yield on total average earning assets, and a one basis point increase from the contribution of net free funds.

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Nine Months Ended September 30, 2013 compared to the Nine Months Ended September 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 nine months of 2013 as compared to the first nine months of 2012:



	For the nine months ended September 30, 2013							For the nine months ended September 30, 2012
(Dollars in thousands)	Average			Interest		Rate		Average			Interest		Rate
Liquidity management assets ^{(1) (2) (7)}	$	2,538,131		$	31,690	1.67	%	$	2,700,742		$	33,794	1.67	%
Other earning assets ^{(2) (3) (7)}	25,815			602		3.12		30,802			679		2.94
Loans, net of unearned income ^{(2) (4) (7)}	12,640,610			410,964		4.35		11,359,017			396,099		4.66
Covered loans	487,581			28,559		7.83		641,354			41,244		8.59
Total earning assets ⁽⁷⁾	$	15,692,137		$	471,815	4.02	%	$	14,731,915		$	471,816	4.28	%
Allowance for loan and covered loan losses	(125,950		)					(134,876		)
Cash and due from banks	217,503							160,565
Other assets	1,560,629							1,530,587
Total assets	$	17,344,319						$	16,288,191

Interest-bearing deposits	$	11,813,674		$	40,703	0.46	%	$	10,854,166		$	52,096	0.64	%
Federal Home Loan Bank advances	434,557			8,314		2.56		475,310			9,269		2.60
Notes payable and other borrowings	275,425			3,196		1.55		451,455			7,400		2.19
Secured borrowings—owed to securitization investors	—			—		—		365,670			5,087		1.86
Subordinated notes	12,711			151		1.57		24,562			362		1.94
Junior subordinated notes	249,493			9,444		4.99		249,493			9,424		4.96
Total interest-bearing liabilities	$	12,785,860		$	61,808	0.64	%	$	12,420,656		$	83,638	0.90	%
Non-interest bearing deposits	2,408,365							1,973,280
Other liabilities	306,461							228,381
Equity	1,843,633							1,665,874
Total liabilities and shareholders’ equity	$	17,344,319						$	16,288,191
Interest rate spread ^{(5) (7)}						3.38	%						3.38	%
Net free funds/contribution ⁽⁶⁾	$	2,906,277				0.11	%	$	2,311,259				0.14	%
Net interest income/Net interest margin ⁽⁷⁾				$	410,007	3.49	%				$	388,178	3.52	%


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


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the nine months ended September 30, 2013 and September 30, 2012 were $1.7 million and $1.4 million, respectively.


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


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


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


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


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

The net interest margin for the first nine months of 2013 was 3.49% compared to 3.52% in the first nine months of 2012, a decrease of three basis points. The decrease was the result of a 26 basis point decline from the yield on average earning assets and a three basis point decline from the contribution on net free funds, partially offset by a 26 basis point decline in the rate paid 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 September 30, 2013 and June 30, 2013 , the first nine months ended September 30, 2013 and September 30, 2012 , and the three month periods ended September 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:



	Third Quarter of 2013 Compared to Second Quarter of 2013		First Nine Months of 2013 Compared to First Nine Months of 2012			Third Quarter of 2013 Compared to Third Quarter of 2012
(Dollars in thousands)	Third Quarter of 2013 Compared to Second Quarter of 2013					Third Quarter of 2013 Compared to Third Quarter of 2012
Tax-equivalent net interest income for comparative period	$	136,409	$	388,178		$	133,076
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)	3,610		40,283			10,450
Change due to interest rate fluctuations (rate)	889		(17,033		)	(1,135		)
Change due to number of days in each period	1,483		(1,421		)	—
Tax-equivalent net interest income for the period ended September 30, 2013	$	142,391	$	410,007		$	142,391

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Non-interest Income

For the third quarter of 2013 , non-interest income totaled $54.7 million , a decrease of $8.3 million , or 13% , compared to the third quarter of 2012 . On a year-to-date basis, non-interest income for the first nine months of 2013 totaled $176.0 million and increased $15.1 million , or 9% , compared to the same period in 2012.

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



	Three months ended September 30,						$			%
(Dollars in thousands)	2013			2012			Change			Change
Brokerage	$	7,388		$	6,355		$	1,033		16
Trust and asset management	8,669			6,897			1,772			26
Total wealth management	16,057			13,252			2,805			21
Mortgage banking	25,682			31,127			(5,445		)	(17	)
Service charges on deposit accounts	5,308			4,235			1,073			25
Gains on available-for-sale securities, net	75			409			(334		)	(82	)
Fees from covered call options	285			2,083			(1,798		)	(86	)
Gain on bargain purchases, net	—			6,633			(6,633		)	(100	)
Trading losses, net	(1,655		)	(998		)	(657		)	(66	)
Other:
Interest rate swap fees	2,183			2,355			(172		)	(7	)
Bank Owned Life Insurance	625			810			(185		)	(23	)
Administrative services	943			825			118			14
Miscellaneous	5,159			2,214			2,945			NM
Total Other	8,910			6,204			2,706			44
Total Non-Interest Income	$	54,662		$	62,945		$	(8,283	)	(13	)



	Nine months ended September 30,					$			%
(Dollars in thousands)	2013		2012			Change			Change
Brokerage	$	22,080	$	19,073		$	3,007		16
Trust and asset management	24,697		19,973			4,724			24
Total wealth management	46,777		39,046			7,731			20
Mortgage banking	87,561		75,268			12,293			16
Service charges on deposit accounts	15,136		12,437			2,699			22
Gains on available-for-sale securities, net	328		2,334			(2,006		)	(86	)
Fees from covered call options	2,917		8,320			(5,403		)	(65	)
Gain on bargain purchases, net	—		7,418			(7,418		)	(100	)
Trading gains (losses), net	1,170		(1,780		)	2,950			NM
Other:
Interest rate swap fees	6,092		7,203			(1,111		)	(15	)
Bank Owned Life Insurance	2,372		2,234			138			6
Administrative services	2,512		2,414			98			4
Miscellaneous	11,171		6,009			5,162			86
Total Other	22,147		$	17,860		$	4,287		24
Total Non-Interest Income	$	176,036	$	160,903		$	15,133		9

NM—Not Meaningful

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

Wealth management revenue totaled $16.1 million in the third quarter of 2013 compared to $13.3 million in the third quarter of 2012 , an increase of 21% . On a year-to-date basis, wealth management revenues totaled $46.8 million for the first nine months of 2013, compared to $39.0 million in the first nine 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 September 30, 2013 , mortgage banking revenue totaled $25.7 million , an decrease of $5.4 million when compared to the third quarter of 2012 . The decrease in mortgage banking revenue in the three months ended September 30, 2013 as compared to the prior year period resulted primarily from lower origination volumes as refinance activity declined as well as competitive pricing pressures. Mortgage loan originations were $941 million in the third quarter of 2013 as compared to $1.1 billion in the prior year quarter. For the nine months ended September 30, 2013, mortgage banking revenue totaled $87.6 million as compared to $75.3 million for the nine months ended September 30, 2012. The increase in mortgage banking revenue in the nine months ended September 30, 2013 as compared to the prior year period resulted primarily from higher origination volumes. On a year-to-date basis, mortgage loan originations were $3.0 billion for the nine months ended September 30, 2013 compared to $2.7 billion for the same period of the prior year. 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 September 30,						Nine months ended September 30,
(Dollars in thousands)	2013			2012			2013		2012
Mortgage loans originated and sold	$	940,827		$	1,119,762		$	2,966,058	$	2,688,002
Mortgage loans serviced for others	981,415			997,235
Fair value of mortgage servicing rights (MSRs)	8,608			6,276
MSRs as a percentage of loans serviced	0.88		%	0.63		%

The Company recognized $1.7 million in trading losses in the third quarter of 2013 compared to trading losses of $998,000 in the third quarter of 2012. On a year-to-date basis, trading gains totaled $1.2 million in the first nine months of 2013 as compared to a $1.8 million trading loss in the same period of 2012. The fluctuations in trading losses and gains during the three and nine months ended September 30, 2013 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 nine month periods ended September 30, 2013 by $1.8 million and $5.4 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 third quarter of 2013 totaled $8.9 million, an increase of $2.7 million compared to the third quarter of 2012. On a year-to-date basis, other non-interest income totaled $22.1 million in 2013, an increase of $4.3 million as compared to $17.9 million recorded in the first nine 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, increased FDIC indemnification asset accretion and foreign currency remeasurement gains in 2013. The increase in FDIC indemnification asset accretion in 2013 compared to 2012 reflects a benefit arising from adjusting certain factors, primarily from an evaluation of our cumulative service costs, which in turn reduced our projected clawback liability.

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Non-interest Expense

Non-interest expense for the third quarter of 2013 totaled $127.2 million and increased approximately $2.7 million , or 2 %, compared to the third quarter of 2012 . On a year-to-date basis, non-interest expense for the first nine months of 2013 totaled $375.6 million and increased $16.1 million , or 4% , compared to the same period in 2012.

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



	Three months ended September 30,				$			%
(Dollars in thousands)	2013		2012		Change			Change
Salaries and employee benefits:
Salaries	$	42,789	$	40,173	$	2,616		7
Commissions and bonus	23,409		24,041		(632		)	(3	)
Benefits	11,809		11,066		743			7
Total salaries and employee benefits	78,007		75,280		2,727			4
Equipment	6,593		5,888		705			12
Occupancy, net	9,079		8,024		1,055			13
Data processing	4,884		4,103		781			19
Advertising and marketing	2,772		2,528		244			10
Professional fees	3,378		4,653		(1,275		)	(27	)
Amortization of other intangible assets	1,154		1,078		76			7
FDIC insurance	3,245		3,549		(304		)	(9	)
OREO expenses, net	2,499		3,808		(1,309		)	(34	)
Other:
Commissions—3rd party brokers	1,277		1,106		171			15
Postage	1,255		1,120		135			12
Stationery and supplies	1,009		954		55			6
Miscellaneous	12,096		12,457		(361		)	(3	)
Total other	15,637		15,637		—			—
Total Non-Interest Expense	$	127,248	$	124,548	$	2,700		2



	Nine months ended September 30,				$			%
(Dollars in thousands)	2013		2012		Change			Change
Salaries and employee benefits:
Salaries	$	126,291	$	115,343	$	10,948		9
Commissions and bonus	69,828		60,231		9,597			16
Benefits	38,626		36,875		1,751			5
Total salaries and employee benefits	234,745		212,449		22,296			10
Equipment	19,190		16,754		2,436			15
Occupancy, net	26,639		23,814		2,825			12
Data processing	13,841		11,561		2,280			20
Advertising and marketing	7,534		6,713		821			12
Professional fees	10,790		12,104		(1,314		)	(11	)
Amortization of other intangible assets	3,438		3,216		222			7
FDIC insurance	9,692		10,383		(691		)	(7	)
OREO expenses, net	3,163		16,834		(13,671		)	(81	)
Other:
Commissions—3rd party brokers	3,639		3,196		443			14
Postage	3,968		3,873		95			2
Stationery and supplies	2,830		2,908		(78		)	(3	)
Miscellaneous	36,085		35,687		398			1
Total other	46,522		45,664		858			2
Total Non-Interest Expense	$	375,554	$	359,492	$	16,062		4

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

Salaries and employee benefits expense increased $2.7 million , or 4% , in the third quarter of 2013 compared to the third quarter of 2012 primarily as a result of a $2.6 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows and a $743,000 increase in employee benefits, partially offset by a $632,000 decrease in bonus and commissions primarily attributable to the decrease in variable pay based revenue and expected payouts associated with the Company's long-term incentive program. On a year-to-date basis, salaries and employee benefits expense increased $22.3 million , or 10% , in the first nine months of 2013 compared to the first nine months of 2012 primarily as a result of a $10.9 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows, a $9.6 million increase in bonus and commissions primarily attributable to the increase in variable pay based revenue and expected payouts associated with the Company's long-term incentive program and a $1.8 million increase from employee benefits (primarily health plan and payroll taxes related).

Equipment expense totaled $6.6 million for the third quarter of 2013 , an increase of $705,000 compared to the third quarter of 2012 . On a year-to-date basis, equipment expense totaled $19.2 million for the first nine months of 2013 as compared to $16.8 million for the first nine 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 third quarter of 2013 was $9.1 million , an increase of $1.1 million , or 13% , compared to the same period in 2012 . On a year-to-date basis, occupancy expense totaled $26.6 million for the first nine months of 2013 as compared to $23.8 million for the first nine months of 2012. The increase is primarily the result of depreciation and maintenance and repairs on owned locations including those obtained in the Company's acquisitions as well as increased property taxes, partially offset by increased rental income. 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 $781,000 in the third quarter of 2013 totaling $4.9 million compared to $4.1 million recorded in the third quarter of 2012 . On a year-to-date basis, data processing expenses totaled $13.8 million for the first nine months of 2013, as compared to $11.6 million for the first nine 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 acquired banks. Data processing expenses increased in the current quarter and nine month period compared to the previous year quarter and nine month period, primarily due to growth in the Company.

OREO expense totaled $2.5 million in the third quarter of 2013 compared to OREO expense of $3.8 million recorded in the third quarter of 2012 . The decrease in total OREO expenses is primarily due to higher gains on sales of OREO properties. On a year-to-date basis, OREO expense totaled $3.2 million for the first nine months of 2013, a decrease of $13.7 million , as compared to $16.8 million in the first nine months of 2012. The decrease in the first nine months of 2013 as compared to the same period of 2012 is a result of higher gains on sales of OREO properties including 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 third quarter of 2013 decreased $361,000 , or 3% , compared to the third quarter in the prior year. On a year-to-date basis, miscellaneous expense increased by $398,000 to $36.1 million for the first nine months of 2013, as compared to $35.7 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.

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Income Taxes

The Company recorded income tax expense of $22.5 million for the three months ended September 30, 2013 , compared to $19.9 million for same period of 2012 . Income tax expense was $64.7 million and $50.2 million for the nine months ended September 30, 2013 and 2012 , respectively. The effective tax rates were 38.8% and 38.1% for the third quarters of 2013 and 2012 , respectively, and 38.8% and 38.2% for the 2013 and 2012 year-to-date periods, respectively.

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 September 30, 2013 totaled $133.4 million as compared to $124.7 million for the same period in 2012 , an increase of $8.7 million , or 7% . On a year-to-date basis, net interest income totaled $384.3 million for the first nine months of 2013, an increase of $15.5 million , or 4% , as compared to the $368.8 million recorded in the first nine months of 2012. The increases for both the three and nine 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 favorable rates. The community banking segment’s non-interest income totaled $37.7 million in the third quarter of 2013 , a decrease of $11.2 million , or 23% , when compared to the third quarter of 2012 total of $48.9 million . The decrease in non-interest income in the current quarter was primarily attributable to lower bargain purchase gains, mortgage banking revenues and fees from covered call options, partially offset by increased FDIC indemnification asset accretion. On a year-to-date basis, the segment's non-interest income totaled $120.2 million for the first nine months of 2013, an increase of $2.5 million , or 2% , when compared to the first nine months of 2012 total of $117.7 million . The increase on a year-to-date basis can be primarily attributed to higher mortgage banking revenues and trading gains, partially offset by fewer bargain purchase gains, fees from covered call options and gains on available-for-sale securities. The community banking segment’s after-tax profit for the quarter ended September 30, 2013 totaled $36.3 million , a decrease of $3.4 million as compared to after-tax profit in the third quarter of 2012 of $39.7 million . The after-tax profit for the nine months ended September 30, 2013 , totaled $104.2 million , an increase of $8.1 million , or 8% as compared to the prior year total of $96.1 million .

Net interest income for the specialty finance segment totaled $32.7 million for the quarter ended September 30, 2013 , compared to $32.2 million for the same period in 2012 , an increase of $560,000 or 2% . On a year-to-date basis, net interest income totaled $95.3 million for the first nine months of 2013, an increase of $6.8 million , or 8% , as compared to the $88.5 million recorded for the prior year period. The specialty finance segment’s non-interest income for the three and nine month periods ending September 30, 2013 totaled $2.1 million and $5.6 million , respectively compared to the three and nine month periods ending September 30, 2012 total of $1.1 million and $4.0 million . The increases in both net interest income and non-interest income in the current quarter and first nine months of 2013 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 63%, 31% and 6%, respectively, of the total revenues of our specialty finance business for the nine month period ending September 30, 2013 . The after-tax profit of the specialty finance segment for the quarter ended September 30, 2013 totaled $14.8 million as compared to $13.0 million for the quarter ended September 30, 2012 . The specialty finance segment's after-tax profit for the nine months ended September 30, 2013 totaled $42.4 million , an increase of $6.0 million , or 17% , as compared to the prior year total of $36.4 million .

The wealth management segment reported net interest income of $1.6 million for the third quarter of 2013 compared to $524,000 in the same quarter of 2012 . On a year-to-date basis, net interest income totaled $5.3 million for the first nine months of 2013, an increase of $344,000 , or 7% , as compared to the $4.9 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 $1.5 million ($889,000 after tax) and $4.9 million ($2.9 million after tax) for the three and nine month periods ended September 30, 2013 , compared to $360,000 ($237,000 after tax) and $4.4 million ($2.7 million after tax) in the comparable periods of 2012. This segment recorded non-interest income of $19.0 million for the third quarter of 2013 compared to $16.1 million for

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the third quarter of 2012 . On a year-to-date basis, non interest income totaled $56.0 million , an increase of $8.7 million compared to the prior year period total of $47.3 million . The increase in the third quarter and first nine months of 2013 as compared to the third quarter and first nine months of 2012 is primarily attributable to 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 $2.7 million for the third quarter of 2013 compared to after-tax profit of $1.3 million for the third quarter of 2012 . This segment's after-tax profit for the nine months ended September 30, 2013 totaled $8.1 million compared to $5.3 million for the nine months ended September 30, 2012.

Financial Condition

Total assets were $17.7 billion at September 30, 2013 , representing an increase of $664.0 million , or 4% , when compared to September 30, 2012 and an increase of approximately $69.0 million , or 2% on an annualized basis, when compared to June 30, 2013 . Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $15.5 billion at September 30, 2013 and June 30, 2013 , and $14.9 billion at September 30, 2012 . See Notes 5, 6, 10, 11 and 12 of the Consolidated Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

Interest-Earning Assets

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



	Three Months Ended
	September 30, 2013				June 30, 2013				September 30, 2012
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Loans:
Commercial	$	3,095,104	20	%	$	2,937,443	19	%	$	2,684,782	18	%
Commercial real-estate	4,126,888		26		4,061,849		26		3,656,756		24
Home equity	745,292		5		762,772		5		813,754		5
Residential real-estate ⁽¹⁾	869,400		5		756,703		5		917,326		6
Premium finance receivables	4,088,041		26		3,844,482		25		3,659,178		24
Indirect consumer loans	60,767		—		67,059		—		75,139		1
Other loans	127,646		1		116,368		1		115,515		1
Total loans, net of unearned income excluding covered loans ⁽²⁾	$	13,113,138	83	%	$	12,546,676	81	%	$	11,922,450	79	%
Covered loans	435,961		3		491,603		3		597,518		4
Total average loans ⁽²⁾	$	13,549,099	86	%	$	13,038,279	84	%	$	12,519,968	83	%
Liquidity management assets ⁽³⁾	$	2,262,839	14	%	$	2,560,118	16	%	2,565,151		17	%
Other earning assets ⁽⁴⁾	27,426		—		25,775		—		31,142		—
Total average earning assets	$	15,839,364	100	%	$	15,624,172	100	%	$	15,116,261	100	%
Total average assets	$	17,489,571			$	17,283,985			$	16,705,429
Total average earning assets to total average assets			91	%			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 earning assets for the third quarter of 2013 increased $723.1 million , or 5% , to $15.8 billion , compared to the third quarter of 2012 , and increased $215.2 million , or 5% on an annualized basis, compared to the second quarter of 2013. Average earning assets comprised 91% of average total assets at September 30, 2013 compared to 90% of average total assets at June 30, 2013 and September 30, 2012 .

Average total loans, net of unearned income, totaled $13.5 billion in the third quarter of 2013 , increasing $1.0 billion , or 8% , from the third quarter of 2012 and $510.8 million , or 16% on an annualized basis, from the second quarter of 2013. Average commercial

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loans totaled $3.1 billion in the third quarter of 2013 , and increased $410.3 million , or 15% , over the average balance in the same period of 2012, while average commercial real-estate loans totaled $4.1 billion in the third quarter of 2013 , increasing $470.1 million , or 13% , compared to the third quarter of 2012 . Combined, these categories comprised 53% and 51% of the average loan portfolio in the third quarters of 2013 and 2012, respectively. The growth realized in these categories for the third 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 increased compared to the quarter ended June 30, 2013 , with average commercial loans increasing by $157.7 million , or 21% annualized, and average commercial real-estate loans increasing by $65.0 million , or 6% annualized.

Home equity loans averaged $745.3 million in the third quarter of 2013 , and decreased $68.5 million , or 8% , when compared to the average balance in the same period of 2012 and $17.5 million , or 9% annualized, when compared to quarter ended June 30, 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 $869.4 million in the third quarter of 2013 , and decreased $47.9 million , or 5% from the average balance of $917.3 million in same period of 2012. Additionally, compared to the quarter ended June 30, 2013 , the average balance increased $112.7 million , or 59% 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 decreased since the same period of 2012 as a result of lower origination volumes during the current period due to the impact of higher rates on refinancing activity as well as competitive pricing pressure.

Average premium finance receivables totaled $4.1 billion in the third quarter of 2013 , and accounted for 30% of the Company’s average total loans. Premium finance receivables consist of a commercial portfolio and a life portfolio, comprising approximately 55% and 45% , respectively, of the average total balance of premium finance receivables for the third quarter of 2013 , compared to 54% and 46% , respectively, for the same period in 2012. In the third quarter of 2013 , average premium finance receivables increased $428.9 million , or 12% , from the average balance of $3.7 billion at the same period of 2012. Additionally, the average balance increased $243.6 million , or 25% on an annualized basis, from the average balance of $3.8 billion in the quarter ended June 30, 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. Approximately $1.4 billion of premium finance receivables were originated in the third 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 third quarter of 2013 and 2012, average indirect consumer loans totaled $60.8 million and $75.1 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 $436.0 million in the third quarter of 2013 , and decreased $161.6 million , or 27% , when compared to the average balance in the same period of 2012 and decreased $55.6 million , or 45% annualized, when compared to quarter ended June 30, 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 Consolidated 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

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for 14% of total average earning assets in the third quarter of 2013 compared to 16% in the second quarter of 2013 and 17% in the third quarter of 2012. Average liquidity management assets decreased $302.3 million in the third quarter of 2013 compared to the same period 2012, and decreased $297.3 million compared to the second quarter of 2013. In the third quarter of 2013, a portion of the Company's liquidity was used to fund continued loan growth, particularly in our commercial and commercial real estate portfolios.

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 Nine Months Ended
	September 30, 2013				September 30, 2012
(Dollars in thousands)	Balance		Percent		Balance		Percent
Loans:
Commercial	$	2,958,899	19	%	$	2,567,589	17	%
Commercial real estate	4,035,972		26	%	3,601,439		24	%
Home equity	760,837		5	%	831,995		6	%
Residential real estate ⁽¹⁾	792,957		5	%	776,932		5	%
Premium finance receivables	3,904,500		25	%	3,392,173		23	%
Indirect consumer loans	66,975		—	%	70,399		1	%
Other loans	120,470		1	%	118,490		1	%
Total loans, net of unearned income excluding covered loans ⁽²⁾	$	12,640,610	81	%	$	11,359,017	77	%
Covered loans	487,581		3	%	641,354		4	%
Total average loans ⁽²⁾	$	13,128,191	84	%	$	12,000,371	81	%
Liquidity management assets ⁽³⁾	$	2,538,131	16	%	2,700,742		18	%
Other earning assets ⁽⁴⁾	25,815		—	%	30,802		1	%
Total average earning assets	$	15,692,137	100	%	$	14,731,915	100	%
Total average assets	$	17,344,319			$	16,288,191
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 nine months of 2013 increased $1.1 billion , or 9% , over the previous year period. Similar to the quarterly discussion above, approximately $391.3 million of this increase relates to the commercial portfolio, $434.5 million of this increase relates to the commercial real estate portfolio and $512.3 million of this increase relates to the premium finance receivables portfolio.

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Deposits

Total deposits at September 30, 2013 were $14.6 billion an increase of $799.5 million , or 6% , compared to total deposits at September 30, 2012 . See Note 10 to the Consolidated 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 September 30, 2013 :



Time Certificates of Deposit Maturity/Re-pricing Analysis As of September 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	$	4,501	$	79,626	$	160,612	$	664,387	$	909,126	0.54	%
4-6 months	40,000		65,158		—		679,158		784,316		0.74	%
7-9 months	4,953		26,356		—		536,106		567,415		0.69	%
10-12 months	18,229		51,441		—		430,125		499,795		0.71	%
13-18 months	95,661		18,507		—		429,645		543,813		1.24	%
19-24 months	72,298		15,344		—		239,826		327,468		1.36	%
24+ months	163,721		19,906		—		445,393		629,020		1.25	%
Total	$	399,363	$	276,338	$	160,612	$	3,424,640	$	4,260,953	0.87	%


(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
	September 30, 2013			June 30, 2013				September 30, 2012
(Dollars in thousands)	Balance	Percent		Balance		Percent		Balance	Percent
Non-interest bearing	2,552,182	18	%	$	2,379,315	17	%	2,092,028	16	%
NOW	2,161,521	15		2,115,414		15		1,794,413	13
Wealth management deposits	1,084,309	8		874,101		6		981,550	7
Money market	3,067,758	21		2,923,602		21		2,390,359	18
Savings	1,315,166	9		1,284,411		9		1,074,308	8
Time certificates of deposit	4,188,882	29		4,568,894		32		5,020,554	38
Total average deposits	14,369,818	100	%	$	14,145,737	100	%	13,353,212	100	%

Total average deposits for the third quarter of 2013 were $14.4 billion , an increase of $1.0 billion , or 8%, from the third quarter of 2012 . The increase in average deposits is primarily attributable to the Company’s acquisition activity in 2012 and 2013, as well as additional deposits 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 $460.1 million, or 22% , in the third quarter of 2013 compared to the third 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:



	September 30,						December 31,
(Dollars in thousands)	2013			2012			2012			2011			2010
Total deposits	$	14,647,446		$	13,847,965		$	14,428,544		$	12,307,267		$	10,803,673
Brokered deposits	723,589			837,456			787,812			674,013			639,687
Brokered deposits as a percentage of total deposits	4.9		%	6.0		%	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
	September 30,		June 30,		September 30,
(Dollars in thousands)	2013		2013		2012
Notes payable	$	1,727	$	18,104	$	2,455
Federal Home Loan Bank advances	454,563		434,572		441,445
Other borrowings:
Federal funds purchased	1,583		997		143
Securities sold under repurchase agreements	225,845		222,851		388,446
Other	27,163		31,303		35,631
Total other borrowings	$	254,591	$	255,151	$	424,220
Secured borrowings—owed to securitization investors	—		—		176,904
Subordinated notes	10,000		13,187		15,000
Junior subordinated debentures	249,493		249,493		249,493
Total other borrowings	$	970,374	$	970,507	$	1,309,517

Notes payable balances represent the balances on the Agreement with unaffiliated banks and an unsecured promissory note as a result of the Great Lakes Advisors acquisition. At September 30, 2013 , the Company had $1.5 million of notes payable outstanding compared to $1.7 million at June 30, 2013 and $2.3 million at September 30, 2012 . The 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. Subsequent to September 30, 2013, the Company amended the terms of the $100.0 million revolving credit facility and repaid and terminated the $1.0 million term loan. See Note 18 of the Consolidated Financial Statements presented under Item 1 of this report for further discussion.

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 $387.9 million at September 30, 2013 , compared to $585.9 million at June 30, 2013 and $414.2 million at September 30, 2012 .

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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 related to an office building complex owned by the Company. These borrowings totaled $246.9 million , $252.8 million and $377.2 million at September 30, 2013 , June 30, 2013 and September 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. 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 September 30, 2013 , June 30, 2013 , and September 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, the 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 September 30, 2013 and June 30, 2013 , and $15.0 million at September 30, 2012 . On November 7, 2013, the Company repaid the subordinated note remaining balance of $10.0 million .

The Company had $249.5 million of junior subordinated debentures outstanding as of September 30, 2013 , June 30, 2013 and September 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 Consolidated 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 nine months of 2013 as compared to December 31, 2012.

Shareholders’ Equity

Total shareholders’ equity was $1.9 billion at September 30, 2013 , reflecting an increase of $112.3 million since September 30, 2012 and $68.9 million since December 31, 2012 . The increase from December 31, 2012 was the result of net income of $ 101.9 million less common stock dividends of $ 6.9 million and preferred stock dividends of $ 6.7 million , $ 6.6 million credited to surplus for stock-based compensation costs, $28.6 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 $ 2.6 million net unrealized gains from cash flow hedges, net of tax, offset by $ 49.4 million in net unrealized losses from available-for-sale securities, net of tax, $ 7.3 million of foreign currency translation adjustments, net of tax, and $452,000 of common stock repurchases by the Company.

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The following tables reflect various consolidated measures of capital as of the dates presented and the capital guidelines established by the Federal Reserve Bank for a bank holding company:



	September 30, 2013		June 30, 2013		September 30, 2012
Leverage ratio	10.5	%	10.4	%	10.2	%
Tier 1 capital to risk-weighted assets	12.3		12.0		12.2
Total capital to risk-weighted assets	13.1		12.9		13.3
Total average equity-to-total average assets ⁽¹⁾	10.6		10.8		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

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 Consolidated 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, the Company declared a semi-annual cash dividend of $0.09 per common share. In each of January and July of 2012, the Company declared a semi-annual cash dividend of $0.09 per common share.

See Note 17 of the Consolidated 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 is 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 continuing to evaluate 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:



	September 30, 2013				December 31, 2012				September 30, 2012
			% of				% of				% of
(Dollars in thousands)	Amount		Total		Amount		Total		Amount		Total
Commercial	$	3,109,121	24	%	$	2,914,798	24	%	$	2,771,053	23	%
Commercial real-estate	4,146,110		32		3,864,118		31		3,699,712		30
Home equity	736,620		6		788,474		6		807,592		7
Residential real-estate	397,707		3		367,213		3		376,678		3
Premium finance receivables—commercial	2,150,481		16		1,987,856		16		1,982,945		16
Premium finance receivables—life insurance	1,869,739		14		1,725,166		14		1,665,620		14
Indirect consumer	57,236		1		77,333		1		77,378		1
Other loans	114,025		1		103,985		1		108,922		1
Total loans, net of unearned income, excluding covered loans	$	12,581,039	97	%	$	11,828,943	96	%	$	11,489,900	95	%
Covered loans	415,988		3		560,087		4		657,525		5
Total loans	$	12,997,027	100	%	$	12,389,030	100	%	$	12,147,425	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 September 30, 2013 and 2012:



As of September 30, 2013			% of				> 90 Days Past Due		Allowance For Loan
As of September 30, 2013			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,722,551	23.8	%	$	15,283	$	190	$	17,396
Franchise	213,328		2.9		—		—		1,715
Mortgage warehouse lines of credit	71,383		1.0		—		—		624
Community Advantage—homeowner associations	90,504		1.2		—		—		226
Aircraft	12,601		0.2		—		—		32
Asset-based lending	739,568		10.2		2,364		—		6,722
Tax exempt	148,103		2.0		—		—		1,165
Leases	101,654		1.4		—		—		253
Other	90		—		—		—		1
Purchased non-covered commercial loans ⁽¹⁾	9,339		0.1		—		265		107
Total commercial	$	3,109,121	42.8	%	$	17,647	$	455	$	28,241
Commercial Real-Estate:
Residential construction	$	40,330	0.6	%	$	2,049	$	3,120	$	920
Commercial construction	146,088		2.0		7,854		—		2,180
Land	109,251		1.5		4,216		—		3,881
Office	634,520		8.7		4,318		—		5,409
Industrial	625,012		8.6		8,184		—		5,533
Retail	612,215		8.4		11,259		—		6,928
Multi-family	550,625		7.6		2,603		—		11,361
Mixed use and other	1,369,670		19.0		12,240		269		14,493
Purchased non-covered commercial real-estate ⁽¹⁾	58,399		0.8		—		9,607		114
Total commercial real-estate	$	4,146,110	57.2	%	$	52,723	$	12,996	$	50,819
Total commercial and commercial real-estate	$	7,255,231	100.0	%	$	70,370	$	13,451	$	79,060

Commercial real-estate—collateral location by state:
Illinois	$	3,524,288	85.0	%
Wisconsin	348,739		8.4
Total primary markets	$	3,873,027	93.4	%
Florida	66,677		1.6
Arizona	16,163		0.4
Indiana	80,304		1.9
Other (no individual state greater than 0.5%)	109,939		2.7
Total	$	4,146,110	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 September 30, 2012			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,556,375	24.1	%	$	15,163	$	—	$	17,137
Franchise	179,706		2.8		1,792		—		1,909
Mortgage warehouse lines of credit	225,295		3.5		—		—		1,968
Community Advantage—homeowner associations	73,881		1.1		—		—		185
Aircraft	21,444		0.3		428		—		199
Asset-based lending	533,061		8.2		328		—		5,064
Tax exempt	90,404		1.4		—		—		1,020
Leases	83,351		1.3		—		—		247
Other	1,576		—		—		—		12
Purchased non-covered commercial loans ⁽¹⁾	5,960		0.1		—		499		—
Total commercial	$	2,771,053	42.8	%	$	17,711	$	499	$	27,741
Commercial Real-Estate:
Residential construction	$	44,255	0.7	%	$	2,141	$	—	$	1,453
Commercial construction	169,543		2.6		3,315		—		3,965
Land	133,486		2.1		10,629		—		5,376
Office	584,321		9.0		6,185		—		5,856
Industrial	574,325		8.9		1,885		—		5,555
Retail	560,669		8.7		10,133		—		5,993
Multi-family	363,423		5.6		3,314		—		10,511
Mixed use and other	1,220,850		18.8		20,859		—		16,376
Purchased non-covered commercial real-estate ⁽¹⁾	48,840		0.8		—		1,066		—
Total commercial real-estate	$	3,699,712	57.2	%	$	58,461	$	1,066	$	55,085
Total commercial and commercial real-estate	$	6,470,765	100.0	%	$	76,172	$	1,565	$	82,826

Commercial real-estate—collateral location by state:
Illinois	$	3,080,715	83.3	%
Wisconsin	316,251		8.5
Total primary markets	$	3,396,966	91.8	%
Florida	51,975		1.4
Arizona	38,755		1.0
Indiana	48,123		1.3
Other (no individual state greater than 0.5%)	163,893		4.5
Total	$	3,699,712	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 $28.2 million as of September 30, 2013 compared to $27.7 million as of September 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, 93.4% 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 third quarter of 2013 , however we have been able to effectively manage our total non-performing commercial real-estate loans. As of September 30, 2013 , our allowance for loan losses related to this portfolio is $50.8 million compared to $55.1 million as of September 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. In the current period, mortgage warehouse lines decreased to $71.4 million as of September 30, 2013 from $225.3 million as of September 30, 2012 as a result of lower origination volumes during the current period as refinance activity declined as well as competitive pricing pressure.

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 September 30, 2013 , our residential loan portfolio totaled $397.7 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 due to the fact that such loans generally provide for periodic and lifetime limits on the interest rate adjustments among other features. 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 September 30, 2013 , $14.1 million of our residential real-estate mortgages, or 3.6% of our residential real-estate loan portfolio, excluding loans acquired with evidence of credit quality deterioration since origination, were classified as nonaccrual, $4.6 million were 30 to 89 days past due (1.1%) and $377.5 million were current ( 95.3% ). 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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September 30, 2013 and 2012 was $981.4 million and $997.2 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 September 30, 2013 , approximately $18.1 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 third quarter of 2013 compared to $1.1 billion in the same period of 2012. During the nine months ending September 30, 2013 and 2012, FIFC and FIFC Canada originated approximately $3.8 billion and $3.2 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 1 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 1 of this report for a discussion of this securitization transaction.

Premium finance receivables—life insurance. FIFC originated approximately $97.4 million in life insurance premium finance receivables in the third quarter of 2013 as compared to $79.9 million of originations in the third quarter of 2012. For the nine months ending September 30, 2013 and 2012, FIFC originated $319.4 million and $289.1 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. 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 September 30, 2013 by date at which the loans reprice and the type of rate:



As of September 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	$	70,249	$	358,357	$	149,321	$	577,927
Variable rate
With floor feature	562,370		—		—		562,370
Without floor feature	1,967,791		1,033		—		1,968,824
Total commercial	2,600,410		359,390		149,321		3,109,121
Commercial real-estate
Fixed rate	$	368,521	$	1,282,808	$	157,533	$	1,808,862
Variable rate
With floor feature	545,709		6,973		—		552,682
Without floor feature	1,763,875		20,691		—		1,784,566
Total commercial real-estate	2,678,105		1,310,472		157,533		4,146,110

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 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)	September 30, 2013			June 30, 2013			December 31, 2012			September 30, 2012
Loans past due greater than 90 days and still accruing ⁽¹⁾ :
Commercial	$	190		$	100		$	—		$	—
Commercial real-estate	3,389			3,263			—			—
Home equity	—			25			100			—
Residential real-estate	—			—			—			—
Premium finance receivables—commercial	11,751			6,671			10,008			5,533
Premium finance receivables—life insurance	592			1,212			—			—
Indirect consumer	100			217			189			215
Consumer and other	—			—			32			—
Total loans past due greater than 90 days and still accruing	16,022			11,488			10,329			5,748
Non-accrual loans ⁽²⁾ :
Commercial	17,647			17,248			21,737			17,711
Commercial real-estate	52,723			54,825			49,973			58,461
Home equity	10,926			12,322			13,423			11,504
Residential real-estate	14,126			10,213			11,728			15,393
Premium finance receivables—commercial	10,132			13,605			9,302			7,488
Premium finance receivables—life insurance	14			16			25			29
Indirect consumer	80			91			55			72
Consumer and other	1,591			1,677			1,511			1,485
Total non-accrual loans	107,239			109,997			107,754			112,143
Total non-performing loans:
Commercial	17,837			17,348			21,737			17,711
Commercial real-estate	56,112			58,088			49,973			58,461
Home equity	10,926			12,347			13,523			11,504
Residential real-estate	14,126			10,213			11,728			15,393
Premium finance receivables—commercial	21,883			20,276			19,310			13,021
Premium finance receivables—life insurance	606			1,228			25			29
Indirect consumer	180			308			244			287
Consumer and other	1,591			1,677			1,543			1,485
Total non-performing loans	$	123,261		$	121,485		$	118,083		$	117,891
Other real estate owned	46,901			46,169			56,174			61,897
Other real estate owned—obtained in acquisition	8,349			10,856			6,717			5,480
Other repossessed assets	446			1,032			—			—
Total non-performing assets	$	178,957		$	179,542		$	180,974		$	185,268
TDRs performing under the contractual terms of the loan agreement	79,205			93,810			106,119			128,391
Total non-performing loans by category as a percent of its own respective category’s period-end balance:
Commercial	0.57		%	0.56		%	0.75		%	0.64		%
Commercial real-estate	1.35			1.42			1.29			1.58
Home equity	1.48			1.63			1.72			1.42
Residential real-estate	3.55			2.65			3.19			4.09
Premium finance receivables—commercial	1.02			0.94			0.97			0.66
Premium finance receivables—life insurance	0.03			0.07			—			—
Indirect consumer	0.31			0.48			0.32			0.37
Consumer and other	1.40			1.56			1.48			1.36
Total non-performing loans	0.98		%	0.97		%	1.00		%	1.03		%
Total non-performing assets, as a percentage of total assets	1.01		%	1.02		%	1.03		%	1.09		%
Allowance for loan losses as a percentage of total non-performing loans	86.96		%	87.95		%	90.91		%	95.25		%

(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 $35.8 million , $32.4 million , $20.4 million and $18.8 million as of September 30, 2013, June 30, 2013, December 31, 2012 and September 30, 2012, respectively.

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Non-performing Commercial and Commercial Real-Estate

Commercial non-performing loans totaled $17.8 million as of September 30, 2013 compared to $21.7 million as of December 31, 2012 and $17.7 million as of September 30, 2012 . Commercial real-estate non-performing loans totaled $56.1 million as of September 30, 2013 compared to $50.0 million as of December 31, 2012 and $58.5 million as of September 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 $25.1 million as of September 30, 2013 . The balance decreased $199,000 from December 31, 2012 and $1.8 million from September 30, 2012 . The September 30, 2013 non-performing balance is comprised of $14.1 million of residential real-estate ( 69 individual credits) and $11.0 million of home equity loans ( 50 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 September 30, 2013 and 2012, and the amount of net charge-offs for the quarters then ended.



(Dollars in thousands)	September 30, 2013			September 30, 2012
Non-performing premium finance receivables—commercial	$	21,883		$	13,021
- as a percent of premium finance receivables—commercial outstanding	1.02		%	0.66		%
Net charge-offs of premium finance receivables—commercial	$	980		$	695
- annualized as a percent of average premium finance receivables—commercial	0.17		%	0.14		%

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 September 30, 2013 , only 1.1% of the entire portfolio, excluding covered loans, is non-accrual or greater than 90 days past due and still accruing interest with only 1.0% , either one or two payments past due. In total, 97.9% of the Company’s total loan portfolio, excluding covered loans, as of September 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 September 30, 2013 and June 30, 2013 :



			90+ days		60-89		30-59
As of September 30, 2013			and still		days past		days past
(Dollars in thousands)	Nonaccrual		accruing		due		due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	15,283	$	190	$	3,585	$	15,261	$	1,688,232	$	1,722,551
Franchise	—		—		113		—		213,215		213,328
Mortgage warehouse lines of credit	—		—		—		—		71,383		71,383
Community Advantage—homeowners association	—		—		—		—		90,504		90,504
Aircraft	—		—		—		—		12,601		12,601
Asset-based lending	2,364		—		693		3,926		732,585		739,568
Tax exempt	—		—		—		—		148,103		148,103
Leases	—		—		—		—		101,654		101,654
Other	—		—		—		—		90		90
Purchased non-covered commercial ⁽¹⁾	—		265		—		1,642		7,432		9,339
Total commercial	17,647		455		4,391		20,829		3,065,799		3,109,121
Commercial real-estate
Residential construction	2,049		3,120		1,595		261		33,305		40,330
Commercial construction	7,854		—		—		—		138,234		146,088
Land	4,216		—		—		4,082		100,953		109,251
Office	4,318		—		3,965		1,270		624,967		634,520
Industrial	8,184		—		—		2,419		614,409		625,012
Retail	11,259		—		271		7,422		593,263		612,215
Multi-family	2,603		—		—		4,332		543,690		550,625
Mixed use and other	12,240		269		2,761		15,371		1,339,029		1,369,670
Purchased non-covered commercial real-estate ⁽¹⁾	—		9,607		3,380		2,702		42,710		58,399
Total commercial real-estate	52,723		12,996		11,972		37,859		4,030,560		4,146,110
Home equity	10,926		—		2,436		5,887		717,371		736,620
Residential real-estate	14,126		—		1,749		2,844		377,489		396,208
Purchased non-covered residential real-estate ⁽¹⁾	—		447		289		34		729		1,499
Premium finance receivables
Commercial insurance loans	10,132		11,751		5,307		14,628		2,108,663		2,150,481
Life insurance loans	14		592		6,428		—		1,402,822		1,409,856
Purchased life insurance loans ⁽¹⁾	—		—		—		—		459,883		459,883
Indirect consumer	80		100		97		231		56,728		57,236
Consumer and other	1,591		—		319		445		111,491		113,846
Purchased non-covered consumer and other ⁽¹⁾	—		28		—		19		132		179
Total loans, net of unearned income, excluding covered loans	$	107,239	$	26,369	$	32,988	$	82,776	$	12,331,667	$	12,581,039
Covered loans	8,602		81,430		9,813		9,216		306,927		415,988
Total loans, net of unearned income	$	115,841	$	107,799	$	42,801	$	91,992	$	12,638,594	$	12,997,027


(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 September 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	0.9	%	—	%	0.2	%	0.9	%	98.0	%	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	0.3		—		0.1		0.5		99.1		100.0
Tax exempt	—		—		—		—		100.0		100.0
Leases	—		—		—		—		100.0		100.0
Other	—		—		—		—		100.0		100.0
Purchased non-covered commercial ⁽¹⁾	—		2.8		—		17.6		79.6		100.0
Total commercial	0.6		—		0.1		0.7		98.6		100.0
Commercial real-estate
Residential construction	5.1		7.7		4.0		0.6		82.6		100.0
Commercial construction	5.4		—		—		—		94.6		100.0
Land	3.9		—		—		3.7		92.4		100.0
Office	0.7		—		0.6		0.2		98.5		100.0
Industrial	1.3		—		—		0.4		98.3		100.0
Retail	1.8		—		—		1.2		97.0		100.0
Multi-family	0.5		—		—		0.8		98.7		100.0
Mixed use and other	0.9		—		0.2		1.1		97.8		100.0
Purchased non-covered commercial real-estate ⁽¹⁾	—		16.5		5.8		4.6		73.1		100.0
Total commercial real-estate	1.3		0.3		0.3		0.9		97.2		100.0
Home equity	1.5		—		0.3		0.8		97.4		100.0
Residential real-estate	3.6		—		0.4		0.7		95.3		100.0
Purchased non-covered residential real-estate ⁽¹⁾	—		29.8		19.3		2.3		48.6		100.0
Premium finance receivables
Commercial insurance loans	0.5		0.5		0.2		0.7		98.1		100.0
Life insurance loans	—		—		0.5		—		99.5		100.0
Purchased life insurance loans ⁽¹⁾	—		—		—		—		100.0		100.0
Indirect consumer	0.1		0.2		0.2		0.4		99.1		100.0
Consumer and other	1.4		—		0.3		0.4		97.9		100.0
Purchased non-covered consumer and other ⁽¹⁾	—		15.6		—		10.6		73.8		100.0
Total loans, net of unearned income, excluding covered loans	0.9	%	0.2	%	0.3	%	0.7	%	97.9	%	100.0	%
Covered loans	2.1		19.6		2.4		2.2		73.7		100.0
Total loans, net of unearned income	0.9	%	0.8	%	0.3	%	0.7	%	97.3	%	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 June 30, 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 ⁽²⁾	$	15,432	$	—	$	2,940	$	12,111	$	1,665,753	$	1,696,236
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 ⁽²⁾	1,816		100		2,305		4,949		676,531		685,701
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		3,078,006		3,119,931
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 ⁽²⁾	15,662		—		2,183		10,379		1,350,581		1,378,805
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		3,977,813		4,094,628
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	9,854		61,852		13,219		11,514		358,163		454,602
Total loans, net of unearned income	$	119,851	$	80,024	$	56,052	$	84,243	$	12,631,324	$	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.

(2)

The June 30, 2013 reported asset-based lending portfolio decreased approximately $245 million , and the reported commercial and industrial and mixed use and other portfolios increased approximately $244 million and $645,000 , respectively. These adjustments are the result of a re-assessment of characteristics of certain loans within these portfolios. Reclassification of these prior period amounts have been made to conform with current period presentation.

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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 ⁽²⁾	0.9	%	—	%	0.2	%	0.7	%	98.2	%	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 ⁽²⁾	0.3		—		0.3		0.7		98.7		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 ⁽²⁾	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	2.2		13.6		2.9		2.5		78.8		100.0
Total loans, net of unearned income	0.9	%	0.6	%	0.4	%	0.6	%	97.5	%	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.

(2)

As of September 30, 2013 , only $33.0 million of all loans, excluding covered loans, or 0.3% , were 60 to 89 days past due and $82.8 million or 0.7% , were 30 to 59 days (or one payment) past due. As of June 30, 2013 , $42.8 million of all loans, excluding

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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. 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 basis. Commercial and commercial real estate loans with delinquencies from 30 to 89 days past-due decreased $1.6 million since June 30, 2013 .

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at September 30, 2013 that are current with regard to the contractual terms of the loan agreement represent 97.4% of the total home equity portfolio. Residential real-estate loans, excluding loans acquired with evidence of credit quality deterioration since origination, at September 30, 2013 that are current with regards to the contractual terms of the loan agreements comprise 95.3% 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						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
(Dollars in thousands)	2013			2012			2013			2012
Balance at beginning of period	$	121,485		$	120,920		$	118,083		$	120,084
Additions, net	26,413			27,452			75,791			81,179
Return to performing status	(805		)	(1,005		)	(1,622		)	(3,043		)
Payments received	(8,251		)	(14,773		)	(22,924		)	(29,236		)
Transfer to OREO and other repossessed assets	(7,854		)	(4,760		)	(20,015		)	(17,916		)
Charge-offs	(7,753		)	(10,616		)	(28,226		)	(33,560		)
Net change for niche loans ⁽¹⁾	26			673			2,174			383
Balance at end of period	$	123,261		$	117,891		$	123,261		$	117,891


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

See Note 7 of the Consolidated 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 September 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 September 30,						Nine months ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
Allowance for loan losses at beginning of period	$	106,842		$	111,920		$	107,351		$	110,381
Provision for credit losses	11,580			18,192			42,080			51,740
Other adjustments	(205		)	(534		)	(743		)	(1,044		)
Reclassification from (to) allowance for unfunded lending-related commitments	284			626			136			953
Charge-offs:
Commercial	3,281			3,315			8,914			12,623
Commercial real-estate	6,982			17,000			25,228			34,455
Home equity	711			1,543			4,893			5,865
Residential real-estate	328			1,027			2,573			1,590
Premium finance receivables—commercial	1,294			886			3,668			2,467
Premium finance receivables—life insurance	3			—			3			16
Indirect consumer	23			73			71			157
Consumer and other	193			93			402			454
Total charge-offs	12,815			23,937			45,752			57,627
Recoveries:
Commercial	756			349			1,319			852
Commercial real-estate	272			5,352			1,224			5,657
Home equity	43			52			376			385
Residential real-estate	64			8			87			13
Premium finance receivables—commercial	314			191			878			621
Premium finance receivables—life insurance	2			15			11			54
Indirect consumer	12			25			44			76
Consumer and other	39			28			177			226
Total recoveries	1,502			6,020			4,116			7,884
Net charge-offs	(11,313		)	(17,917		)	(41,636		)	(49,743		)
Allowance for loan losses at period end	$	107,188		$	112,287		$	107,188		$	112,287
Allowance for unfunded lending-related commitments at period end	1,267			12,627			1,267			12,627
Allowance for credit losses at period end	$	108,455		$	124,914		$	108,455		$	124,914
Annualized net charge-offs by category as a percentage of its own respective category’s average:
Commercial	0.32		%	0.44		%	0.34		%	0.61		%
Commercial real-estate	0.65			1.27			0.80			1.07
Home equity	0.36			0.73			0.79			0.88
Residential real-estate	0.12			0.44			0.42			0.27
Premium finance receivables—commercial	0.17			0.14			0.18			0.14
Premium finance receivables—life insurance	—			—			—			—
Indirect consumer	0.08			0.25			0.06			0.15
Consumer and other	0.48			0.22			0.25			0.26
Total loans, net of unearned income, excluding covered loans	0.34		%	0.60		%	0.44		%	0.58		%
Net charge-offs as a percentage of the provision for credit losses	97.69		%	98.49		%	98.95		%	96.14		%
Loans at period-end, excluding covered loans							$	12,581,039		$	11,489,900
Allowance for loan losses as a percentage of loans at period end							0.85		%	0.98		%
Allowance for credit losses as a percentage of loans at period end							0.86		%	1.09		%

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 $1.3 million as of September 30, 2013 compared to $12.6

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million as of September 30, 2012. The decrease since the prior period was primarily attributable to the funding in the second and third quarter of 2013 of two letters of credit.

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 Consolidated 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 Consolidated 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 September 30, 2013 , the Company had $176.3 million of impaired loans with $99.4 million of this balance requiring $14.3 million of specific impairment reserves. 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. The most significant fluctuations in impaired loans with specific impairment from June 30, 2013 to September 30, 2013 occurred within the land and retail portfolios. The recorded investment requiring specific impairment of the land portfolio increased $3.4 million , which was primarily the result of four credits totaling $3.6 million requiring specific impairment of $726,000 . Similarly, the recorded investment in the retail portfolio increased $5.9 million , which was primarily the result of six credits totaling $8.0 million requiring $1.6 million of specific impairment. See Note 7 of the Consolidated 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 September 30, 2013 , home equity loans and residential mortgages comprised 6% and 3% , respectively, of the Company’s total loan portfolio. At September 30, 2013 , approximately 3.6% 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 1.5% 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

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of valuation utilized for charge-offs on collateral dependent loans, alternative sources of valuation may become available between 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 September 30, 2013 , the Company had $115.0 million in loans modified in TDRs. The $115.0 million in TDRs represents 161 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 decreased from $126.2 million representing 167 credits at June 30, 2013 and decreased from $147.2 million representing 181 credits at September 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 interest rate on the loan 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 Consolidated 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 September 30, 2013 and approximately $4.4 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 September 30, 2013 , the Company was committed to lend additional funds to borrowers totaling $3.4 million 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:



	September 30,			June 30,			September 30,
(Dollars in thousands)	2013			2013			2012
Accruing TDRs:
Commercial	$	6,174		$	7,316		$	21,126
Commercial real-estate	70,346			82,072			102,251
Residential real-estate and other	2,685			4,422			5,014
Total accruing TDRs	$	79,205		$	93,810		$	128,391
Non-accrual TDRs: ⁽¹⁾
Commercial	$	2,199		$	1,904		$	924
Commercial real-estate	30,442			28,552			15,399
Residential real-estate and other	3,157			1,930			2,482
Total non-accrual TDRs	$	35,798		$	32,386		$	18,805
Total TDRs:
Commercial	$	8,373		$	9,220		$	22,050
Commercial real-estate	100,788			110,624			117,650
Residential real-estate and other	5,842			6,352			7,496
Total TDRs	$	115,003		$	126,196		$	147,196
Weighted-average contractual interest rate of TDRs	4.12		%	4.06		%	4.21		%


(1)	Included in total non-performing loans.

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TDR Rollforward

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



Three Months Ended September 30, 2013 (Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	9,220		$	110,624		$	6,352		$	126,196
Additions during the period	—			3,003			1,000			4,003
Reductions:
Charge-offs	(584		)	(4,923		)	(3		)	(5,510		)
Transferred to OREO and other repossessed assets	—			—			—			—
Removal of TDR loan status ⁽¹⁾	(92		)	—			—			(92		)
Payments received	(171		)	(7,916		)	(1,507		)	(9,594		)
Balance at period end	$	8,373		$	100,788		$	5,842		$	115,003



Three Months Ended September 30, 2012 ( Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	23,040		$	141,877		$	7,389		$	172,306
Additions during the period	442			8,638			457			9,537
Reductions:
Charge-offs	(638		)	(8,878		)	(338		)	(9,854		)
Transferred to OREO and other repossessed assets	—			(1,012		)	—			(1,012		)
Removal of TDR loan status ⁽¹⁾	(163		)	—			—			(163		)
Payments received	(631		)	(22,975		)	(12		)	(23,618		)
Balance at period end	$	22,050		$	117,650		$	7,496		$	147,196



Nine Months Ended September 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			18,262			1,778			20,748
Reductions:
Charge-offs	(2,753		)	(6,666		)	(260		)	(9,679		)
Transferred to OREO and other repossessed assets	(3,800		)	(837		)	(103		)	(4,740		)
Removal of TDR loan status ⁽¹⁾	(2,932		)	—			—			(2,932		)
Payments received	(845		)	(12,386		)	(1,636		)	(14,867		)
Balance at period end	$	8,373		$	100,788		$	5,842		$	115,003



Nine Months Ended September 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	13,325			55,017			1,546			69,888
Reductions:
Charge-offs	(799		)	(11,536		)	(632		)	(12,967		)
Transferred to OREO and other repossessed assets	—			(3,141		)	—			(3,141		)
Removal of TDR loan status ⁽¹⁾	(363		)	(1,877		)	(273		)	(2,513		)
Payments received	(947		)	(33,609		)	(33		)	(34,589		)
Balance at period end	$	22,050		$	117,650		$	7,496		$	147,196


(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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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						Nine Months Ended
(Dollars in thousands)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Balance at beginning of period	$	57,025		$	72,553		$	62,891		$	86,523
Disposal/resolved	(10,194		)	(10,604		)	(27,180		)	(29,808		)
Transfers in at fair value, less costs to sell	9,619			6,895			19,009			22,621
Additions from acquisition	—			—			6,818			—
Fair value adjustments	(1,200		)	(1,467		)	(6,288		)	(11,959		)
Balance at end of period	$	55,250		$	67,377		$	55,250		$	67,377



	Period End
(Dollars in thousands)	September 30, 2013		June 30, 2013		September 30, 2012
Residential real-estate	$	6,421	$	7,327	$	8,241
Residential real-estate development	4,551		6,950		13,872
Commercial real-estate	44,278		42,748		45,264
Total	$	55,250	$	57,025	$	67,377

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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;


•	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;

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•	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 is 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 September 30, 2013 , December 31, 2012 and September 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:
September 30, 2013	5.8	%	3.0	%	(5.1	)%	(9.8	)%
December 31, 2012	5.1	%	2.4	%	(3.5	)%	(7.6	)%
September 30, 2012	5.0	%	2.4	%	(3.3	)%	(7.0	)%

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 Consolidated 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 third 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 September 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 1: Legal Proceedings

The Company and its subsidiaries, from time to time, are subject to pending and threatened legal action and proceedings arising in the ordinary course of business.

In accordance with applicable accounting principles, the Company establishes an accrued liability for litigation actions and proceedings when those actions present loss contingencies which are both probable and estimable. In actions for which a loss is reasonably possible in future periods, the Company determines whether it can estimate a loss or range of possible loss. To determine whether a possible loss is estimable, the Company reviews and evaluates its material litigation on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. This review may include information learned through the discovery process, rulings on substantive or dispositive motions, and settlement discussions.

On March 15, 2012, a former mortgage loan originator employed by Wintrust Mortgage Company, named Wintrust Financial Corporation, Barrington Bank & Trust and its subsidiary, Wintrust Mortgage Company, as defendants in a Fair Labor Standards Act class action lawsuit filed in the U.S. District Court for the Northern District of Illinois (the “FLSA Litigation”). The suit asserts that Wintrust Mortgage Company violated the federal Fair Labor Standards Act and challenges the manner in which Wintrust Mortgage Company classified its loan originators and compensated them for their work. The suit also seeks to assert these claims as a class. On September 30, 2013, the Court entered an order conditionally certifying an “opt-in” class in this case. Notice to the potential class members was sent on or about October 22, 2013, primarily informing the putative class of the right to opt-into the class and setting a deadline for same. The Company has reserved an amount for the FLSA Litigation that is immaterial to its results of operations or financial condition. Such class action litigation necessarily involves substantial uncertainty and it is not possible at this time to predict the ultimate resolution or to estimate whether, or to what extent, any loss with respect to this litigation may exceed the amounts reserved by the Company.

Based on information currently available and upon consultation with counsel, management believes that the eventual outcome of any pending or threatened legal actions and proceedings will not have a material adverse effect on the operations or financial condition of the Company. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations or financial condition for a particular period.

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 September 30, 2013. There is currently no authorization to repurchase shares of outstanding common stock.

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Item 6: Exhibits:


(a)	Exhibits



10.1		Sixth Amendment Agreement, dated as of October 25, 2013, to Amended and Restated Credit Agreement, among Wintrust Financial Corporation, the lenders named therein, and Bank of America, N.A., as administrative agent (incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2013)

10.2		Seventh Amendment Agreement, dated as of November 7, 2013, to Amended and Restated Credit Agreement, among Wintrust Financial Corporation, the lenders named therein, and Bank of America, N.A., as administrative agent (incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2013)

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 September 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:	November 7, 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 1: Legal Proceedings Item 1A: Risk Factors Item 2: Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6: Exhibits:

WTFC 10-Q Quarter ended Sept. 30, 2013