UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission File Number 0-21923

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

727 North Bank Lane
Lake Forest, Illinois 60045

(Address of principal executive offices)

(847) 615-4096

(Registrant’s telephone number, including area code)

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

Yes      þ No      o

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

Yes     o No     o

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

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

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

Yes      o No      þ

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

Common Stock — no par value, 31,114,781 shares, as of August 3, 2010

 

 

TABLE OF CONTENTS

		Page
PART I. — FINANCIAL INFORMATION
ITEM 1. Financial Statements.			1-36
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			37-81
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.			82
ITEM 4. Controls and Procedures.			83
PART II. — OTHER INFORMATION
ITEM 1. Legal Proceedings.		NA
ITEM 1A. Risk Factors.			83
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.			83
ITEM 3. Defaults Upon Senior Securities.		NA
ITEM 4. Removed and Reserved.		NA
ITEM 5. Other Information.		NA
ITEM 6. Exhibits.			84
Signatures.			85
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

		(Unaudited)								(Unaudited)
		June 30,				December 31,				June 30,
(In thousands, except share data)		2010				2009				2009
Assets
Cash and due from banks		$	123,712			$	135,133			$	122,382
Federal funds sold and securities purchased under resale agreements			28,664				23,483				41,450
Interest bearing deposits with other banks ($83,501 restricted for securitization investors at June 30, 2010)			1,110,123				1,025,663				655,759
Available-for-sale securities, at fair value			1,418,035				1,255,066				1,195,695
Trading account securities			38,261				33,774				22,973
Brokerage customer receivables			24,291				20,871				17,701
Federal Home Loan Bank and Federal Reserve Bank stock			79,300				73,749				71,715
Loans held-for-sale, at fair value			222,703				265,786				291,275
Loans held-for-sale, at lower of cost or market			15,278				9,929				529,825
Loans, net of unearned income, excluding covered loans			9,324,163				8,411,771				7,595,476
Covered loans			275,563				—				—
Total loans			9,599,726				8,411,771				7,595,476
Less: Allowance for loan losses			106,547				98,277				85,113
Net loans ($598,857 restricted for securitization investors at June 30, 2010)			9,493,179				8,313,494				7,510,363
Premises and equipment, net			346,806				350,345				350,447
FDIC indemnification asset			114,102				—				—
Accrued interest receivable and other assets			374,172				416,678				260,182
Trade date securities receivable			28,634				—				—
Goodwill			278,025				278,025				276,525
Other intangible assets			13,275				13,624				13,244
Total assets		$	13,708,560			$	12,215,620			$	11,359,536
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing		$	953,814			$	864,306			$	793,173
Interest bearing			9,670,928				9,052,768				8,398,159
Total deposits			10,624,742				9,917,074				9,191,332
Notes payable			1,000				1,000				1,000
Federal Home Loan Bank advances			415,571				430,987				435,980
Other borrowings			218,424				247,437				244,286
Secured borrowings — owed to securitization investors			600,000				—				—
Subordinated notes			55,000				60,000				65,000
Junior subordinated debentures			249,493				249,493				249,493
Trade date securities payable			200				—				—
Accrued interest payable and other liabilities			159,394				170,990				107,369
Total liabilities			12,323,824				11,076,981				10,294,460
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, 2010, December 31, 2009 and June 30, 2009			49,379				49,379				49,379
Series B — $1,000 liquidation value; 250,000 shares issued and outstanding at June 30, 2010 and December 31, 2009 and June 30, 2009			237,081				235,445				234,139
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 31,084,417, 27,079,308 and 26,834,784 shares issued at June 30, 2010, December 31, 2009 and June 30, 2009, respectively			31,084				27,079				26,835
Surplus			680,261				589,939				577,473
Treasury stock, at cost, 119 shares at June 30, 2010, 2,872,489 shares at December 31, 2009 and 2,854,980 shares at June 30, 2009			(4	)			(122,733	)			(122,302	)
Retained earnings			381,969				366,152				317,713
Accumulated other comprehensive income (loss)			4,966				(6,622	)			(18,161	)
Total shareholders’ equity			1,384,736				1,138,639				1,065,076
Total liabilities and shareholders’ equity		$	13,708,560			$	12,215,620			$	11,359,536

See accompanying notes to unaudited consolidated financial statements.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except per share data)		2010				2009				2010				2009
Interest income
Interest and fees on loans		$	135,800			$	110,302			$	265,342			$	217,189
Interest bearing deposits with banks			1,215				767				2,489				1,427
Federal funds sold and securities purchased under resale agreements			34				66				83				127
Securities			11,218				15,394				22,230				29,300
Trading account securities			343				55				364				79
Brokerage customer receivables			166				120				304				240
Federal Home Loan Bank and Federal Reserve Bank stock			472				425				931				846
Total interest income			149,248				127,129				291,743				249,208
Interest expense
Interest on deposits			31,626				43,502				64,838				89,455
Interest on Federal Home Loan Bank advances			4,094				4,503				8,440				8,956
Interest on notes payable and other borrowings			1,439				1,752				2,901				3,622
Interest on secured borrowings — owed to securitization investors			3,115				—				6,109				—
Interest on subordinated notes			256				428				497				1,008
Interest on junior subordinated debentures			4,404				4,447				8,779				8,888
Total interest expense			44,934				54,632				91,564				111,929
Net interest income			104,314				72,497				200,179				137,279
Provision for credit losses			41,297				23,663				70,342				38,136
Net interest income after provision for credit losses			63,017				48,834				129,837				99,143
Non-interest income
Wealth management			9,193				6,883				17,860				12,809
Mortgage banking			7,985				22,596				17,713				38,828
Service charges on deposit accounts			3,371				3,183				6,703				6,153
Gain on sales of premium finance receivables			—				196				—				518
Gains (losses) on available-for-sale securities, net			46				1,540				438				(498	)
Gain on bargain purchases			26,494				—				37,388				—
Trading gains (losses)			(1,538	)			8,274				4,435				17,018
Other			4,885				2,780				8,507				7,051
Total non-interest income			50,436				45,452				93,044				81,879
Non-interest expense
Salaries and employee benefits			50,649				46,015				99,721				90,835
Equipment			4,046				4,015				7,941				7,953
Occupancy, net			6,033				5,608				12,263				11,798
Data processing			3,669				3,216				7,076				6,352
Advertising and marketing			1,470				1,420				2,784				2,515
Professional fees			3,957				2,871				7,064				5,754
Amortization of other intangible assets			674				676				1,319				1,363
FDIC insurance			5,005				9,121				8,814				12,134
OREO expense, net			5,843				1,072				7,181				3,428
Other			11,317				10,231				22,438				19,075
Total non-interest expense			92,663				84,245				176,601				161,207
Income before taxes			20,790				10,041				46,280				19,815
Income tax expense			7,781				3,492				17,253				6,908
Net income		$	13,009			$	6,549			$	29,027			$	12,907
Preferred stock dividends and discount accretion			4,943				5,000				9,887				10,000
Net income applicable to common shares		$	8,066			$	1,549			$	19,140			$	2,907
Net income per common share — Basic		$	0.26			$	0.06			$	0.67			$	0.12
Net income per common share — Diluted		$	0.25			$	0.06			$	0.64			$	0.12
Cash dividends declared per common share		$	—			$	—			$	0.09			$	0.18
Weighted average common shares outstanding			31,074				23,964				28,522				23,910
Dilutive potential common shares			1,267				300				1,203				269
Average common shares and dilutive common shares			32,341				24,264				29,725				24,179

See accompanying notes to unaudited consolidated financial statements.

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

																						Accumulated
																						other				Total
		Preferred				Common								Treasury				Retained				comprehensive				shareholders’
(In thousands)		stock				stock				Surplus				stock				earnings				income (loss)				equity
Balance at December 31, 2008		$	281,873			$	26,611			$	571,887			$	(122,290	)		$	318,793			$	(10,302	)		$	1,066,572
Comprehensive income:
Net income			—				—				—				—				12,907				—				12,907
Other comprehensive income, net of tax:
Unrealized losses on securities, net of reclassification adjustment			—				—				—				—				—				(10,666	)			(10,666	)
Unrealized gains on derivative instruments			—				—				—				—				—				2,807				2,807
Comprehensive income																											5,048
Cash dividends declared on common stock			—				—				—				—				(4,296	)			—				(4,296	)
Dividends on preferred stock			—				—				—				—				(8,355	)			—				(8,355	)
Accretion on preferred stock			1,645				—				—				—				(1,645	)			—				—
Common stock repurchases			—				—				—				(12	)			—				—				(12	)
Stock-based compensation			—				—				3,431				—				—				—				3,431
Cumulative effect of change in accounting for other-than-temporary impairment			—				—				—				—				309				—				309
Common stock issued for:
Exercise of stock options and warrants			—				52				612				—				—				—				664
Restricted stock awards			—				66				(764	)			—				—				—				(698	)
Employee stock purchase plan			—				56				635				—				—				—				691
Director compensation plan			—				50				1,672				—				—				—				1,722
Balance at June 30, 2009		$	283,518			$	26,835			$	577,473			$	(122,302	)		$	317,713			$	(18,161	)		$	1,065,076
Balance at December 31, 2009		$	284,824			$	27,079			$	589,939			$	(122,733	)		$	366,152			$	(6,622	)		$	1,138,639
Comprehensive income:
Net income			—				—				—				—				29,027				—				29,027
Other comprehensive income, net of tax:
Unrealized gains on securities, net of reclassification adjustment			—				—				—				—				—				12,040				12,040
Unrealized losses on derivative instruments			—				—				—				—				—				(296	)			(296	)
Comprehensive income																											40,771
Cash dividends declared on common stock			—				—				—				—				(2,191	)			—				(2,191	)
Dividends on preferred stock			—				—				—				—				(8,251	)			—				(8,251	)
Accretion on preferred stock			1,636				—				—				—				(1,636	)			—				—
Common stock repurchases			—				—				—				(102	)			—				—				(102	)
Stock-based compensation			—				—				2,505				—				—				—				2,505
Cumulative effect of change in accounting for loan securitizations			—				—				—				—				(1,132	)			(156	)			(1,288	)
Common stock issued for:
New issuance, net of costs			—				3,795				83,791				122,831				—				—				210,417
Exercise of stock options and warrants			—				108				2,198				—				—				—				2,306
Restricted stock awards			—				41				(91	)			—				—				—				(50	)
Employee stock purchase plan			—				13				482				—				—				—				495
Director compensation plan			—				48				1,437				—				—				—				1,485
Balance at June 30, 2010		$	286,460			$	31,084			$	680,261			$	(4	)		$	381,969			$	4,966			$	1,384,736

		Six Months Ended June 30,
		2010				2009
Other Comprehensive Income (Loss):
Unrealized gains (losses) on available-for-sale securities arising during the period, net		$	20,023			$	(17,861	)
Unrealized (losses) gains on derivative instruments arising during the period, net			(482	)			4,567
Less: Reclassification adjustment for gains (losses) included in net income, net			438				(498	)
Less: Income tax expense (benefit)			7,359				(4,937	)
Other Comprehensive Income (Loss)		$	11,744			$	(7,859	)

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)		2010				2009
Operating Activities:
Net income		$	29,027			$	12,907
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses			70,342				38,136
Depreciation and amortization			9,060				10,125
Stock-based compensation expense			2,505				3,431
Tax benefit (expense) from stock-based compensation arrangements			562				(650	)
Excess tax benefits from stock-based compensation arrangements			(760	)			(84	)
Net amortization of premium on securities			1,159				4
Mortgage servicing rights fair value change and amortization, net			2,242				1,218
Originations and purchases of loans held-for-sale			(1,419,144	)			(2,753,665	)
Originations of premium finance receivables held-for-sale			—				(520,000	)
Proceeds from sales of mortgage loans held-for-sale			1,480,862				2,542,202
Bank owned life insurance income, net of claims			(1,042	)			(851	)
Gain on sales of premium finance receivables			—				(518	)
Increase in trading securities, net			(4,487	)			(18,574	)
Net (increase) decrease in brokerage customer receivables			(3,420	)			200
Gain on mortgage loans sold			(23,984	)			(28,521	)
(Gain) loss on available-for-sale securities, net			(438	)			498
Gain on bargain purchases			(37,388	)			—
Loss on sales of premises and equipment, net			8				27
Decrease in accrued interest receivable and other assets, net			97,626				6,372
Decrease in accrued interest payable and other liabilities, net			(14,350	)			(7,597	)
Net Cash Provided by (Used for) Operating Activities			188,380				(715,340	)
Investing Activities:
Proceeds from maturities of available-for-sale securities			675,419				975,126
Proceeds from sales of available-for-sale securities			270,654				1,071,192
Purchases of available-for-sale securities			(1,148,417	)			(1,760,047	)
Net cash received for FDIC-assisted acquisitions			133,952				—
Net decrease (increase) in interest-bearing deposits with banks			36,909				(532,750	)
Net increase in loans			(421,140	)			(18,092	)
Purchases of premises and equipment, net			(5,067	)			(9,272	)
Net Cash Used for Investing Activities			(457,690	)			(273,843	)
Financing Activities:
Increase in deposit accounts			137,276				814,576
Decrease in other borrowings, net			(29,013	)			(92,478	)
Decrease in Federal Home Loan Bank advances, net			(43,069	)			—
Issuance of common stock, net of issuance costs			210,417				—
Repayment of subordinated note			(5,000	)			(5,000	)
Excess tax benefits from stock-based compensation arrangements			760				84
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants			2,242				1,307
Common stock repurchases			(102	)			(12	)
Dividends paid			(10,441	)			(11,366	)
Net Cash Provided by Financing Activities			263,070				707,111
Net Decrease in Cash and Cash Equivalents			(6,240	)			(282,072	)
Cash and Cash Equivalents at Beginning of Period			158,616				445,904
Cash and Cash Equivalents at End of Period		$	152,376			$	163,832

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 and Form 10-K for the year ended December 31, 2009 (“2009 Form 10-K”). Operating results reported for the three-month and year-to-date periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 (Summary of Significant Accounting Policies) of the Company’s 2009 Form 10-K.

(2) Recent Accounting Developments

Accounting for Transfers of Financial Assets and Variable Interest Entities

In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-16, “Transfers and Servicing (Topic 860) — Accounting for Transfers of Financial Assets,” amending ASU No. 2009-01 (formerly FASB No. 168) “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“The Codification”) for the issuance of FASB No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” and ASU No. 2009-17, “Consolidation (Topic 810) — Improvements to Financial Reporting for Enterprises Involved with Variable Interest Entities,” amending the Codification to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance became effective for the Company on January 1, 2010.

ASU No. 2009-16 removed the concept of a qualifying special-purpose entity, changed the requirements for derecognizing financial assets and requires additional disclosures about a transferor’s continuing involvement in transferred financial assets. As a result of this amendment, the Company’s securitization transaction is accounted for as a secured borrowing rather than a sale and the Company’s securitization entity (FIFC Premium Funding, LLC) is no longer exempt from consolidation.

ASU No. 2009-17 requires an ongoing assessment of the Company’s involvement in the activities of Variable Interest Entities (“VIE’s”) and the Company’s rights or obligations to receive benefits or absorb losses that could be potentially significant in order to determine whether those VIE’s will be required to be consolidated in the Company’s financial statements. In accordance with this amendment, the Company concluded that it is the primary beneficiary of the Company’s securitization entity and began consolidating this entity on January 1, 2010. The impact of consolidating the Company’s securitization entity on January 1, 2010 resulted in a $587.1 million net increase in total assets, a $588.4 million net increase in total liabilities and a $1.3 million net decrease in stockholder’s equity (comprised of a $1.1 million decrease in retained earnings and a $200,000 decrease in accumulated other comprehensive income).

The assets of the consolidated securitization entity includes interest bearing deposits and premium finance receivables-commercial, which are restricted to settle the obligations of the securitization entity. Liabilities of the securitization entity include secured borrowings for which creditors or beneficial interest holders do not have recourse to the general credit of the Company.

The Company’s statement of income beginning with the three months ended March 31, 2010 no longer reflects securitization income, but instead reports interest income, net charge-offs and certain other income associated with the securitized loan receivables in the same line items in the Company’s statement of income as non-securitized premium finance receivables-commercial. Additionally, the Company no longer records initial gains on new securitization activity since the transferred loans no longer receive sale accounting treatment. Also, there are no gains or losses recorded on the revaluation of the interest-only strip receivable as that asset is not recognizable in a transaction accounted for as a secured borrowing.

The Company’s financial statements have not been retrospectively adjusted to reflect the adjustments to Accounting Standards Codification (“ASC”) 860. Therefore, current period results and balances may not be comparable to prior period amounts.

Subsequent Events

In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” which amends certain provisions of the current guidance, including the elimination of the requirement for disclosure of the date through which an evaluation of subsequent events was performed in issued and revised financial statements. This guidance was effective for interim and annual financial periods ending after February 24, 2010, and has been applied with no material impact on the Company’s financial statements.

Disclosures about Fair Value of Financial Instruments

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

Credit Quality Disclosures of Financing Receivables and Allowance for Credit Losses

In July 2010, the FASB issued ASU No. 2010-20, “Fair Value Measurements and Disclosures (Topic 820): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which requires more information in disclosures related to the credit quality of their financing receivables and the credit reserves held against them. The new guidance requires the Company to provide a greater level of disaggregated information about the credit quality of the Company’s loans and the allowance for loan losses as well as to disclose additional information related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. The provisions of this ASU are effective for the Company’s reporting period ending on or after December 15, 2010. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

(3) Business Combinations

On April 23, 2010, the Company acquired the banking operations of two entities in FDIC assisted transactions. Northbrook Bank & Trust Company (“Northbrook”) acquired assets with a fair value of approximately $157 million and assumed liabilities with a fair value of approximately $192 million of Lincoln Park Savings Bank (“Lincoln Park”). Wheaton Bank & Trust Company acquired assets with a fair value of approximately $344 million and assumed liabilities with a fair value of approximately $416 million of Wheatland Bank (“Wheatland”). Loans comprise the majority of the assets acquired in these transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. The Company refers to the loans subject to these loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $113.8 million. 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 asset, 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. These transactions resulted in a bargain purchase gain of $26.5 million, $22.3 million for Wheatland and $4.2 million for Lincoln Park, and are shown as a component of non-interest income on the Company’s Consolidated Statement of Income.

On July 28, 2009, FIFC, a wholly-owned subsidiary of the Company, purchased the majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company (“the sellers”), subsidiaries of American International Group, Inc. After giving effect to post-closing adjustments, an aggregate unpaid loan balance of $949.3 million was purchased for $685.3 million in cash. At closing, a portion of the portfolio, with an aggregate unpaid loan balance of $321.1 million, and a corresponding portion of the purchase price of $232.8 million were placed in escrow, pending the receipt of required third party consents. During the first quarter of 2010, based upon receipt of consents, the escrow was terminated and remaining funds released to the sellers and FIFC.

Also, as a part of the purchase, $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to the satisfaction of certain conditions. On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets and FIFC purchased $83.4 million of the $84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million in cash.

Both life insurance premium finance asset purchases were accounted for as a single business combination under the acquisition method of accounting as required by applicable accounting guidance. Accordingly, the impact related to this transaction is included in the Company’s financial statements only since the effective date of acquisition. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Under ASC 805, “Business Combinations” (ASC 805), a gain is recorded equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed and consideration paid. As such, the Company recognized a $10.9 million bargain purchase gain in the first quarter of 2010, a $43.0 million bargain purchase gain in the fourth quarter of 2009 and a $113.1 million bargain purchase gain in the third quarter of 2009, relating to the loans acquired for which all contingencies were removed. As of March 31, 2010, the full amount of the bargain purchase gain had been recognized into income. This gain is shown as a component of non-interest income on the Company’s Consolidated Statement of Income.

The following table summarizes the fair value of assets acquired and the resulting bargain purchase gain at the date of acquisition:

(Dollars in thousands)
Assets:
Loans		$	910,873
Customer list intangible			1,800
Other assets			150
Total assets			912,823
Cash Paid			745,916
Total bargain purchase gain recognized		$	166,907

Calculation of the Fair Value of Loans Acquired — Life Insurance Premium Finance Assets

The Company determined the fair value of the loans acquired with the assistance of an independent third party valuation firm which utilized a discounted cash flow analysis to estimate the fair value of the loan portfolio. Primary factors impacting the estimated cash flows in the valuation model were certain income and expense items and changes in the estimated future balances of loans. The significant assumptions used in calculating the fair value of the loans acquired included estimating interest income, loan losses, servicing costs, costs of funding, and life of the loans.

Interest income on variable rate loans within the loan portfolio was determined based on the weighted average interest rate spread plus the contractual Libor rate. Interest income on fixed rate loans was based on the actual weighted average interest rate of the fixed rate loan portfolio.

Loan losses were estimated by first estimating the loan losses which would result from default by either the insurance carrier or the insured and, second, estimating the probability of default for both the insurance carrier and the insured.

Estimated losses upon default by the insurance carrier were estimated by assigning realization rates to each type of collateral underlying the loan portfolio. Realization rates on collateral after default by the insurance carrier were estimated for each type of collateral. Unsecured portions of the collateral were also assigned a loss rate.

Estimated losses upon default by the insured were similar to the estimated loss rates calculated upon default by the insurance carrier.

The probability of default of the insurance carrier was determined by assigning each insurance carrier holding collateral underlying the portfolio a default rate from a national rating agency and a study of historical cumulative default rates prepared by such agency.

The probability of default by individuals was estimated based upon consideration of the financial and demographic characteristics of the insured and the economic uncertainty present at the valuation date.

The estimated life of the loans was based on expected required fundings of life insurance premiums and the expected life of the insured based on the age of the insured and survival curves.

Loans with evidence of credit quality deterioration since origination

For the Lincoln Park, Wheatland and life insurance premium finance receivable acquisitions, the difference between the fair value of the loans acquired and the outstanding principal balance of these loans at the date of purchase is comprised of two components, an accretable component and a non-accretable component. The accretable component is being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion will be evaluated each quarter and if the loans’ credit related conditions improve, a portion will be 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, 2010
						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(Dollars in thousands)		cost				gains				losses				value
U.S. Treasury		$	120,738			$	—			$	(3,725	)		$	117,013
U.S. Government agencies			793,610				3,434				(107	)			796,937
Municipal			50,289				1,656				(53	)			51,892
Corporate notes and other:
Financial issuers (1)			49,291				2,356				(1,522	)			50,125
Other			24,727				162				(19	)			24,870
Mortgage-backed: (2)
Agency			180,554				14,152				—				194,706
Non-agency CMOs			92,722				5,915				—				98,637
Non-agency CMOs — Alt A			46,265				1,942				—				48,207
Other equity securities			35,612				36				—				35,648
Total available-for-sale securities		$	1,393,808			$	29,653			$	(5,426	)		$	1,418,035

		December 31, 2009
						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(Dollars in thousands)		cost				gains				losses				value
U.S. Treasury		$	121,310			$	—			$	(10,494	)		$	110,816
U.S. Government agencies			579,249				550				(3,623	)			576,176
Municipal			63,344				2,195				(203	)			65,336
Corporate notes and other debt
Financial issuers (1)			42,241				1,518				(2,013	)			41,746
Retained subordinated securities			47,448				254				—				47,702
Other			—				—				—				—
Mortgage-backed (2)
Agency			205,257				11,287				—				216,544
Non-agency CMOs			102,045				6,133				(194	)			107,984
Non-agency CMOs — Alt A			51,306				1,025				(1,553	)			50,778
Other equity securities			37,969				15				—				37,984
Total available-for-sale securities		$	1,250,169			$	22,977			$	(18,080	)		$	1,255,066

The following tables present the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010:

		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		$	—				—				117,013				(3,725	)			117,013				(3,725	)
U.S. Government agencies			94,844				(107	)			—				—				94,844				(107	)
Municipal			1,068				(4	)			2,030				(49	)			3,098				(53	)
Corporate notes and other:
Financial issuers			9,001				(110	)			4,528				(1,412	)			13,529				(1,522	)
Other			10,673				(19	)			—				—				10,673				(19	)
Total		$	115,586				(240	)			123,571				(5,186	)			239,157				(5,426	)

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, 2010 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 U.S. Treasury securities and corporate securities of financial issuers. The corporate securities of financial issuers in this category were comprised of three trust-preferred securities with high investment grades. These obligations have interest rates significantly below the rates at which these types of obligations are currently issued, and have maturity dates in 2027. Although they are currently callable by the issuers, it is unlikely that they will be called in the near future as the interest rates are very attractive to the issuers. A review of the issuers indicated that they have recently raised equity capital and/or have strong capital ratios. The Company does not own any pooled trust-preferred securities.

Effective April 1, 2009, the Company adopted new guidance for the measurement and recognition of other than temporary impairment for debt securities, which is now part of ASC 320 “Investments — Debt and Equity Securities” (“ASC 320”). The new guidance provides that if an entity does not intend to sell, and it is more likely than not that the entity will not be required to sell a debt security before recovery of its cost basis, impairment should be separated into (a) the amount representing credit loss and (b) the amount related to all other factors. The amount of impairment related to credit loss is recognized in earnings and the impairment related to other factors is recognized in other comprehensive income (loss). To determine the amount related to credit loss, the Company applies a method similar to that described by ASC 310, using a single best estimate of expected cash flows. The Company’s adoption of this guidance for the measurement and changes in the amount of credit losses recognized in net income on these corporate debt securities are summarized as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Balance at beginning of period (1)		$	(472	)		$	(6,181	)		$	(472	)		$	(6,181	)
Credit losses recognized			—				—				—				—
Reductions for securities sold during the period			—				1,986				—				1,986
Balance at end of period		$	(472	)		$	(4,195	)		$	(472	)		$	(4,195	)

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 (in thousands):

		Three Months Ended June 30								Six Months Ended June 30
		2010				2009				2010				2009
Realized gains		$	46				1,703			$	549				1,815
Realized losses			—				(163	)			(111	)			(178	)
Net realized gains		$	46				1,540			$	438				1,637
Other than temporary impairment charges			—				—				—				2,135
Gains (losses) on available-for-sale securities, net		$	46				1,540			$	438				(498	)
Proceeds from sales of available-for-sale securities		$	86,139				78,794			$	270,654				1,071,192

The amortized cost and fair value of securities as of June 30, 2010 and December 31, 2009, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties (in thousands):

		June 30, 2010								December 31, 2009
		Amortized				Fair				Amortized				Fair
		cost				value				cost				value
Due in one year or less		$	326,413				326,588				111,380				111,860
Due in one to five years			349,038				350,208				221,294				222,152
Due in five to ten years			181,941				179,412				328,914				318,796
Due after ten years			181,263				184,629				192,004				188,968
Mortgage-backed			319,541				341,550				358,608				375,306
Other equity			35,612				35,648				37,969				37,984
Total available-for-sale securities		$	1,393,808				1,418,035				1,250,169				1,255,066

At June 30, 2010 and December 31, 2009, securities having a carrying value of $890 million and $865 million, respectively, which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At June 30, 2010, 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 June 30, 2010, December 31, 2009 and June 30, 2009:

		June 30,				December 31,				June 30,
(Dollars in thousands)		2010				2009				2009
Balance:
Commercial		$	1,827,618			$	1,743,208			$	1,680,993
Commercial real estate			3,347,823				3,296,698				3,402,924
Home equity			922,305				930,482				912,399
Residential real estate			332,673				306,296				279,345
Premium finance receivables — commercial			1,346,985				730,144				888,115
Premium finance receivables — life insurance			1,378,657				1,197,893				182,399
Indirect consumer loans			69,011				98,134				133,808
Other loans			99,091				108,916				115,493
Total loans, net of unearned income, excluding covered loans		$	9,324,163			$	8,411,771			$	7,595,476
Covered loans			275,563				—				—
Total loans		$	9,599,726			$	8,411,771			$	7,595,476
Mix:
Commercial			19	%			21	%			22	%
Commercial real estate			35				39				45
Home equity			10				11				12
Residential real estate			3				4				3
Premium finance receivables — commercial			14				9				12
Premium finance receivables — life insurance			14				14				2
Indirect consumer loans			1				1				2
Other loans			1				1				2
Total loans, net of unearned income, excluding covered loans			97	%			100	%			100	%
Covered loans			3				—				—
Total loans			100	%			100	%			100	%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $36.9 million at June 30, 2010, $31.8 million at December 31, 2009 and $30.7 million at June 30, 2009. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in the third and fourth quarters of 2009 as well as the covered loans acquired in the Lincoln Park and Wheatland FDIC-assisted acquisitions in the second quarter of 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition”, below. The $616.8 million increase in commercial premium finance receivables at June 30, 2010 compared to December 31, 2009 is primarily due to the third quarter 2009 securitization transaction that is now accounted for as a secured borrowing.

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 $11.7 million at June 30, 2010, $10.7 million at December 31, 2009 and $10.5 million at June 30, 2009.

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

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

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

As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the Lincoln Park and Wheatland bank 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 portfolio of life insurance premium finance loans had an unpaid principal balance of $1.0 billion and a carrying value of $896.3 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans were $930.9 million and $850.9 million, respectively. The portfolio of loans acquired from the Lincoln Park acquisition had an unpaid principal balance of $138.7 million and a carrying value of $105.1 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans totaled $135.5 million and $102.1 million, respectively. The portfolio of loans acquired from the Wheatland acquisition had an unpaid principal balance of $284.2 million and a carrying value of $175.1 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans totaled $282.4 million and $173.4 million, respectively.

The following table provides details on these loans at each acquisition:

										Life Insurance
										Premium
(Dollars in thousands)		Wheatland				Lincoln Park				Finance Loans
Contractually required payments including interest		$	307,103			$	165,284			$	1,032,714
Less: Nonaccretable difference			118,660				36,304				41,281
Cash flows expected to be collected (1)			188,443				128,980				991,433
Less: Accretable yield			13,296				23,980				80,560
Fair value of loans acquired with evidence of credit quality deterioration since origination		$	175,147			$	105,000			$	910,873

There was no allowance for loan losses associated with this portfolio of loans at June 30, 2010 compared to an allowance of $615,000 at December 31, 2009. The allowance in prior periods represented deterioration to the portfolio subsequent to acquisition.

Accretable Yield Activity

The following table provides activity for the accretable yield of these loans:

		Three Months Ended												Six Months Ended
		June 30, 2010												June 30, 2010
										Life Insurance												Life Insurance
										Premium												Premium
(Dollars in thousands)		Wheatland				Lincoln Park				Finance Loans				Wheatland				Lincoln Park				Finance Loans
Accretable yield, beginning balance		$	—			$	—			$	58,037			$	—			$	—			$	65,026
Acquisitions			13,296				23,980				—				13,296				23,980				—
Accretable yield amortized to interest income			(1,469	)			(1,213	)			(11,661	)			(1,469	)			(1,213	)			(20,795	)
Reclassification from the non-accretable difference (1)			—				—				5,403				—				—				7,692
Reclassification to the non-accretable difference (2)			—				—				—				—				—				(144	)
Accretable yield, ending balance		$	11,827			$	22,767			$	51,779			$	11,827			$	22,767			$	51,779