Edgar Filing: WINTRUST FINANCIAL CORP

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

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

For the transition period from to

Commission File Number 001-35077

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


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

727 North Bank Lane

Lake Forest, Illinois 60045

(Address of principal executive offices)

(847) 615-4096

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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):

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, 36,364,203 shares, as of July 31, 2012

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		52
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		101
ITEM 4.	Controls and Procedures		103

	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings		NA
ITEM 1A.	Risk Factors		103
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		103
ITEM 3.	Defaults Upon Senior Securities		NA
ITEM 4.	Mine Safety Disclosures		NA
ITEM 5.	Other Information		NA
ITEM 6.	Exhibits		104
	Signatures		105

PART I

ITEM 1. FINANCIAL STATEMENTS

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION


(In thousands, except share data)	(Unaudited) June 30, 2012			December 31, 2011			(Unaudited) June 30, 2011
Assets
Cash and due from banks	$	176,529		$	148,012		$	140,434
Federal funds sold and securities purchased under resale agreements		15,227			21,692			43,634
Interest-bearing deposits with other banks (balance restricted for securitization investors of $658,983 at June 30, 2012, $272,592 at December 31, 2011, and $23,276 at June 30, 2011)		1,117,888			749,287			990,308
Available-for-sale securities, at fair value		1,196,702			1,291,797			1,456,426
Trading account securities		608			2,490			509
Federal Home Loan Bank and Federal Reserve Bank stock		92,792			100,434			86,761
Brokerage customer receivables		31,448			27,925			29,736
Mortgage loans held-for-sale, at fair value		511,566			306,838			133,083
Mortgage loans held-for-sale, at lower of cost or market		14,538			13,686			5,881
Loans, net of unearned income, excluding covered loans		11,202,842			10,521,377			9,925,077
Covered loans		614,062			651,368			408,669

Total loans		11,816,904			11,172,745			10,333,746
Less: Allowance for loan losses		111,920			110,381			117,362
Less: Allowance for covered loan losses		20,560			12,977			7,443

Net loans (balance restricted for securitization investors of $29,840 at June 30, 2012, $411,532 at December 31, 2011, and $660,294 at June 30, 2011)		11,684,424			11,049,387			10,208,941
Premises and equipment, net		449,608			431,512			403,577
FDIC indemnification asset		222,568			344,251			110,049
Accrued interest receivable and other assets		710,275			444,912			389,634
Trade date securities receivable		—			634,047			322,091
Goodwill		330,896			305,468			283,301
Other intangible assets		21,213			22,070			11,532

Total assets	$	16,576,282		$	15,893,808		$	14,615,897

Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	2,047,715		$	1,785,433		$	1,397,433
Interest bearing		11,009,866			10,521,834			9,861,827

Total deposits		13,057,581			12,307,267			11,259,260
Notes payable		2,457			52,822			1,000
Federal Home Loan Bank advances		564,301			474,481			423,500
Other borrowings		375,523			443,753			432,706
Secured borrowings—owed to securitization investors		360,825			600,000			600,000
Subordinated notes		15,000			35,000			40,000
Junior subordinated debentures		249,493			249,493			249,493
Trade date securities payable		19,025			47			2,243
Accrued interest payable and other liabilities		210,003			187,412			134,309

Total liabilities		14,854,208			14,350,275			13,142,511

Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series A - $1,000 liquidation value; 50,000 shares issued and outstanding at June 30, 2012, December 31, 2011 and June 30, 2011		49,837			49,768			49,704
Series C - $1,000 liquidation value; 126,500 shares issued and outstanding at June 30, 2012, and no shares issued and outstanding at December 31, 2011 and June 30, 2011		126,500			—			—
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized; 36,573,468 shares issued at June 30, 2012, 35,981,950 shares issued at December 31, 2011, and 34,988,497 shares issued at June 30, 2011		36,573			35,982			34,988
Surplus		1,013,428			1,001,316			969,315
Treasury stock, at cost, 236,226 shares at June 30, 2012, 3,601 shares at December 31, 2011, and 1,441 shares at June 30, 2011		(7,374	)		(112	)		(50	)
Retained earnings		501,139			459,457			415,297
Accumulated other comprehensive income (loss)		1,971			(2,878	)		4,132

Total shareholders’ equity		1,722,074			1,543,533			1,473,386

Total liabilities and shareholders’ equity	$	16,576,282		$	15,893,808		$	14,615,897

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2012			2011			2012			2011
Interest income
Interest and fees on loans	$	144,100		$	132,338		$	287,655		$	268,881
Interest bearing deposits with banks		203			870			451			1,806
Federal funds sold and securities purchased under resale agreements		6			23			18			55
Securities		10,510			11,438			22,357			20,978
Trading account securities		10			10			19			23
Federal Home Loan Bank and Federal Reserve Bank stock		641			572			1,245			1,122
Brokerage customer receivables		221			194			432			360

Total interest income		155,691			145,445			312,177			293,225

Interest expense
Interest on deposits		17,273			22,404			35,303			46,360
Interest on Federal Home Loan Bank advances		2,867			4,010			6,451			7,968
Interest on notes payable and other borrowings		2,274			2,715			5,376			5,345
Interest on secured borrowings—owed to securitization investors		1,743			2,994			4,292			6,034
Interest on subordinated notes		126			194			295			406
Interest on junior subordinated debentures		3,138			4,422			6,295			8,792

Total interest expense		27,421			36,739			58,012			74,905

Net interest income		128,270			108,706			254,165			218,320
Provision for credit losses		20,691			29,187			38,091			54,531

Net interest income after provision for credit losses		107,579			79,519			216,074			163,789

Non—interest income
Wealth management		13,393			10,601			25,794			20,837
Mortgage banking		25,607			12,817			44,141			24,448
Service charges on deposit accounts		3,994			3,594			8,202			6,905
Gains on available-for-sale securities, net		1,109			1,152			1,925			1,258
Gain on bargain purchases, net		(55	)		746			785			10,584
Trading losses, net		(928	)		(30	)		(782	)		(470	)
Other		7,815			7,772			17,893			13,977

Total non—interest income		50,935			36,652			97,958			77,539

Non-interest expense
Salaries and employee benefits		68,139			53,079			137,169			109,178
Equipment		5,466			4,409			10,866			8,673
Occupancy, net		7,728			6,772			15,790			13,277
Data processing		3,840			3,147			7,458			6,670
Advertising and marketing		2,179			1,440			4,185			3,054
Professional fees		3,847			4,533			7,451			8,079
Amortization of other intangible assets		1,089			704			2,138			1,393
FDIC insurance		3,477			3,281			6,834			7,799
OREO expenses, net		5,848			6,577			13,026			12,385
Other		15,572			13,264			30,027			24,807

Total non—interest expense		117,185			97,206			234,944			195,315

Income before taxes		41,329			18,965			79,088			46,013
Income tax expense		15,734			7,215			30,283			17,861

Net income	$	25,595		$	11,750		$	48,805		$	28,152

Preferred stock dividends and discount accretion	$	2,644		$	1,033		$	3,890		$	2,064

Net income applicable to common shares	$	22,951		$	10,717		$	44,915		$	26,088

Net income per common share—Basic	$	0.63		$	0.31		$	1.24		$	0.75

Net income per common share—Diluted	$	0.52		$	0.25		$	1.02		$	0.60

Cash dividends declared per common share	$	—		$	—		$	0.09		$	0.09

Weighted average common shares outstanding		36,329			34,971			36,266			34,950
Dilutive potential common shares		7,770			8,438			7,723			8,437

Average common shares and dilutive common shares		44,099			43,409			43,989			43,387

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2012			2011			2012			2011
Net income	$	25,595		$	11,750		$	48,805		$	28,152
Unrealized gains on securities
Before tax		7,959			12,643			4,740			14,013
Tax effect		(3,160	)		(5,002	)		(1,884	)		(5,560	)

Net of tax		4,799			7,641			2,856			8,453

Reclassification of net gains included in net income
Before tax		1,109			1,152			1,925			1,258
Tax effect		(445	)		(452	)		(772	)		(495	)

Net of tax		664			700			1,153			763

Net unrealized gains on securities		4,135			6,941			1,703			7,690

Unrealized gains on derivative instruments
Before tax		936			1,082			1,732			3,203
Tax effect		(371	)		(432	)		(687	)		(1,249	)

Net unrealized gains on derivative instruments		565			650			1,045			1,954

Foreign currency translation adjustment
Before tax		2,701			—			2,701			—
Tax effect		(600	)		—			(600	)		—

Net foreign currency translation adjustment		2,101			—			2,101			—

Total other comprehensive income		6,801			7,591			4,849			9,644

Comprehensive income	$	32,396		$	19,341			53,654			37,796

See accompanying notes to unaudited consolidated financial statements.

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, 2010	$	49,640	$	34,864	$	965,203		$	—		$	392,354		$	(5,512	)	$	1,436,549
Net income		—		—		—			—			28,152			—			28,152
Other comprehensive income, net of tax		—		—		—			—			—			9,644			9,644
Cash dividends declared on common stock		—		—		—			—			(3,145	)		—			(3,145	)
Dividends on preferred stock		—		—		—			—			(2,000	)		—			(2,000	)
Accretion on preferred stock		64		—		—			—			(64	)		—			—
Common stock repurchases		—		—		—			(50	)		—			—			(50	)
Stock-based compensation		—		—		2,034			—			—			—			2,034
Common stock issued for:
Exercise of stock options and warrants		—		45		567			—			—			—			612
Restricted stock awards		—		25		(28	)		—			—			—			(3	)
Employee stock purchase plan		—		29		868			—			—			—			897
Director compensation plan		—		25		671			—			—			—			696

Balance at June 30, 2011	$	49,704	$	34,988	$	969,315		$	(50	)	$	415,297		$	4,132		$	1,473,386

Balance at December 31, 2011	$	49,768	$	35,982	$	1,001,316		$	(112	)	$	459,457		$	(2,878	)	$	1,543,533
Net income		—		—		—			—			48,805			—			48,805
Other comprehensive income, net of tax		—		—		—			—			—			4,849			4,849
Cash dividends declared on common stock		—		—		—			—			(3,261	)		—			(3,261	)
Dividends on preferred stock		—		—		—			—			(3,793	)		—			(3,793	)
Accretion on preferred stock		69		—		—			—			(69	)		—			—
Stock—based compensation		—		—		4,639			—			—			—			4,639
Issuance of Series C preferred stock		126,500		—		(3,810	)		—			—			—			122,690
Common stock issued for:
Exercise of stock options and warrants		—		420		7,676			(6,391	)		—			—			1,705
Restricted stock awards		—		110		1,692			(871	)		—			—			931
Employee stock purchase plan		—		39		1,223			—			—			—			1,262
Director compensation plan		—		22		692			—			—			—			714

Balance at June 30, 2012	$	176,337	$	36,573	$	1,013,428		$	(7,374	)	$	501,139		$	1,971		$	1,722,074

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(In thousands)	2012			2011
Operating Activities:
Net income	$	48,805		$	28,152
Adjustments to reconcile net income to net cash (used for) provided by operating activities
Provision for credit losses		38,091			54,531
Depreciation and amortization		11,442			9,772
Stock-based compensation expense		4,639			2,034
Tax benefit from stock-based compensation arrangements		1,228			169
Excess tax benefits from stock-based compensation arrangements		(800	)		(238	)
Net amortization of premium on securities		4,830			5,496
Mortgage servicing rights fair value change and amortization, net		(1,920	)		1,136
Originations and purchases of mortgage loans held-for-sale		(1,568,240	)		(1,020,626	)
Proceeds from sales of mortgage loans held-for-sale		1,392,580			1,257,619
Bank owned life insurance income, net of claims		(1,424	)		(1,537	)
Decrease in trading securities, net		1,882			4,370
Net increase in brokerage customer receivables		(3,523	)		(5,187	)
Gains on mortgage loans sold		(29,920	)		(4,510	)
Gains on available-for-sale securities, net		(1,925	)		(1,258	)
Gain on bargain purchases, net		(785	)		(10,584	)
Loss on sales of premises and equipment, net		471			—
(Increase) decrease in accrued interest receivable and other assets, net		(86,605	)		85,641
Decrease (increase) in accrued interest payable and other liabilities, net		10,600			(29,341	)

Net Cash (Used for) Provided by Operating Activities		(180,574	)		375,639

Investing Activities:
Proceeds from maturities of available-for-sale securities		410,640			746,324
Proceeds from sales of available-for-sale securities		1,364,546			53,511
Purchases of available-for-sale securities		(1,036,877	)		(1,072,299	)
Net cash (paid) received for acquisitions		(129,742	)		19,925
Net increase in interest-bearing deposits with banks		(368,166	)		(100,337	)
Net increase in loans		(470,298	)		(364,474	)
Purchases of premises and equipment, net		(27,296	)		(48,741	)

Net Cash Used for Investing Activities		(257,193	)		(766,091	)

Financing Activities:
Increase in deposit accounts		609,317			243,605
(Decrease) increase in other borrowings, net		(341,111	)		171,673
Increase in Federal Home Loan Bank advances, net		90,000			—
Repayment of subordinated notes		(20,000	)		(10,000	)
Excess tax benefits from stock-based compensation arrangements		800			238
Net proceeds from issuance of preferred stock		122,690			—
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants		10,646			1,619
Common stock repurchases		(7,262	)		(50	)
Dividends paid		(5,261	)		(5,145	)

Net Cash Provided by Financing Activities		459,819			401,940

Net Increase in Cash and Cash Equivalents		22,052			11,488
Cash and Cash Equivalents at Beginning of Period		169,704			172,580

Cash and Cash Equivalents at End of Period	$	191,756		$	184,068

See accompanying notes to unaudited consolidated financial statements.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

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

The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”). Operating results reported for the three-month and six-month periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 “Summary of Significant Accounting Policies” of the Company’s 2011 Form 10-K.

(2) Recent Accounting Developments

Goodwill Impairment Testing

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which presents a qualitative approach to test goodwill for impairment. This ASU provides entities the option to assess qualitative factors to determine if impairment of goodwill exists. If examination of the qualitative factors yields a determination that it is not more likely than not that impairment exists, then it is not necessary for the Company to perform the two-step impairment test. This guidance is effective for fiscal periods beginning after December 15, 2011. The Company utilized a qualitative approach for its annual goodwill impairment test of the banking segment conducted as of June 30, 2012 and determined that it is not more likely than not that an impairment exists at that time. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which amends the presentation formats permitted for reporting other comprehensive income. This ASU no longer allows other comprehensive income to be presented as part of the statement of changes in shareholder’s equity. Entities must present other comprehensive income and its components in a single statement along with net income or in a separate, consecutive statement of other comprehensive income. This guidance is effective for fiscal and interim periods beginning after December 15, 2011. However, in December 2011, the FASB issued ASU No. 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” which deferred the ASU No. 2011-05 provision requiring companies to present reclassification adjustments for each component of other comprehensive income in both net income and other comprehensive income on the face of the financial statements. This deferral does not change the requirement to present items of net income, other comprehensive income and total comprehensive income in either a continuous statement or consecutive statements as of the effective date noted above. The Company adopted ASU No. 2011-05 in the first quarter of 2012 and has included separate consolidated statements of comprehensive income in accordance with the above guidance.

Amended Guidance for Fair Value Measurement and Disclosure

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which amends the language used to describe U.S. GAAP requirements for measuring fair value and for disclosing information about fair value measurements. The amended language seeks to clarify the application of existing guidance as well as change the measurement and disclosure of a few specific items. The principles changed include measurement of financial instruments that are managed within a portfolio and application of premiums and discounts in fair value measurement. The new guidance will also require additional disclosures including expanded disclosures for measurements categorized within level three of the fair value hierarchy, disclosures for nonfinancial assets at fair value and disclosure displaying the fair value hierarchy by level for items in the statement of financial position that are not measured at fair value but for which a fair value is required to be disclosed. The guidance is effective during interim and annual periods beginning after December 15, 2011. The Company adopted this guidance in the first quarter of 2012 and has included additional disclosures to address the topics presented within this ASU. See Note 15—“Fair Value of Assets and Liabilities” for the additional disclosures.

(3) Business Combinations

FDIC-Assisted Transactions

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

The following table presents details related to these transactions:


(Dollars in thousands)	Lincoln Park		Wheatland		Ravenswood		Community First Bank - Chicago		The Bank of Commerce		First Chicago		Charter National
Date of acquisition		April 23, 2010		April 23, 2010		August 6, 2010		February 4, 2011		March 25, 2011		July 8, 2011		February 10, 2012
Fair value of assets acquired, at the acquisition date	$	157,078	$	343,870	$	173,919	$	50,891	$	173,986	$	768,873	$	92,409
Fair value of loans acquired, at the acquisition date		103,420		175,277		97,956		27,332		77,887		330,203		45,555
Fair value of liabilities assumed, at the acquisition date		192,018		415,560		122,943		49,779		168,472		741,508		91,570

Loans comprise the majority of the assets acquired in these transactions, 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.

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 Bank and Trust (“Charter National”) in an FDIC-assisted transaction. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $13.2 million. In 2011, the Company estimated the fair value of the reimbursable losses to be approximately $273.3 million for the First Chicago Bank & Trust (“First Chicago”) acquisition, $48.9 million for The Bank of Commerce (“TBOC”) acquisition and $6.7 million for the Community First Bank-Chicago (“CFBC”) acquisition, at their respective acquisition dates. For the three acquisitions subject to loss share agreements in 2010, the Company estimated the fair value of the reimbursable losses to be approximately $44.0 million for the Ravenswood Bank (“Ravenswood”) acquisition, and $113.8 million for the Lincoln Park Savings Bank (“Lincoln Park”) and Wheatland Bank (“Wheatland”) acquisitions. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

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 Charter National acquisition resulted in bargain purchase gain of approximately $785,000. The 2011 transactions resulted in bargain purchase gains of a total of $38.0 million, including $27.4 million for First Chicago, $8.6 million for TBOC and $2.0 million for CFBC. In 2010, FDIC-assisted transactions resulted in bargain purchase gains of a total of $33.3 million, including $6.8 million for Ravenswood, $22.3 million for Wheatland, and $4.2 million for Lincoln Park. Bargain purchase gains are shown as a component of non-interest income on the Company’s Consolidated Statements of Income.

As stated above, in conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. These agreements cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets are also separately measured from the related loans and foreclosed real estate and recorded 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.

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


	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Balance at beginning of period	$	263,212		$	124,785		$	344,251		$	118,182
Additions from acquisitions		—			7,381			13,164			55,526
Additions from reimbursable expenses		6,113			2,057			12,977			5,071
Accretion		(1,204	)		305			(2,780	)		664
Changes in expected reimbursements from the FDIC for changes in expected credit losses		(12,551	)		(2,760	)		(29,764	)		(12,166	)
Payments received from the FDIC		(33,002	)		(21,719	)		(115,280	)		(57,228	)

Balance at end of period	$	222,568		$	110,049		$	222,568		$	110,049

Other Bank Acquisitions

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.

On September 30, 2011, the Company acquired Elgin State Bancorp, Inc. (“ESBI”). ESBI was the parent company of Elgin State Bank, which operated three banking locations in Elgin, Illinois. As part of this transaction, Elgin State Bank was merged into the Company’s wholly-owned subsidiary bank, St. Charles Bank & Trust Company (“St. Charles”). St. Charles acquired assets with a fair value of approximately $263.2 million, including $146.7 million of loans, and assumed liabilities with a fair value of approximately $248.4 million, including $241.1 million of deposits. Additionally, the Company recorded goodwill of $5.0 million on the acquisition.

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 $22.1 million on the acquisition.

Wealth Management Acquisitions

On March 30, 2012, the Company’s wholly-owned subsidiary, The Chicago Trust Company, N.A. (“CTC”), completed its previously announced 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. The Company recorded goodwill of $1.8 million on the trust operations acquisition.

On July 1, 2011, the Company acquired Great Lakes Advisors, Inc. (“Great Lakes Advisors”), a Chicago-based investment manager with approximately $2.4 billion in assets under management. The Company acquired assets with a fair value of approximately $26.0 million and assumed liabilities with a fair value of approximately $8.8 million. The Company recorded goodwill of $15.7 million on the acquisition.

Mortgage Banking Acquisitions

On April 13, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of River City Mortgage, LLC (“River City”) of Bloomington, Minnesota. Licensed to originate loans in five states, and with offices in Minnesota, Nebraska and North Dakota, River City originated nearly $500 million in mortgage loans in 2010.

On February 3, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Woodfield Planning Corporation (“Woodfield”) of Rolling Meadows, Illinois. With offices in Rolling Meadows, Illinois and Crystal Lake, Illinois, Woodfield originated approximately $180 million in mortgage loans in 2010.

Purchased loans with evidence of credit quality deterioration since origination

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

In determining the acquisition date fair value of purchased impaired loans, 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.

(5) Available-For-Sale Securities

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


	June 30, 2012
(Dollars in thousands)	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
U.S. Treasury	$	25,054	$	191	$	(2	)	$	25,243
U.S. Government agencies		636,117		4,262		(167	)		640,212
Municipal		77,397		2,414		(83	)		79,728
Corporate notes and other:
Financial issuers		143,892		2,434		(7,663	)		138,663
Other		19,311		253		—			19,564
Mortgage-backed: ⁽¹⁾
Agency		205,689		12,889		—			218,578
Non-agency CMOs		36,636		528		—			37,164
Other equity securities		42,726		122		(5,298	)		37,550

Total available-for-sale securities	$	1,186,822	$	23,093	$	(13,213	)	$	1,196,702


	December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
(Dollars in thousands)	Cost		gains		losses			Value
U.S. Treasury	$	16,028	$	145	$	—		$	16,173
U.S. Government agencies		760,533		5,596		(213	)		765,916
Municipal		57,962		2,159		(23	)		60,098
Corporate notes and other:
Financial issuers		149,229		1,914		(8,499	)		142,644
Other		27,070		287		(65	)		27,292
Mortgage-backed: ⁽¹⁾
Agency		206,549		12,078		(15	)		218,612
Non-agency CMOs		29,767		175		(3	)		29,939
Other equity securities		37,595		48		(6,520	)		31,123

Total available-for-sale securities	$	1,284,733	$	22,402	$	(15,338	)	$	1,291,797

(1)

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

The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2012:


	Continuous unrealized					Continuous unrealized
	losses existing for					losses existing for
	less than 12 months					greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	value		losses			value		losses			value		losses
U.S. Treasury	$	3,997	$	(2	)	$	—	$	—		$	3,997	$	(2	)
U.S. Government agencies		105,306		(167	)		—		—			105,306		(167	)
Municipal		12,873		(83	)		—		—			12,873		(83	)
Corporate notes and other:
Financial issuers		49,814		(3,427	)		51,711		(4,236	)		101,525		(7,663	)
Other		—		—			—		—			—		—
Mortgage-backed:
Agency		—		—			—		—			—		—
Non-agency CMOs		—		—			—		—			—		—
Other equity securities		25,121		(5,298	)		—		—			25,121		(5,298	)

Total	$	197,111	$	(8,977	)	$	51,711	$	(4,236	)	$	248,822	$	(13,213	)

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

The Company does not consider securities with unrealized losses at June 30, 2012 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 comprised of corporate securities of financial issuers. The corporate securities of financial issuers in this category included five fixed-to-floating rate bonds and three trust-preferred securities, all of which continue to be considered investment grade. Additionally, a review of the issuers indicated that they each have strong capital ratios.

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


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2012		2011		2012			2011
Realized gains	$	1,109	$	1,152	$	1,937		$	1,258
Realized losses		—		—		(12	)		—

Net realized gains	$	1,109	$	1,152	$	1,925		$	1,258
Other than temporary impairment charges		—		—		—			—

Gains on available- for-sale securities, net	$	1,109	$	1,152	$	1,925		$	1,258

Proceeds from sales of available-for-sale securities	$	627,177	$	3,369	$	1,364,546		$	53,511

The amortized cost and fair value of securities as of June 30, 2012 and December 31, 2011, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:


	June 30, 2012				December 31, 2011
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	67,163	$	67,488	$	121,400	$	121,662
Due in one to five years		467,468		466,553		532,828		530,632
Due in five to ten years		110,465		109,780		95,279		95,508
Due after ten years		256,675		259,589		261,315		264,321
Mortgage-backed		242,325		255,742		236,316		248,551
Other equity securities		42,726		37,550		37,595		31,123

Total available-for-sale securities	$	1,186,822	$	1,196,702	$	1,284,733	$	1,291,797

At June 30, 2012 and December 31, 2011, securities having a carrying value of $782.8 million and $1.1 billion, respectively which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At June 30, 2012, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

(6) Loans

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


	June 30,			December 31,			June 30,
(Dollars in thousands)	2012			2011			2011
Balance:
Commercial	$	2,673,181		$	2,498,313		$	2,132,436
Commercial real estate		3,666,519			3,514,261			3,374,668
Home equity		820,991			862,345			880,702
Residential real estate		375,494			350,289			329,381
Premium finance receivables—commercial		1,830,044			1,412,454			1,429,436
Premium finance receivables—life insurance		1,656,200			1,695,225			1,619,668
Indirect consumer		72,482			64,545			57,718
Consumer and other		107,931			123,945			101,068

Total loans, net of unearned income, excluding covered loans	$	11,202,842		$	10,521,377		$	9,925,077
Covered loans		614,062			651,368			408,669

Total loans	$	11,816,904		$	11,172,745		$	10,333,746

Mix:
Commercial		23	%		22	%		20	%
Commercial real estate		31			31			33
Home equity		7			8			8
Residential real estate		3			3			3
Premium finance receivables—commercial		15			13			14
Premium finance receivables—life insurance		14			15			16
Indirect consumer		1			1			1
Consumer and other		1			1			1

Total loans, net of unearned income, excluding covered loans		95	%		94	%		96	%
Covered loans		5			6			4

Total loans		100	%		100	%		100	%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $41.9 million at June 30, 2012, $34.6 million at December 31, 2011 and $37.3 million at June 30, 2011, 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 starting in 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $13.8 million at June 30, 2012, $12.8 million at December 31, 2011 and $12.9 million at June 30, 2011.

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

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

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

As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the bank acquisitions starting in 2010, 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 loans acquired with evidence of credit quality deterioration since origination:

June 30, 2012

December 31, 2011

Unpaid

Unpaid

Principal

Carrying

Principal

Carrying

(Dollars in thousands)

Balance

Value

Balance

Value

Bank acquisitions

726,721

557,387

866,874

596,946

Life insurance premium finance loans acquisition

571,963

544,963

632,878

598,463

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the six months ended June 30, 2012, the following table provides estimated details on these loans at the date of acquisition:


	Charter
(Dollars in thousands)	National
Contractually required payments including interest	$	40,475
Less: Nonaccretable difference		11,855

Cash flows expected to be collected ⁽¹⁾		28,620
Less: Accretable yield		2,288

Fair value of loans acquired with evidence of credit quality deterioration since origination	$	26,332

(1)

Represents undiscounted expected principal and interest cash flows at acquisition.

See Note 7—Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with loans acquired with evidence of credit quality deterioration since origination at June 30, 2012.

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						Three Months Ended
	June 30, 2012						June 30, 2011
				Life Insurance						Life Insurance
	Bank			Premium			Bank			Premium
(Dollars in thousands)	Acquisitions			Finance Loans			Acquisitions			Finance Loans
Accretable yield, beginning balance	$	182,222		$	15,848		$	91,332		$	25,543
Acquisitions		—			—			(2,005	)		—
Accretable yield amortized to interest income		(13,387	)		(2,749	)		(7,977	)		(5,122	)
Accretable yield amortized to indemnification asset ⁽¹⁾		(18,063	)		—			(5,591	)		—
Reclassification from non-accretable difference ⁽²⁾		7,590			1,145			1,831			3,673
Increases in interest cash flows due to payments and changes in interest rates		13,439			382			3,158			797

Accretable yield, ending balance ⁽³⁾	$	171,801		$	14,626		$	80,748		$	24,891

(1)

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

(2)

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

(3)

As of June 30, 2012, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $88.2 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.


	Six Months Ended						Six Months Ended
	June 30, 2012						June 30, 2011
				Life Insurance						Life Insurance
	Bank			Premium			Bank			Premium
(Dollars in thousands)	Acquisitions			Finance Loans			Acquisitions			Finance Loans
Accretable yield, beginning balance	$	173,120		$	18,861		$	39,809		$	33,315
Acquisitions		2,288			—			5,102			—
Accretable yield amortized to interest income		(28,279	)		(6,486	)		(15,049	)		(14,174	)
Accretable yield amortized to indemnification asset ⁽¹⁾		(39,440	)		—			(12,678	)		—
Reclassification from non-accretable difference ⁽²⁾		49,191			1,145			50,675			3,857
Increases in interest cash flows due to payments and changes in interest rates		14,921			1,106			12,889			1,893

Accretable yield, ending balance ⁽³⁾	$	171,801		$	14,626		$	80,748		$	24,891

(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)

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

The tables below show the aging of the Company’s loan portfolio at June 30, 2012, December 31, 2011 and June 30, 2011:

90+ days

60-89

30-59

As of June 30, 2012

and still

days past

(Dollars in thousands)

Nonaccrual

accruing

due

Current

Total Loans

Loan Balances:

Commercial

Commercial and industrial

27,911

—

5,557

17,227

1,570,366

1,621,061

Franchise

1,792

—

176,827

178,619

Mortgage warehouse lines of credit

—

123,804

Community Advantage—homeowners association

—

73,289

Aircraft

428

—

170

22,205

22,803

Asset-based lending

342

—

172

1,074

487,619

489,207

Municipal

—

79,708

Leases

—

77,805

77,806

Other

—

1,842

Purchased non-covered commercial ⁽¹⁾

—

486

—

4,499

5,042

Total commercial

30,473

486

5,729

18,529

2,617,964

2,673,181

Commercial real-estate:

Residential construction

892

—

6,041

5,773

32,020

44,726

Commercial construction

3,011

—

13,131

330

140,223

156,695

Land

13,459

—

3,276

6,044

142,490

165,269

Office

4,796

—

891

1,868

562,879

570,434

Industrial

1,820

—

3,158

1,320

591,919

598,217

Retail

8,158

—

1,351

6,657

546,617

562,783

Multi-family

3,312

—

151

1,447

332,871

337,781

Mixed use and other

20,629

—

15,530

16,063

1,126,930

1,179,152

Purchased non-covered commercial real-estate ⁽¹⁾

—

2,232

2,352

1,057

45,821

51,462

Total commercial real-estate

56,077

2,232

45,881

40,559

3,521,770

3,666,519

Home equity

10,583

—

2,182

3,195

805,031

820,991

Residential real estate

9,387

—

3,765

1,558

360,128

374,838

Purchased non-covered residential real estate ⁽¹⁾

—

656

Premium finance receivables

Commercial insurance loans

7,404

5,184

4,796

7,965

1,804,695

1,830,044

Life insurance loans

—

1,111,207

1,111,237

Purchased life insurance loans ⁽¹⁾

—

544,963

Indirect consumer

132

234

312

71,753

72,482

Consumer and other

1,446

—

483

265

105,669

107,863

Purchased non-covered consumer and other ⁽¹⁾

—

Total loans, net of unearned income, excluding covered loans

115,502

8,136

62,887

72,413

10,943,904

11,202,842

Covered loans

—

145,115

14,658

7,503

446,786

614,062

Total loans, net of unearned income

115,502

153,251

77,545

79,916

11,390,690

11,816,904

(1)

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


			90+ days		60-89		30-59
As of December 31, 2011			and still		days past		days past
(Dollars in thousands)	Nonaccrual		accruing		due		due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	16,154	$	—	$	7,496	$	15,797	$	1,411,004	$	1,450,451
Franchise		1,792		—		—		—		140,983		142,775
Mortgage warehouse lines of credit		—		—		—		—		180,450		180,450
Community Advantage—homeowners association		—		—		—		—		77,504		77,504
Aircraft		—		—		709		170		19,518		20,397
Asset-based lending		1,072		—		749		11,026		452,890		465,737
Municipal		—		—		—		—		78,319		78,319
Leases		—		—		—		431		71,703		72,134
Other		—		—		—		—		2,125		2,125
Purchased non-covered commercial ⁽¹⁾		—		589		74		—		7,758		8,421

Total commercial		19,018		589		9,028		27,424		2,442,254		2,498,313

Commercial real-estate
Residential construction		1,993		—		4,982		1,721		57,115		65,811
Commercial construction		2,158		—		—		150		167,568		169,876
Land		31,547		—		4,100		6,772		136,112		178,531
Office		10,614		—		2,622		930		540,280		554,446
Industrial		2,002		—		508		4,863		548,429		555,802
Retail		5,366		—		5,268		8,651		517,444		536,729
Multi-family		4,736		—		3,880		347		305,594		314,557
Mixed use and other		8,092		—		7,163		20,814		1,050,585		1,086,654
Purchased non-covered commercial real-estate ⁽¹⁾		—		2,198		—		252		49,405		51,855

Total commercial real-estate		66,508		2,198		28,523		44,500		3,372,532		3,514,261

Home equity		14,164		—		1,351		3,262		843,568		862,345
Residential real estate		6,619		—		2,343		3,112		337,522		349,596
Purchased non-covered residential real estate ⁽¹⁾		—		—		—		—		693		693
Premium finance receivables
Commercial insurance loans		7,755		5,281		3,850		13,787		1,381,781		1,412,454
Life insurance loans		54		—		—		423		1,096,285		1,096,762
Purchased life insurance loans ⁽¹⁾		—		—		—		—		598,463		598,463
Indirect consumer		138		314		113		551		63,429		64,545
Consumer and other		233		—		170		1,070		122,393		123,866
Purchased non-covered consumer and other ⁽¹⁾		—		—		—		2		77		79

Total loans, net of unearned income, excluding covered loans	$	114,489	$	8,382	$	45,378	$	94,131	$	10,258,997	$	10,521,377
Covered loans		—		174,727		25,507		24,799		426,335		651,368

Total loans, net of unearned income	$	114,489	$	183,109	$	70,885	$	118,930	$	10,685,332	$	11,172,745

(1)


As of June 30, 2011			90+ days and still		60-89 days past		30-59 days past
(Dollars in thousands)	Nonaccrual		accruing		due		due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	22,289	$	—	$	7,164	$	23,754	$	1,309,455	$	1,362,662
Franchise		1,792		—		—		—		112,342		114,134
Mortgage warehouse lines of credit		—		—		—		—		68,477		68,477
Community Advantage—homeowners association		—		—		—		—		73,929		73,929
Aircraft		—		—		—		—		21,231		21,231
Asset-based lending		2,087		—		—		2,415		361,594		366,096
Municipal		—		—		—		—		63,296		63,296
Leases		—		—		—		763		61,772		62,535
Other		—		—		—		—		76		76
Purchased non-covered commercial ⁽¹⁾		—		—		—		—		—		—

Total commercial		26,168		—		7,164		26,932		2,072,172		2,132,436

Commercial real-estate
Residential construction		3,011		—		938		5,245		81,561		90,755
Commercial construction		2,453		—		7,579		7,075		120,540		137,647
Land		33,980		—		10,281		8,076		160,597		212,934
Office		17,503		—		1,648		3,846		509,385		532,382
Industrial		2,470		—		2,689		2,480		506,895		514,534
Retail		8,164		—		3,778		14,806		498,040		524,788
Multi-family		4,947		—		4,628		3,836		302,740		316,151
Mixed use and other		17,265		—		9,350		4,201		1,014,661		1,045,477
Purchased non-covered commercial real-estate ⁽¹⁾		—		—		—		—		—		—

Total commercial real-estate		89,793		—		40,891		49,565		3,194,419		3,374,668

Home equity		15,853		—		1,502		4,081		859,266		880,702
Residential real estate		7,379		—		1,272		949		319,781		329,381
Purchased non-covered residential real estate ⁽¹⁾		—		—		—		—		—		—
Premium finance receivables
Commercial insurance loans		10,309		4,446		5,089		7,897		1,401,695		1,429,436
Life insurance loans		670		324		4,873		3,254		957,808		966,929
Purchased life insurance loans⁽¹⁾		—		—		—		—		652,739		652,739
Indirect consumer		89		284		98		531		56,716		57,718
Consumer and other		757		—		123		418		99,770		101,068
Purchased non-covered consumer and other ⁽¹⁾		—		—		—		—		—		—

Total loans, net of unearned income, excluding covered loans	$	151,018	$	5,054	$	61,012	$	93,627	$	9,614,366	$	9,925,077
Covered loans		—		121,271		5,643		11,899		269,856		408,669

Total loans, net of unearned income	$	151,018	$	126,325	$	66,655	$	105,526	$	9,884,222	$	10,333,746

(1)

Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating (1 to 10 rating) to each loan at the time of origination and review loans on a regular basis.

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer 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.

Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest, excluding loans acquired with evidence of credit quality deterioration since origination. The remainder of the portfolio not classified as non-performing are considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at June 30, 2012, December 31, 2011, and June 30, 2011:


	Performing						Non-performing						Total
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2012		2011		2011		2012		2011		2011		2012		2011		2011
Loan Balances:
Commercial
Commercial and industrial	$	1,593,150	$	1,434,297	$	1,340,373	$	27,911	$	16,154	$	22,289	$	1,621,061	$	1,450,451	$	1,362,662
Franchise		176,827		140,983		112,342		1,792		1,792		1,792		178,619		142,775		114,134
Mortgage warehouse lines of credit		123,804		180,450		68,477		—		—		—		123,804		180,450		68,477
Community Advantage—homeowners association		73,289		77,504		73,929		—		—		—		73,289		77,504		73,929
Aircraft		22,375		20,397		21,231		428		—		—		22,803		20,397		21,231
Asset-based lending		488,865		464,665		364,009		342		1,072		2,087		489,207		465,737		366,096
Municipal		79,708		78,319		63,296		—		—		—		79,708		78,319		63,296
Leases		77,806		72,134		62,535		—		—		—		77,806		72,134		62,535
Other		1,842		2,125		76		—		—		—		1,842		2,125		76
Purchased non-covered commercial⁽¹⁾		5,042		8,421		—		—		—		—		5,042		8,421		—

Total commercial		2,642,708		2,479,295		2,106,268		30,473		19,018		26,168		2,673,181		2,498,313		2,132,436

Commercial real-estate
Residential construction		43,834		63,818		87,744		892		1,993		3,011		44,726		65,811		90,755
Commercial construction		153,684		167,718		135,194		3,011		2,158		2,453		156,695		169,876		137,647
Land		151,810		146,984		178,954		13,459		31,547		33,980		165,269		178,531		212,934
Office		565,638		543,832		514,879		4,796		10,614		17,503		570,434		554,446		532,382
Industrial		596,397		553,800		512,064		1,820		2,002		2,470		598,217		555,802		514,534
Retail		554,625		531,363		516,624		8,158		5,366		8,164		562,783		536,729		524,788
Multi-family		334,469		309,821		311,204		3,312		4,736		4,947		337,781		314,557		316,151
Mixed use and other		1,158,523		1,078,562		1,028,212		20,629		8,092		17,265		1,179,152		1,086,654		1,045,477
Purchased non-covered commercial real-estate⁽¹⁾		51,462		51,855		—		—		—		—		51,462		51,855		—

Total commercial real-estate		3,610,442		3,447,753		3,284,875		56,077		66,508		89,793		3,666,519		3,514,261		3,374,668

Home equity		810,408		848,181		864,849		10,583		14,164		15,853		820,991		862,345		880,702
Residential real estate		365,451		342,977		322,002		9,387		6,619		7,379		374,838		349,596		329,381
Purchased non-covered residential real estate ⁽¹⁾		656		693		—		—		—		—		656		693		—
Premium finance receivables
Commercial insurance loans		1,817,456		1,399,418		1,414,681		12,588		13,036		14,755		1,830,044		1,412,454		1,429,436
Life insurance loans		1,111,237		1,096,708		965,935		—		54		994		1,111,237		1,096,762		966,929
Purchased life insurance loans⁽¹⁾		544,963		598,463		652,739		—		—		—		544,963		598,463		652,739
Indirect consumer		72,116		64,093		57,345		366		452		373		72,482		64,545		57,718
Consumer and other		106,417		123,633		100,311		1,446		233		757		107,863		123,866		101,068
Purchased non-covered consumer and other⁽¹⁾		68		79		—		—		—		—		68		79		—

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