# Wintrust Financial Corp: Form 10-K for the period ended Dec 31, 2010

- Company: [Wintrust Financial Corp](/companies/wtfc.md) (CIK 1015328)
- Form: 10-K
- Filed: 2011-03-01
- Accepted by EDGAR: Mar 1, 2011, 11:27 ET
- Period: 2010-12-31
- Accession: 0000950123-11-020362
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1015328/000095012311020362/c62127e10vk.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1015328/000095012311020362/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2010-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 12 months, 2010-01-01 to 2010-12-31 | $177.3m | us-gaap:InterestExpense |
| Income tax | 12 months, 2010-01-01 to 2010-12-31 | $37.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 12 months, 2010-01-01 to 2010-12-31 | $63.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2010-01-01 to 2010-12-31 | $1.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2010-01-01 to 2010-12-31 | $1.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2010-01-01 to 2010-12-31 | 31,570,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2010-01-01 to 2010-12-31 | $205.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2010-01-01 to 2010-12-31 | $30.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 12 months, 2010-01-01 to 2010-12-31 | $22.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 12 months, 2010-01-01 to 2010-12-31 | $218.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2010-12-31 | $172.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2010-12-31 | $13.98bn | us-gaap:Assets |
| Total liabilities | at 2010-12-31 | $12.54bn | us-gaap:Liabilities |
| Shareholders' equity | at 2010-12-31 | $1.44bn | us-gaap:StockholdersEquity |

## Risk factors

As filed, 48,610 characters.

An investment in our securities is subject to risks inherent to our business. The material risks and uncertainties that management believes affect Wintrust are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair Wintrust’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.

*Difficult economic conditions have adversely affected our company and the financial services industry in general and further deterioration may adversely affect our financial condition and results of operations.*

The U.S. economy was in a recession from the third quarter of 2008 to the second quarter of 2009, and economic activity continues to be restrained. The housing and real estate markets have also been experiencing extraordinary slowdowns since 2007. Additionally, unemployment rates remained historically high during these periods. These factors have had a significant negative effect on us and other companies in the financial services industry. As a lending institution, our business is directly affected by the ability of our borrowers to repay their loans, as well as by the value of collateral, such as real estate, that secures many of our loans. Market turmoil has led to an increase in charge-offs and has negatively impacted consumer confidence and the level of business activity. Net charge-offs were $109.7 million in 2010 and $137.4 million in 2009. Non-performing loans increased to $142.1 million as of December 31, 2010 from $131.8 million as of December 31, 2009 and our balance of other real estate owned (“OREO”) was $71.2 million at December 31, 2010 and $80.2 million at December 31, 2009. Continued weakness or further deterioration in the economy, real estate markets or unemployment rates, particularly in the markets in which we operate, will likely diminish the ability of our borrowers to repay loans that we have given them, the value of any collateral securing such loans and may cause increases in delinquencies, problem assets, charge-offs and provision for credit losses, all of which could materially adversely affect our financial condition and results of operations. Further, the underwriting and credit monitoring policies and procedures that we have adopted may not prevent losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

*Since our business is concentrated in the Chicago metropolitan area and southeast Wisconsin metropolitan areas, further declines in the economy of this region could adversely affect our business.*

Except for our premium finance business and certain other niche businesses, our success depends primarily on the general economic conditions of the specific local markets in which we operate. Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services to customers primarily in the Chicago metropolitan and southeast Wisconsin metropolitan areas. The local economic conditions in these areas significantly impact the demand for our products and services as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources. Specifically, most of the loans in our portfolio are secured by real estate located in the Chicago metropolitan area. Our local market area has experienced recent negative changes in overall market conditions relating to real estate valuation. These market conditions are exacerbated by the liquidation of troubled assets into the market, which creates additional supply and drives appraised valuations of real estate much lower. Further declines in economic conditions, including inflation, recession, unemployment, changes in securities markets or other factors with impact on these local markets could, in turn, have a material adverse effect on our financial condition and results of operations. Continued deterioration in the real estate markets where collateral for mortgage loans is located could adversely affect the borrower’s ability to repay the loan and the value of the collateral securing the loan, and in turn the value of our assets.

*If our allowance for loan losses is not sufficient to absorb losses that may occur in our loan portfolio, our financial condition and liquidity could suffer.*

We maintain an allowance for loan losses that is intended to absorb credit losses that we expect to incur in our loan portfolio. At each balance sheet date, our management determines the amount of the allowance for loan losses based on our estimate of probable and reasonably estimable losses in our loan portfolio, taking into account probable losses that have been identified relating to specific borrowing relationships, as well as probable losses inherent in the loan portfolio and credit undertakings that are not specifically identified.

Because our allowance for loan losses represents an estimate of probable losses, there is no certainty that it will be adequate over time to cover credit losses in the portfolio, particularly in the case of continued adverse changes in the economy, market conditions, or events that adversely affect specific customers. For example, in 2010, we charged off $109.7 million in loans (net of recoveries) and increased our allowance for loan losses from $98.3 million at December 31, 2009 to $113.9 million at December 31, 2010 as a result of the economic recession and financial crisis. Our allowance for loan losses, excluding covered loans, represents 1.19% of total loans outstanding at December 31, 2010, compared to 1.17% at December 31, 2009. Estimating loan loss allowances for our newer banks is more difficult because rapidly growing and *de novo* bank loan portfolios are, by their nature, unseasoned. Therefore, our newer bank subsidiaries may be more susceptible to changes in estimates, and to losses exceeding estimates, than banks with more seasoned loan portfolios.

Although we believe our loan loss allowance is adequate to absorb probable and reasonably estimable losses in our loan portfolio, if our estimates are inaccurate and our actual loan losses exceed the amount that is anticipated, our financial condition and liquidity could be materially adversely affected.

For more information regarding our allowance for loan losses, see “Allowance for Loan Losses” under Management’s Discussion and Analysis of Financial Condition and Results of Operations.

*Unanticipated changes in prevailing interest rates and the effects of changing regulation could adversely affect our net interest income, which is our largest source of income.*

Wintrust is exposed to interest rate risk in its core banking activities of lending and deposit taking, since changes in prevailing interest rates affect the value of our assets and liabilities. Such changes may adversely affect our net interest income, which is the difference between interest income and interest expense. Net interest income represents our largest source of net income, and was $415.8 million and $311.9 million for the years ended December 31, 2010 and 2009, respectively. In particular, our net interest income is affected by the fact that assets and liabilities reprice at different times and by different amounts as interest rates change.

Each of our businesses may be affected differently by a given change in interest rates. For example, we expect the results of our mortgage banking business in selling loans into the secondary market would be negatively impacted during periods of rising interest rates, whereas falling interest rates could have a negative impact on the net interest spread earned as we would be unable to lower the rates on many interest bearing deposit accounts of our customers to the same extent as many of our higher yielding asset classes.

Additionally, increases in interest rates may adversely influence the growth rate of loans and deposits, the quality of our loan portfolio, loan and deposit pricing, the volume of loan originations in our mortgage banking business and the value that we can recognize on the sale of mortgage loans in the secondary market.

We seek to mitigate our interest rate risk through several strategies, which may not be successful. For example, with the relatively low interest rates that prevailed in past years, we were able to augment the total return of our investment securities portfolio by selling call options on fixed-income securities that we own. We recorded fee income of approximately $29.0 million for the year ended December 31, 2008. However, during 2010 and 2009, we had fewer opportunities to use this mitigation methodology due to lower than acceptable security yields and related option pricing and recorded fee income of approximately $2.2 million and $2.0 million for the years ended December 31, 2010 and 2009, respectively. We also mitigate our interest rate risk by entering into interest rate swaps and other interest rate derivative contracts from time to time with counterparties. To the extent that the market value of any derivative contract moves to a negative market value, we are subject to loss if the counterparty defaults. In the future, there can be no assurance that such mitigation strategies will be available or successful.

In addition, effective one year from the date of enactment, the Dodd-Frank Act eliminates U.S. federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending upon market response, this change could have an adverse impact on our interest expense.

*Our liquidity position may be negatively impacted if economic conditions continue to suffer.*

Liquidity is a measure of whether our cash flows and liquid assets are sufficient to satisfy current and future financial obligations, such as demand for loans, deposit withdrawals and operating costs. Our liquidity position is affected by a number of factors, including the amount of cash and other liquid assets on hand, payment of interest and dividends on debt and equity instruments that we have issued, capital we inject into our bank subsidiaries, proceeds we raise through the issuance of securities, our ability to draw upon our revolving credit facility and dividends received from our banking subsidiaries. Our future liquidity position may be adversely affected by multiple factors, including:

- if our banking subsidiaries report net losses or their earnings are weak relative to our cash flow needs;
- if it is necessary for us to make capital injections to our banking subsidiaries;
- if changes in regulations require us to maintain a greater level of capital, as more fully described below;
- if we are unable to access our revolving credit facility due to a failure to satisfy financial and other covenants; or
- if we are unable to raise additional capital on terms that are satisfactory to us.

Continued weakness or worsening of the economy, real estate markets or unemployment levels may increase the likelihood that one or more of these events occurs. If our liquidity becomes limited, it may have a material adverse effect on our results of operations and financial condition.

*If we fail to meet our regulatory capital ratios, we may be forced to raise capital or sell assets.*

As a banking institution, we are subject to regulations that require us to maintain certain capital ratios, such as the ratio of our Tier 1 capital to our risk-based assets. If our regulatory capital ratios decline, as a result of decreases in the value of our loan portfolio or otherwise, we will be required to improve such ratios by either raising additional capital or by disposing of assets. If we choose to dispose of assets, we cannot be certain that we will be able to do so at prices that we believe to be appropriate, and our future operating results could be negatively affected. If we choose to raise additional capital, we may accomplish this by selling additional shares of common stock, or securities convertible into or exchangeable for common stock, which could significantly dilute the ownership percentage of holders of our common stock and cause the market price of our common stock to decline. Additionally, events or circumstances in the capital markets generally may increase our capital costs and impair our ability to raise capital at any given time.

*Legislative and regulatory actions taken now or in the future regarding the financial services industry may significantly increase our costs or limit our ability to conduct our business in a profitable manner.*

We are already subject to extensive federal and state regulation and supervision. The cost of compliance with such laws and regulations can be substantial and adversely affect our ability to operate profitably. While we are unable to predict the scope or impact of any potential legislation or regulatory action, bills that would result in significant changes to financial institutions have been introduced in Congress and it is possible that such legislation or implementing regulations could significantly increase our regulatory compliance costs, impede the efficiency of our internal business processes, negatively impact the recoverability of certain of our recorded assets, require us to increase our regulatory capital, interfere with our executive compensation plans, or limit our ability to pursue business opportunities in an efficient manner including our plan for *de novo* growth and growth through acquisitions.

President Obama signed into law the Dodd-Frank Act on July 21, 2010. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, including heightened capital requirements, and to prepare numerous studies and reports for Congress. Although the impact of the Dodd-Frank Act will depend, in part, on the form of these rules and regulations, we expect compliance with the new law to increase our cost of doing business, and may reduce our ability to generate revenue-producing assets.

The Dodd-Frank Act weakens federal preemption available for national banks and eliminates federal preemption for subsidiaries of national banks, which may subject the Company’s national banks and their subsidiaries, including WMC, to additional state regulation. With regard to mortgage lending, the Dodd-Frank Act imposes new requirements regarding the origination and servicing of residential mortgage loans. The law creates a variety of new consumer protections, including limitations on the manner by which loan originators may be compensated and an obligation of the part of lenders to assess and verify a borrower’s “ability to repay” a residential mortgage loan.

The Dodd-Frank Act also enhances provisions relating to affiliate and insider lending restrictions and loans to one borrower limitations. Federal banking law currently limits a national bank’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions. It also eventually will prohibit state-chartered banks (including certain of the Company’s banking subsidiaries) from engaging in derivative transactions unless the state lending limit laws take into account credit exposure to such transactions.

Additional provisions of the Dodd-Frank Act are described in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview and Strategy—Financial Regulatory Reform.”

Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact that its requirements will have on our operations is unclear. However, its requirements may, individually or in the aggregate, have an adverse effect upon the Company’s results of operations, cash flows and financial position.

*Financial reform legislation may reduce our ability to market our products to consumers and may limit our ability to profitably operate our mortgage business.*

The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection (the “Bureau”) within the Federal Reserve, which will regulate consumer financial products and services. On July 21, 2011, the consumer financial protection functions currently assigned to the federal banking and other designated agencies will shift to the Bureau. The Bureau will have broad rulemaking authority over a wide range of consumer protection laws that apply to banks and thrifts, including the authority to prohibit “unfair, deceptive or abusive practices” to ensure that all consumers have access to markets for consumer financial products and services, and that such markets are fair, transparent and competitive. In particular, the Bureau may enact sweeping reforms in the mortgage broker industry which may increase the costs of engaging in these activities for all market participants, including our subsidiaries. The Bureau will have broad supervisory, examination and enforcement authority. In addition, state attorneys general and other state officials will be authorized to enforce consumer protection rules issued by the Bureau.

*Recently enacted financial reform legislation will result in heightened capital requirements and is expected to increase our costs of doing business.*

The Dodd-Frank Act requires the issuance of new banking regulations regarding the establishment of minimum leverage and risk-based capital requirements for bank holding companies and banks. These regulations, which are required to be effective within 18 months from the enactment of the Dodd-Frank Act, are required to be no less stringent than current capital requirements applied to insured depository institutions and may, in fact, be higher when established by the agencies. Although Wintrust’s outstanding trust preferred securities will remain eligible for Tier 1 capital treatment, any future issuances of trust preferred securities will not be Tier 1 capital. The Dodd-Frank Act also requires the regulatory agencies to seek to make capital requirements for bank holding companies and insured institutions countercyclical, so that capital requirements increase in times of economic expansion and decrease in times of economic contraction. The Dodd-Frank Act may also require us to conduct annual stress tests, in accordance with future regulations. Any such testing would result in increased compliance costs.

#### International initiatives regarding bank capital requirements may require heightened capital

In December 2010 and January 2011, the Basel Committee on Banking Supervision published reforms regarding changes to bank capital, leverage and liquidity requirements, commonly referred to as “Basel III.” If implemented without change by U.S. banking regulators, the provisions of Basel III may have significant impact on requirements including heightened requirements regarding Tier 1 common equity, and alterations to bank liquidity standards. For more detail, regarding the Basel III initiative, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview and Strategy— Recent Actions Related to Capital and Liquidity.”

We are not able to predict at this time the content of capital and liquidity guidelines or regulations that may be adopted by regulatory agencies having authority over us and our subsidiaries or the impact that any changes in regulation would have on us. If new standards require us or our banking subsidiaries to maintain more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities in order to comply with formulaic liquidity requirements, such regulation could significantly impact our return on equity, financial condition, operations, capital position and ability to pursue business opportunities.

*Our FDIC insurance premiums may increase, which could negatively impact our results of operations.*

Recent insured institution failures, as well as deterioration in banking and economic conditions, have significantly increased FDIC loss provisions, resulting in a decline of its deposit insurance fund to historical lows. The FDIC expects a higher rate of insured institution failures in the next few years compared to recent years; thus, the reserve ratio may continue to decline. In addition, the Emergency Economic Stabilization Act of 2008, as amended, increased the limit on FDIC coverage to $250,000 through December 31, 2013 (made permanent by the Dodd-Frank Act).

These developments have caused our FDIC insurance premiums to increase, and may cause additional increases. On September 30, 2009, the FDIC collected a special assessment from each insured institution, and additional assessments are possible. In addition, on November 12, 2009, the FDIC approved a final rule requiring that insured institutions prepay 13 quarters of estimated deposit insurance premiums. The banks made their prepayments on December 30, 2009. These prepaid premiums are recorded as a prepaid expense on our financial statements.

Certain provisions of the Dodd-Frank Act may further effect our FDIC insurance premiums. The Dodd-Frank Act includes provisions that change the assessment base for federal deposit insurance from the amount of insured deposits to total consolidated assets less tangible capital, eliminate the maximum size of the DIF, eliminate the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds, and increase the minimum reserve ratio of the DIF from 1.15% to 1.35%, which will generally require an increase in the level of assessments for institutions with assets in excess of $10 billion. The applicability of increased assessments to the Company may depend upon regulations issued by banking regulators, who are granted significant rulemaking discretion by the Dodd-Frank Act.

*Losses incurred in connection with actual or projected repurchases and indemnification payments related to mortgages that we have sold into the secondary market may exceed our financial statement reserves and we may be required to increase such reserves in the future. Increases to our reserves and losses incurred in connection with actual loan repurchases and indemnification payments could have a material adverse effect on our business, financial position, results of operation or cash flows.*

We engage in the origination and purchase of residential mortgages for sale into the secondary market. In connection with such sales, we make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Due, in part, to recent increased mortgage payment delinquency rates and declining housing prices, we have been receiving such requests for loan repurchases and indemnification payments relating to the representations and warranties with respect to such loans. We have been able to reach settlements with a number of purchasers, and believe that we have established appropriate reserves with respect to indemnification requests. While we have recently received fewer requests for indemnification, it is possible that the number of such requests will increase or that we will not be able to reach settlements with respect to such requests in the future. Accordingly, it is possible that losses incurred in connection with loan repurchases and indemnification payments may be in excess of our financial statement reserves, and we may be required to increase such reserves and may sustain additional losses associated with such loan repurchases and indemnification payments in the future. Increases to our reserves and losses incurred by us in connection with actual loan repurchases and indemnification payments in excess of our reserves could have a material adverse effect on our business, financial position, results of operations or cash flows.

*The financial services industry is very competitive, and if we are not able to compete effectively, we may lose market share and our business could suffer.*

We face competition in attracting and retaining deposits, making loans, and providing other financial services (including wealth management services) throughout our market area. Our competitors include national, regional and other community banks, and a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies, factoring companies and other non-bank financial companies. Many of these competitors have substantially greater resources and market presence than Wintrust and, as a result of their size, may be able to offer a broader range of products and services as well as better pricing for those products and services than we can. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and payment systems, and for banks that do not have a physical presence in our markets to compete for deposits. If we are unable to compete effectively, we will lose market share and income from deposits, loans and other products may be reduced. This could adversely affect our profitability and have a material adverse effect on our financial condition and results of operations.

Our ability to compete successfully depends on a number of factors, including, among other things:

- the ability to develop, maintain and build upon long-term customer relationships based on top quality service and high ethical standards;
- the scope, relevance and pricing of products and services offered to meet customer needs and demands;
- the ability to expand our market position;
- the rate at which we introduce new products and services relative to our competitors;
- customer satisfaction with our level of service; and
- industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

*Our premium finance business may involve a higher risk of delinquency or collection than our other lending operations, and could expose us to losses.*

We provide financing for the payment of commercial insurance premiums and life insurance premiums on a national basis through our wholly owned subsidiary, First Insurance Funding Corporation (“FIFC”). Commercial insurance premium finance loans involve a different, and possibly higher, risk of delinquency or collection than life insurance premium finance loans and the loan portfolios of our bank subsidiaries because these loans are issued primarily through relationships with a large number of unaffiliated insurance agents and because the borrowers are located nationwide. As a result, risk management and general supervisory oversight may be difficult. As of December 31, 2010, we had $1.3 billion of commercial insurance premium finance loans outstanding, which represented 13% of our total loan portfolio as of such date.

FIFC may also be more susceptible to third party fraud with respect to commercial insurance premium finance loans because these loans are originated and many times funded through relationships with unaffiliated insurance agents and brokers. In the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of FIFC, increased both the Company’s net charge-offs and provision for credit losses by $15.7 million. Acts of fraud are difficult to detect and deter, and we cannot assure investors that FIFC’s risk management procedures and controls will prevent losses from fraudulent activity. We may be exposed to the risk of loss in our premium finance business because of fraud, the possibility of insolvency of insurance carriers that are in possession of unearned insurance premiums that represent our collateral or that our collateral value is not ultimately enough to cover our outstanding balance in the event that a borrower defaults, which could result in a material adverse effect on our financial condition and results of operations. Additionally, to the extent that affiliates of insurance carriers, banks, and other lending institutions add greater service and flexibility to their financing practices in the future, our competitive position and results of operations could be adversely affected. There can be no assurance that FIFC will be able to continue to compete successfully in its markets.

*If we are unable to continue to identify favorable acquisitions or successfully integrate our acquisitions, our growth may be limited and our results of operations could suffer.*

In the past several years, we have completed numerous acquisitions of banks, other financial service related companies and financial service related assets, including acquisitions of troubled financial institutions, as more fully described below. We may continue to make such acquisitions in the future. Win-trust seeks merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Failure to successfully identify and complete acquisitions likely will result in Wintrust achieving slower growth. Acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions, including, among other things:

- potential exposure to unknown or contingent liabilities or asset quality issues of the target company;
- difficulty and expense of integrating the operations and personnel of the target company;
- potential disruption to our business, including diversion of our management’s time and attention;
- the possible loss of key employees and customers of the target company;
- difficulty in estimating the value of the target company; and
- potential changes in banking or tax laws or regulations that may affect the target company.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of Win-trust’s tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations. Furthermore, we may face competition from other financial institutions with respect to proposed FDIC-assisted transactions.

*Our participation in FDIC-assisted acquisitions may present additional risks to our financial condition and results of operations.*

As part of our growth strategy, we have made opportunistic partial acquisitions of troubled financial institutions in transactions facilitated by the FDIC, including our recent acquisitions of Lincoln Park Bank, Wheatland Bank, Ravenswood Bank and Community First Bank-Chicago through our bank subsidiaries. These acquisitions, and any future FDIC-assisted transactions we may undertake, involve greater risk than traditional acquisitions because they are typically conducted on an accelerated basis, allowing less time for us to prepare for and evaluate possible transactions, or to prepare for integration of an acquired institution. These transactions also present risks of customer loss, strain on management resources related to collection and management of problem loans and problems related to the integration of operations and personnel of the acquired financial institutions. As a result, there can be no assurance that we will be able to successfully integrate the financial institutions we acquire, or that we will realize the anticipated benefits of the acquisitions. Additionally, while the FDIC may agree to assume certain losses in transactions that it facilitates, there can be no assurances that we would not be required to raise additional capital as a condition to, or as a result of, participation in an FDIC-assisted transaction. Any such transactions and related issuances of stock may have dilutive effect on earnings per share and share ownership.

We are also subject to certain risks relating to our loss sharing agreements with the FDIC. Under a loss sharing agreement, the FDIC generally agrees to reimburse the acquiring bank for a portion of any losses relating to covered assets of the acquired financial institution. This is an important financial term of any FDIC-assisted transaction, as troubled financial institutions often have poorer asset quality. As a condition to reimbursement, however, the FDIC requires the acquiring bank to follow certain servicing procedures. A failure to follow servicing procedures or any other breach of a loss sharing agreement by us could result in the loss of FDIC reimbursement. While we have established a group dedicated to servicing the loans covered by the FDIC loss sharing agreements, there can be no assurance that we will be able to comply with the FDIC servicing procedures. In addition, reimbursable losses and recoveries under loss sharing agreements are based on the book value of the relevant loans and other assets as determined by the FDIC as of the effective dates of the acquisitions. The amount that the acquiring banks realize on these assets could differ materially from the carrying value that will be reflected in our financial statements, based upon the timing and amount of collections on the covered loans in future periods. Any failure to receive reimbursement, or any material differences between the amount of reimbursements that we do receive and the carrying value reflected in our financial statements, could have a material negative effect on our financial condition and results of operations.

*Widespread financial difficulties or credit downgrades among commercial and life insurance providers could lessen the value of the collateral securing our premium finance loans and impair the financial condition and liquidity of FIFC.*

FIFC’s premium finance loans are primarily secured by the insurance policies financed by the loans. These insurance policies are written by a large number of insurance companies geographically dispersed throughout the country. To the extent that commercial or life insurance providers experience widespread difficulties or credit downgrades, the value of our collateral will be reduced. If one or more large nationwide insurers were to fail, the value of our portfolio could be significantly negatively impacted. A significant downgrade in the value of the collateral supporting our premium finance business could impair our ability to create liquidity for this business, which, in turn could negatively impact our ability to expand.

*An actual or perceived reduction in our financial strength may cause others to reduce or cease doing business with us, which could result in a decrease in our net interest income.*

Our customers rely upon our financial strength and stability and evaluate the risks of doing business with us. If we experience diminished financial strength or stability, actual or perceived, including due to market or regulatory developments, announced or rumored business developments or results of operations, or a decline in stock price, customers may withdraw their deposits or otherwise seek services from other banking institutions and prospective customers may select other service providers. The risk that we may be perceived as less creditworthy relative to other market participants is increased in the current market environment, where the consolidation of financial institutions, including major global financial institutions, is resulting in a smaller number of much larger counterparties and competitors. If customers reduce their deposits with us or select other service providers for all or a portion of the services that we provide them, net interest income and fee revenues will decrease accordingly, and could have a material adverse effect on our results of operations.

*Consumers may decide not to use banks to complete their financial transactions, which could adversely affect our business and results of operations.*

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

*If we are unable to attract and retain experienced and qualified personnel, our ability to provide high quality service will be diminished and our results of operations may suffer.*

We believe that our future success depends, in part, on our ability to attract and retain experienced personnel, including our senior management and other key personnel. Our business model is dependent upon our ability to provide high quality, personal service at our community banks. In addition, as a holding company that conducts its operations through our subsidiaries, we are focused on providing entrepreneurial-based compensation to the chief executives of each our business units. As a Company with start-up and growth oriented operations, we are cognizant that to attract and retain the managerial talent necessary to operate and grow our businesses we often have to compensate our executives with a view to the business we expect them to manage, rather than the size of the business they currently manage. Accordingly, executive compensation restrictions such as those we were subject to during our participation in the CPP, as well any restrictions we may subject to in the future, may negatively impact our ability to retain and attract senior management. The loss of any of our senior managers or other key personnel, or our inability to identify, recruit and retain such personnel, could materially and adversely affect our business, operating results and financial condition.

*If we fail to comply with certain of our covenants under our securitization facility, the holders of the related notes could declare a rapid amortization event, which would require us to repay any outstanding amounts immediately, which could significantly impair our liquidity.*

In September 2009, our indirect subsidiary, FIFC Premium Funding I, LLC, sold $600 million in aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the “Notes”), which were issued in a securitization transaction sponsored by FIFC. The related indenture contains certain financial and other covenants that must be met in order to continue to sell notes into the facility. In addition, if any of these covenants are breached, the holders of the Notes may, under certain circumstances, declare a rapid amortization event, which would require us to repay any outstanding notes immediately. Such an event could significantly impair our liquidity.

*De novo operations and branch openings often involve significant expenses and delayed returns and may negatively impact Wintrust’s profitability.*

Our financial results have been and will continue to be impacted by our strategy of *de novo* bank formations and branch openings. While the recent financial crisis and interest rate environment has caused us to open fewer *de novo* banks, we expect to undertake additional *de novo* bank formations or branch openings when market conditions improve. Based on our experience, we believe that it generally takes over 13 months for *de novo* banks to first achieve operational profitability, depending on the number of banking facilities opened, the impact of organizational and overhead expenses, the start-up phase of generating deposits and the time lag typically involved in redeploying deposits into attractively priced loans and other higher yielding earning assets. However, it may take longer than expected or than the amount of time Wintrust has historically experienced for new banks and/or banking facilities to reach profitability, and there can be no guarantee that these new banks or branches will ever be profitable. Moreover, the FDIC’s recent issuance extending the enhanced supervisory period for *de novo* banks from three to seven years, including higher capital requirements during this period, could also delay a new bank’s ability to contribute to the Company’s earnings and impact the Company’s willingness to expand through *de novo* bank formation. To the extent we undertake additional *de novo* bank, branch and business formations, our level of reported net income, return on average equity and return on average assets will be impacted by startup costs associated with such operations, and it is likely to continue to experience the effects of higher expenses relative to operating income from the new operations. These expenses may be higher than we expected or than our experience has shown, which could have a material adverse effect on our financial condition and results of operations.

#### Failures of our operational systems may adversely effect our operations.

We are increasingly depending upon computer and other information technology systems to manage our business. We rely upon information technology systems to process, record and monitor and disseminate information about our operations. In some cases, we depend on third parties to provide or maintain these systems. If any of our financial, accounting or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected. Security breaches in our online banking systems could also have an adverse effect on our reputation and could subject us to possible liability. Our systems may also be affected by events that are beyond our control, which may include, for example, computer viruses, electrical or telecommunications outages or other damage to our property or assets. Although we take precautions against malfunctions and security breaches, our efforts may not be adequate to prevent problems that could materially adversely effect our business operations.

*Changes in accounting policies or accounting standards could materially adversely affect how we report our financial results and condition.*

Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require use of estimates and assumptions that affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses. From time to time, the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

#### Anti-takeover provisions could negatively impact our stockholders.

Certain provisions of our articles of incorporation, by-laws and Illinois law may have the effect of impeding the acquisition of control of Wintrust by means of a tender offer, a proxy fight, open-market purchases or otherwise in a transaction not approved by our board of directors. For example, our board of directors may issue additional authorized shares of our capital stock to deter future attempts to gain control of Wintrust, including the authority to determine the terms of any one or more series of preferred stock, such as voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, the board has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a merger or other transaction by which a third party seeks control, and thereby assist the incumbent board of directors and management to retain their respective positions. In addition, our articles of incorporation expressly elect to be governed by the provisions of Section 7.85 of the Illinois Business Corporation Act, which would make it more difficult for another party to acquire us without the approval of our board of directors. The ability of a third party to acquire us is also limited under applicable banking regulations.

The Bank Holding Company Act of 1956 requires any “bank holding company” (as defined in that Act) to obtain the approval of the Federal Reserve prior to acquiring more than 5% of our outstanding common stock. Any person other than a bank holding company is required to obtain prior approval of the Federal Reserve to acquire 10% or more of our outstanding common stock under the Change in Bank Control Act of 1978. Any holder of 25% or more of our outstanding common stock, other than an individual, is subject to regulation as a bank holding company under the Bank Holding Company Act. For purposes of calculating ownership thresholds under these banking regulations, bank regulators would likely at least take the position that the minimum number of shares, and could take the position that the maximum number of shares, of Wintrust common stock that a holder is entitled to receive pursuant to securities convertible into or settled in Wintrust common stock, including pursuant to Wintrust’s tangible equity units or warrants to purchase Wintrust common stock held by such holder, must be taken into account in calculating a stockholder’s aggregate holdings of Wintrust common stock.

These provisions may have the effect of discouraging a future takeover attempt that is not approved by our board of directors but which our individual shareholders may deem to be in their best interests or in which our shareholders may receive a substantial premium for their shares over then-current market prices. As a result, shareholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of our current board of directors or management more difficult.

## Properties

As filed, 1,299 characters.

The Company’s executive offices are located in the banking facilities of Lake Forest Bank. Certain corporate functions are also located at the various bank subsidiaries.

The Company’s banks operate through 86 banking facilities, the majority of which are owned. The Company owns 133 automatic teller machines, the majority of which are housed at banking locations. The banking facilities are located in communities throughout the Chicago metropolitan area and southern Wisconsin. Excess space in certain properties is leased to third parties.

The Company’s wealth management subsidiaries have one location in downtown Chicago, one in Appleton, Wisconsin, and one in Florida, all of which are leased, as well as office locations at various banks. WMC has 27 locations in eight states, all of which are leased, as well as office locations at various banks. FIFC has one location in Northbrook, Illinois which is owned and three which are leased. Tricom has one location in Menomonee Falls, Wisconsin which is owned. WITS has one location in Villa Park, Illinois which is owned as well as an office location at one of the banks. In addition, the Company owns other real estate acquired for further expansion that, when considered in the aggregate, is not material to the Company’s financial position.

## Legal proceedings

As filed, 501 characters.

The Company and its subsidiaries, from time to time, are subject to pending and threatened legal action and proceedings arising in the ordinary course of business. Any such litigation currently pending against the Company or its subsidiaries is incidental to the Company’s business and, based on information currently available to management, management believes the outcome of such actions or proceedings will not have a material adverse effect on the operations or financial position of the Company.

## Management's discussion and analysis

As filed, 232,193 characters.

#### Forward Looking Statements

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “point,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed in Item 1A on page 18 of this Form 10-K. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional *de novo* banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

- negative economic conditions that adversely affect the economy, housing prices, the job market and other factors that may affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
- the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
- estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
- changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
- a decrease in the Company’s regulatory capital ratios, including as a result of further declines in the value of its loan portfolios, or otherwise;
- legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those resulting from the Dodd-Frank Act;
- restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;
- increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including the Dodd-Frank Act;
- changes in capital requirements resulting from the Basel II and III initiatives;
- increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
- losses incurred in connection with repurchases and indemnification payments related to mortgages;
- competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services);
- delinquencies or fraud with respect to the Company’s premium finance business;
- failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of recent or future acquisitions;
- unexpected difficulties and losses related to FDIC-assisted acquisitions, including those resulting from our loss-sharing arrangements with the FDIC;
- credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
- any negative perception of the Company’s reputation or financial strength;
- the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
- the ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
- the Company’s ability to comply with covenants under its securitization facility and credit facility;
- unexpected difficulties or unanticipated developments related to the Company’s strategy of *de novo* bank formations and openings, which typically require over 13 months of operations before becoming profitable due to the impact of organizational and overhead expenses, startup phase of generating deposits and the time lag typically involved in redeploying deposits into attractively priced loans and other higher yielding earning assets;

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- changes in accounting standards, rules and interpretations and the impact on the Company’s financial statements;
- adverse effects on our operational systems resulting from failures, human error or tampering;
- significant litigation involving the Company; and
- the ability of the Company to receive dividends from its subsidiaries.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by or on behalf of Wintrust. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this Form 10-K. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the SEC and in its press releases.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the significant factors affecting the operations and financial condition of Wintrust for the three years ended December 31, 2010. This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto, and Selected Financial Highlights appearing elsewhere within this Form 10-K.

### OPERATING SUMMARY

Wintrust’s key measures of profitability and balance sheet changes are shown in the following table (dollars in thousands, except per share data):

|  | Years Ended December 31, 2010 | 2009 | 2008 | % or basis point (bp)change 2009 to 2010 | % or basis point (bp)change 2008 to 2009 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income | **$63,329** | $73,069 | $20,488 | **(13)%** | 257% |
| Net income per common share — Diluted | **$1.02** | $2.18 | $0.76 | **(53)%** | 187% |
| Core pre-tax earnings (1) | **$196,544** | $122,803 | $94,410 | **60%** | 30% |
| Net revenue (2) | **$607,996** | $629,523 | $344,245 | **(3)%** | 83% |
| Net interest income | **$415,836** | $311,876 | $244,567 | **33%** | 28% |
| Net interest margin (1) | **3.37%** | 3.01% | 2.81% | **36 bp** | 20 bp |
| Net overhead ratio (3) | **1.40%** | 0.23% | 1.60% | **117 bp** | (137)bp |
| Efficiency ratio (1)(4) | **63.77%** | 54.44% | 73.00% | **933 bp** | (1,856)bp |
| Return on average assets | **0.47%** | 0.64% | 0.21% | **(17)bp** | 43 bp |
| Return on average common equity | **3.01%** | 6.70% | 2.44% | **(369)bp** | 426 bp |
| At end of period: |  |  |  |  |  |
| Total assets | **$13,980,156** | $12,215,620 | $10,658,326 | **14%** | 15% |
| Total loans,excluding covered loans | **$9,599,886** | $8,411,771 | $7,621,069 | **14%** | 10% |
| Total loans, including loans held-for sale, excluding covered loans | **$9,971,333** | $8,687,486 | $7,682,185 | **15%** | 13% |
| Total deposits | **$10,803,673** | $9,917,074 | $8,376,750 | **9%** | 18% |
| Total shareholders’ equity | **$1,436,549** | $1,138,639 | $1,066,572 | **26%** | 7% |
| Book value per common share (1) | **$32.73** | $35.27 | $33.03 | **(7)%** | 7% |
| Tangible book value per common share (1) | **$25.80** | $23.22 | $20.78 | **11%** | 12% |
| Market price per common share | **$33.03** | $30.79 | $20.57 | **7%** | 50% |

*(1) See “Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.*

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

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

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

Please refer to the Consolidated Results of Operations section later in this discussion for an analysis of the Company’s operations for the past three years.

### NON-GAAP FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of the Company conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components) and the efficiency ratio. Management believes that these measures and ratios provide users of the Company’s financial information with a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures the comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. These measures are computed excluding the impact of preferred stock and intangible assets. Core pre-tax earnings is a significant metric in assessing the Company’s core operating performance.

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures for the last 5 years.

*(Dollars and shares in thousands, except per share data)*

|  | Years Ended December 31, 2010 | 2009 | 2008 | 2007 | 2006 |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Calculation of Net Interest Margin and Efficiency Ratio (A) Interest income (GAAP)** | **$593,107** | 527,614 | 514,723 | 611,557 | 557,945 |
| Taxable-equivalent adjustment |  |  |  |  |  |
| - Loans | **334** | 462 | 645 | 826 | 409 |
| - Liquidity management assets | **1,377** | 1,720 | 1,795 | 2,388 | 1,195 |
| - Other earnings assets | **17** | 38 | 47 | 13 | 17 |
| Interest income - FTE | **$594,835** | 529,834 | 517,210 | 614,784 | 559,566 |
| **(B) Interest Expense (GAAP)** | **177,271** | 215,738 | 270,156 | 350,007 | 309,059 |
| Net interest income - FTE | **$417,564** | 314,096 | 247,054 | 264,777 | 250,507 |
| **(C) Net interest income (GAAP) (A minus B)** | **$415,836** | 311,876 | 244,567 | 261,550 | 248,886 |
| **(D) Net interest margin (GAAP)** | **3.35%** | 2.99% | 2.78% | 3.07% | 3.07% |
| Net interest margin - FTE | **3.37%** | 3.01% | 2.81% | 3.11% | 3.10% |
| **(E) Efficiency ratio (GAAP)** | **63.95%** | 54.64% | 73.52% | 71.74% | 67.28% |
| Efficiency ratio - FTE | **63.77%** | 54.44% | 73.00% | 71.06% | 66.96% |
| **Calculation of Tangible Common Equity ratio (at period end)** |  |  |  |  |  |
| Total shareholders’ equity | **$1,436,549** | 1,138,639 | 1,066,572 | 739,555 | 773,346 |
| Less: Preferred stock | **(49,640)** | (284,824) | (281,873) | — | — |
| Less: Intangible assets | **(293,765)** | (291,649) | (290,918) | (293,941) | (290,535) |
| **(F) Total tangible common shareholders’ equity** | **$1,093,144** | 562,166 | 493,781 | 445,614 | 482,811 |
| Total assets | **$13,980,156** | 12,215,620 | 10,658,326 | 9,368,859 | 9,571,852 |
| Less: Intangible assets | **(293,765)** | (291,649) | (290,918) | (293,941) | (290,535) |
| **(G) Total tangible assets** | **$13,686,391** | 11,923,971 | 10,367,408 | 9,074,918 | 9,281,317 |
| **Tangible common equity ratio (F/G)** | **8.0%** | 4.7% | 4.8% | 4.9% | 5.2% |
| **Calculation of Core Pre-Tax Earnings** |  |  |  |  |  |
| Income before taxes | **$100,807** | 117,504 | 30,641 | 83,824 | 104,241 |
| Add: Provision for credit losses | **124,664** | 167,932 | 57,441 | 14,879 | 7,057 |
| Add: OREO expenses, net | **19,331** | 18,963 | 2,023 | 111 | 36 |
| Add: Recourse obligation on loans previously sold | **10,970** | 937 | — | — | — |
| Less: Gain on bargain purchases | **(44,231)** | (156,013) | — | — | — |
| Less: Trading (gains) losses | **(5,165)** | (26,788) | 134 | (265) | (8,751) |
| Less: (Gains) losses on available-for-sale securities, net | **(9,832)** | 268 | 4,171 | (2,997) | (17) |
| **Core pre-tax earnings** | **$196,544** | 122,803 | 94,410 | 95,552 | 102,566 |
| **Calculation of book value per common share** |  |  |  |  |  |
| Total shareholders’ equity | **$1,436,549** | 1,138,639 | 1,066,572 | 739,555 | 773,346 |
| Less: Preferred stock | **(49,640)** | (284,824) | (281,873) | — | — |
| **(H) Total common equity** | **$1,386,909** | 853,815 | 784,699 | 739,555 | 773,346 |
| Actual common shares outstanding | **34,864** | 24,207 | 23,757 | 23,430 | 25,458 |
| Add: Tangible equity unit conversion shares | **7,512** | — | — | — | — |
| **(I) Common shares for book value calculation** | **42,376** | 24,207 | 23,757 | 23,430 | 25,458 |
| **Book value per common share (H/I)** | **$32.73** | 35.27 | 33.03 | 31.56 | 30.38 |
| **Tangible book value per common share (F/I)** | **$25.80** | 23.22 | 20.78 | 19.02 | 18.97 |

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### OVERVIEW AND STRATEGY

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

### The Current Economic Environment

Both the U.S. economy and the Company’s local markets faced challenging conditions in 2010. The credit crisis that began in 2008 continued, resulting in high unemployment and depressed home values throughout the Chicago metropolitan area and southeastern Wisconsin. The stress of the existing economic environment and the depressed real estate valuations in the Company’s markets continued to impact the Company’s business in 2010. In response to these conditions, Management continued to carefully monitor the impact on the Company of the financial markets, the depressed values of real property and other assets, loan performance, default rates and other financial and macro-economic indicators in order to navigate the challenging economic environment. In particular:

- The Company created a dedicated division in 2008, the Managed Assets Division, to focus on resolving problem asset situations. Comprised of experienced lenders, the Managed Assets Division takes control of managing the Company’s more significant problem assets and also conducts ongoing reviews and evaluations of all significant problem assets, including the formulation of action plans and updates on recent developments.
- The Company’s 2010 provision for credit losses totaled $124.7 million, a decrease of $43.3 million when compared to 2009. Net charge-offs decreased to $109.7 million in 2010 (of which $78.4 million related to commercial and commercial real estate loans), compared to $137.4 million in 2009 (of which $122.9 million related to commercial and commercial real estate loans).
- The Company increased its allowance for loan losses to $113.9 million at December 31, 2010, reflecting an increase of $15.6 million, or 16%, when compared to 2009. At December 31, 2010, approximately $62.5 million, or 55%, of the allowance for loan losses was associated with commercial real estate loans and another $31.8 million, or 28%, was associated with commercial loans.
- Wintrust has significant exposure to commercial real estate. At December 31, 2010, $3.3 billion, or 34%, of our loan portfolio was commercial real estate, with more than 91% located in the Chicago metropolitan area and southeastern Wisconsin market areas. The commercial real estate loan portfolio was comprised of $487.8 million related to land, residential and commercial construction, $535.3 million related to office buildings loans, $510.5 million related to retail loans, $500.3 million related to industrial use loans, $291.0 million related to multi-family loans and $1.0 billion related to mixed use and other use types. In analyzing the commercial real estate market, the Company does not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of the decline in real estate valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks. Despite these efforts, as of December 31, 2010, the Company had approximately $94.0 million of non-performing commercial real estate loans representing approximately 3% of the total commercial real estate loan portfolio. $49.4 million, or 53%, of the total non-performing commercial real estate loan portfolio related to the land, residential and commercial construction sector which remains under stress due to the significant oversupply of new homes in certain portions of our market area.
- Total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest), excluding covered loans, were $142.1 million (of which $94.0 million, or *66%,* was related to commercial real estate) at December 31, 2010, an increase of $10.3 million compared to December 31, 2009. Non-performing loans increased as a result of deteriorating real estate conditions and stress in the overall economy in 2010.
- The Company’s other real estate owned, excluding covered other real estate owned, decreased by $9.0 million, to $71.2 million during 2010, from $80.2 million at December 31, 2009. These changes were largely caused by disposal and resolution of properties in 2010. Specifically, the $71.2 million of other real estate owned as of December 31, 2010 was comprised of $17.8 million of residential real estate development property, $47.7 million of commercial real estate property and $5.7 million of residential real estate property.
- Following the acquisition of banks in FDIC-assisted transactions, the Company created a dedicated division called the Purchased Assets Division to manage the loan portfolios acquired in such transactions. These loan portfolios are covered by loss sharing agreements with the FDIC, and recovery under these agreements requires detailed reporting on at least a quarterly basis. Comprised of experienced lenders and finance staff, the Purchased Assets Division enables the Company to effectively and efficiently manage the special risk associated with these transactions.

36

During 2009, Management implemented a strategic effort to aggressively resolve problem loans through liquidation, rather than retention, of loans or real estate acquired as collateral through the foreclosure process. This strategic effort continued in 2010. Management believes that some financial institutions have taken a longer term view of problem loan situations, hoping to realize higher values on acquired collateral through extended marketing efforts or an improvement in market conditions. Management believed that the distressed macro-economic conditions would continue to exist in 2010 and that the banking industry’s increase in non-performing loans would eventually lead to many properties being sold by financial institutions, thus saturating the market and possibly driving fair values of non-performing loans and foreclosed collateral further downwards. Accordingly, during 2009 and continuing through 2010, the Company attempted to liquidate as many non-performing loans and assets as possible. Management believes these actions will serve the Company well in the future by providing some protection for the Company from further valuation deterioration and permitting Management to spend less time on resolution of problem loans and more time on growing the Company’s core business and the evaluation of other opportunities presented by this volatile economic environment. The Company continues to take advantage of the opportunities that many times result from distressed credit markets - specifically, a dislocation of assets, banks and people in the overall market.

The level of loans past due 30 days or more and still accruing interest, excluding covered loans, totaled $146.9 million as of December 31 2010, increasing $38.3 million compared to the balance of $108.6 million as of December 31, 2009. Management is very cognizant of the volatility in and the fragile nature of the national and local economic conditions and that some borrowers can experience severe difficulties and default suddenly even if they have never previously been delinquent in loan payments. Accordingly, Management believes that the current economic conditions will continue to apply stress to the quality of the Company’s loan portfolio. Accordingly, Management plans to continue to direct significant attention toward the prompt identification, management and resolution of problem loans.

Additionally in 2010, the Company restructured certain loans by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At December 31, 2010, approximately $101.2 million in loans had terms modified, with $81.1 million of these modified loans in accruing status. These actions helped financially stressed borrowers maintain their homes or businesses and kept these loans in an accruing status for the Company. The Company considers restructuring loans when it appears that both the borrower and the Company can benefit and preserve a solid and sustainable relationship.

An acceleration or significantly extended continuation in real estate valuation and macroeconomic deterioration could result in higher default levels, a significant increase in foreclosure activity, a material decline in the value of the Company’s assets, or any combination of more than one of these trends could have a material adverse effect on the Company’s financial condition or results of operations.

A positive result of the economic environment was that our mortgage banking operation benefited from the low interest rate environment during 2009 and 2010 as demand for mortgage loans increased due to the fall in interest rates. The interest rate environment coupled with the acquisition of additional staff and infrastructure resulted in the higher levels of loan originations and loan sales in 2009. Though loan originations were lower in 2010 compared to 2009, the Company realized an increase in gains on sales of loans, which was driven by better pricing realized as a result of the Company utilizing mandatory execution of forward commitments with investors in 2010. The increase in gains on sales was partially offset by changes in the fair market value of mortgage servicing rights, valuation fluctuations of mortgage banking derivatives, fair value accounting for certain residential mortgage loans held for sale and an increase in loss indemnification claims by purchasers of the Company’s loans. The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. The Company’s practice is generally not to retain long-term fixed rate mortgages on its balance sheet in order to mitigate interest rate risk, and consequently sells most of such mortgages into the secondary market. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. The Company recognized an additional $11.0 million of expense related to loss indemnification claims in 2010 for loans previously sold, an increase of $10.1 million compared to 2009 primarily as a result of increased repurchase demands from investors. The Company has established an $8.9 million estimated liability, as of December 31, 2010 on loans expected to be repurchased from loans sold to investors, which is based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loan and current economic conditions.

In total, the Company increased its loan portfolio, excluding covered loans, from $8.4 billion at December 31, 2009 to $9.6 billion at December 31, 2010. This increase was primarily a result of the change in accounting method for the Company’s securitization transaction which is accounted for as a secured borrowing as of January 1, 2010, the Company’s commercial banking initiative, as well as growth in the premium finance receivables — life insurance portfolio. The Company continues to make new loans, including in the commercial and commercial real estate sector, where opportunities that meet our underwriting standards exist. The withdrawal of many banks in our area from active lending combined with our strong local relationships has presented us with opportunities to make new loans to well qualified borrowers who have been displaced from other institutions. For more information regarding changes in the Company’s loan portfolio, see “Analysis of Financial Condition — Interest Earning Assets” and Note 4 (“Loans”) of the Consolidated Financial Statements.

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during 2009 and 2010, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources, including exceptional sources provided or facilitated by the federal government for the benefit of U.S. financial institutions. Among such sources was the New York Fed’s TALF. In September 2009 the Company securitized a portion of its property and casualty premium finance loan portfolio of $600 million, which was facilitated by the premium finance loans being eligible collateral under the TALF. The New York Fed ceased making new loans under the TALF on June 30, 2010.

The Company also benefited from its maintenance of fifteen separate banking charters, which allow the Company to offer its MaxSafe® product. Through the MaxSafe® product, the Company offers its customers the ability to maintain a depository account at each of the Company’s banking charters and thus receive fifteen times the ordinary FDIC limit, with the Company attending to much of the administrative difficulties this would ordinarily require. While the FDIC insurance limit, formerly $100,000 per depositor at each banking charter, has been raised by the FDIC to $250,000 per depositor at each banking charter, the MaxSafe® product has allowed the Company to attract large amounts of high quality deposits as financial distress has affected a number of banking institutions. At December 31, 2010, the Company had over $1 billion in overnight liquid funds and interest-bearing deposits with banks.

### Community Banking

As of December 31, 2010, our community banking franchise consisted of 15 community banks with 86 locations. Through these banks, we provide banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the banks’ local service areas. These services include traditional deposit products such as demand, NOW, money market, savings and time deposit accounts, as well as a number of unique deposit products targeted to specific market segments. The banks also offer home equity, home mortgage, consumer, real estate and commercial loans, safe deposit facilities, ATMs, internet banking and other innovative and traditional services specially tailored to meet the needs of customers in their market areas. Profitability of our community banking franchise is primarily driven by our net interest income and margin, our funding mix and related costs, the level of non-performing loans and other real estate owned, the amount of mortgage banking revenue and our history of establishing *de novo* banks.

*Net interest income and margin*. The primary source of our revenue is net interest income. Net interest income is the difference between interest income and fees on earning assets, such as loans and securities, and interest expense on liabilities to fund those assets, including deposits and other borrowings. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings.

*Funding mix and related costs.* Our most significant source of funding is core deposits, which are comprised of non-interest bearing deposits, non-brokered interest-bearing transaction accounts, savings deposits and domestic time deposits. Our branch network is our principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Our profitability has been bolstered in recent quarters as fixed term certificates of deposit have been renewing at lower rates given the historically low interest rate levels in place recently and growth in non-interest bearing deposits as a result of the Company’s commercial banking initiative.

*Level of non-performing loans and other real estate owned*. The level of non-performing loans and other real estate owned can significantly impact our profitability as these loans and other real estate owned do not accrue any income, can be subject to charge-offs and write-downs due to deteriorating market conditions and generally result in additional legal and collections expenses. Given the current economic conditions, these costs, specifically problem loan expenses, have been at elevated levels in recent quarters.

*Mortgage banking revenue*. Our community banking franchise is also influenced by the level of fees generated by the origination of residential mortgages and the sale of such mortgages into the secondary market. This revenue is significantly impacted by the level of interest rates associated with home mortgages. In 2010, interest rates have been historically low and customer refinancings have been high, although not as high as in 2009. Additionally, in December 2008, we acquired certain assets and assumed certain liabilities of the mortgage banking business of PMP. As a result of the acquisition, we significantly increased the capacity of our mortgage-origination operations, primarily in the Chicago metropolitan market. The PMP transaction also changed the mix of our mortgage origination business in the Chicago market, resulting in a relatively greater portion of that business being retail, rather than wholesale, oriented. Costs in the mortgage business are variable as they primarily relate to commissions paid to originators.

*Establishment of de novo operations*. Our historical financial performance has been affected by costs associated with growing market share in deposits and loans, establishing and acquiring banks, opening new branch facilities and building an experienced management team. Our financial performance generally reflects the improved profitability of our banking subsidiaries as they mature, offset by the costs of establishing and acquiring banks and opening new branch facilities. From our experience, it generally takes over 13 months for new banks to achieve operational profitability depending on the number and timing of branch facilities added.

In determining the timing of the formation of *de novo* banks, the opening of additional branches of existing banks, and the acquisition of additional banks, we consider many factors, particularly our perceived ability to obtain an adequate return on our invested capital driven largely by the then existing cost of funds and lending margins, the general economic climate and the level of competition in a given market. We began to slow the rate of growth of new locations in 2007 due to tightening net interest margins on new business which, in the opinion of management, did not provide enough net interest spread to be able to garner a sufficient return on our invested capital. From the second quarter of 2008 to the first quarter of 2010, we did not establish a new banking location either through a *de novo* opening or through an acquisition, due to the financial system crisis and recessionary economy and our decision to utilize our capital to support our existing franchise rather than deploy our capital for expansion through new locations which tend to operate at a loss in the early months of operation. Thus, while expansion activity during the past three years has been at a level below earlier periods in our history, we have resumed the formation of additional branches and acquisitions of additional banks. On April 23, 2010, two of the Company’s wholly-owned subsidiary banks, Northbrook Bank and Wheaton Bank, in two FDIC-assisted transactions, respectively acquired certain assets and liabilities and the banking operations of Lincoln Park Savings Bank (“Lincoln Park”) and Wheatland Bank (“Wheatland”). On August 6, 2010, Northbrook Bank, in an FDIC-assisted transaction, acquired certain assets and liabilities and the banking operations of Ravenswood Bank (“Ravenswood”). Additionally, on October 22, 2010, Wheaton Bank acquired certain assets and liabilities of the banking operations of a branch located in Naperville, Illinois. This branch operates as Naperville Bank & Trust (“Naperville”).

In addition to the factors considered above, before we engage in expansion through *de novo* branches or banks we must first make a determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions, expansion through *de novo* growth is a better long-term investment than acquiring banks because the cost to bring a de novo location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each opportunity to expand is unique from a cost and benefit perspective. FDIC-assisted acquisitions offer a unique opportunity for the Company to expand into new and existing markets in a non-traditional manner. Potential FDIC-assisted acquisitions are reviewed in a similar manner as a *de novo* branch or bank opportunities, however, with an immediate enhancement of shareholder value. Factors including the valuation of our stock, other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all influence the decision to expand via *de novo* growth or through acquisition.

### Specialty Finance

Through our specialty finance segment, we offer financing of insurance premiums for businesses and individuals; accounts receivable financing, value-added, out-sourced administrative services; and other specialty finance businesses. We conduct our specialty finance businesses through indirect non-bank subsidiaries. Our wholly owned subsidiary, FIFC engages in the premium finance receivables business, our most significant specialized lending niche, including commercial insurance premium finance and life insurance premium finance.

#### Financing of Commercial Insurance Premiums

FIFC originated approximately $3.2 billion in commercial insurance premium finance receivables in 2010. FIFC makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by FIFC working through independent medium and large insurance agents and brokers located throughout the United States. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending and because the borrowers are located nationwide, this segment is more susceptible to third party fraud than relationship lending. In the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, increased both the Company’s net charge-offs and provision for credit losses by $15.7 million. Actions have been taken by the Company to decrease the likelihood of this type of loss from recurring in this line of business for the Company by the enhancement of various control procedures to mitigate the risks associated with this lending. The Company has conducted a thorough review of the premium finance — commercial portfolio and found no signs of similar situations.

The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. Historically, FIFC originations that were not purchased by the banks were sold to unrelated third parties with servicing retained. However, during the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such premium finance receivables in a securitization transaction sponsored by FIFC. Subsequent to December 31, 2009, this securitization transaction is accounted for as a secured borrowing and the securitization entity is treated as a consolidated subsidiary of the Company. Accordingly, beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statements of Condition.

The primary driver of profitability related to the financing of commercial insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit. The commercial insurance premium finance business is a competitive industry and yields on loans are influenced by the market rates offered by our competitors. We fund these loans either through the securitization facility described above or through our deposits, the cost of which is influenced by competitors in the retail banking markets in the Chicago and Milwaukee metropolitan areas.

#### Financing of Life Insurance Premiums

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

FIFC originated approximately $456.5 million in life insurance premium finance receivables in 2010. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and/or legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, FIFC may make a loan that has a partially unsecured position. Similar to the commercial insurance premium finance receivables, the majority of life insurance premium finance receivables are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments.

As with the commercial premium finance business, the primary driver of profitability related to the financing of life insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit.

Profitability of financing both commercial and life insurance premiums is also meaningfully impacted by leveraging information technology systems, maintaining operational efficiency and increasing average loan size, each of which allows us to expand our loan volume without significant capital investment.

### Wealth Management Activities

We currently offer a full range of wealth management services including trust and investment services, asset management and securities brokerage services, through three separate subsidiaries including WHI, CTC and WCM. In October 2010, the Company changed the name of its trust and investment services subsidiary, Wayne Hummer Trust Company, N.A., to the Chicago Trust Company, N.A. Additionally, the Company’s asset management company, Wayne Hummer Asset Management Company, changed its name to Wintrust Capital Management, LLC.

The primary influences on the profitability of the wealth management business can be associated with the level of commission received related to the trading performed by the brokerage customers for their accounts and the amount of assets under management for which asset management and trust units receive a management fee for advisory, administrative and custodial services. As such, revenues are influenced by a rise or fall in the debt and equity markets and the resultant increase or decrease in the value of our client accounts on which our fees are based. The commissions received by the brokerage unit are not as directly influenced by the directionality of the debt and equity markets but rather the desire of our customers to engage in trading based on their particular situations and outlooks of the market or particular stocks and bonds. Profitability in the brokerage business is impacted by commissions which fluctuate over time.

### Federal Government, Federal Reserve and FDIC Programs

During the last several years, the federal government, the New York Fed and the FDIC have made a number of programs available to banks and other financial institutions in an effort to ensure a well-functioning U.S. financial system. The Company has participated in three of such programs: the CPP, administered by the Treasury, the TALF, created by the New York Fed, and the TLGP, created by the FDIC. The Company also benefits from provisions of the Dodd-Frank Act which increase the deposit insurance limit on certain depository accounts at its bank subsidiaries. A summary of the Company’s participation in each of these programs follows.

*Participation in Capital Purchase Program*. In October 2008, the Treasury announced that it intended to use a portion of the initial funds allocated to it pursuant to the Emergency Economic Stabilization Act of 2008, to invest directly in financial institutions through the newly-created CPP. In December 2008, the Company entered into an agreement with the U.S. Department of the Treasury to participate in the CPP, pursuant to which the Company issued and sold 250,000 shares of its Series B Preferred Stock and a warrant (the “warrant”) to purchase 1,643,295 shares of its common stock to Treasury in exchange for aggregate consideration of $250 million (the “CPP investment”).

As a result of the CPP investment, our total risk based capital ratio as of December 31, 2008 increased from 10.3% to 13.1%. To be considered “well capitalized,” we must maintain a total risk-based capital ratio in excess of 10%. The terms of our agreement with Treasury imposed significant restrictions upon us, including increased scrutiny by Treasury, banking regulators and Congress, additional corporate governance requirements, restrictions upon our ability to repurchase stock and pay dividends and, as a result of increasingly stringent regulations issued by Treasury following the closing of the CPP investment, significant restrictions upon executive compensation. On December 22, 2010, the Company repurchased all the shares of Series B Preferred Stock from Treasury at a price of $251.3 million, which included accrued and unpaid dividends of $1.3 million.

For additional information on the terms of the preferred stock and the warrant, see Notes 24 and 29 of the Consolidated Financial Statements.

*TALF-Eligible Issuance*. In September 2009, the Company’s indirect subsidiary, FIFC Premium Funding I, LLC, sold $600 million in aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the “Notes”), which were issued in a securitization transaction sponsored by FIFC. FIFC Premium Funding I, LLC’s obligations under the Notes are secured by premium finance receivables made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies. At the time of issuance, the Notes were eligible collateral under TALF and certain investors therefore received non-recourse funding from the New York Fed in order to purchase the Notes. Although, as a result, FIFC believes it received greater proceeds at lower interest rates from the securitization than it otherwise would have received in non-TALF-eligible transactions, the Company’s management views the TALF-eligible securitization as a mechanism to accelerate the Company’s growth plan, rather than one essential to the maintenance of the Company’s “well capitalized” status.

*Increased FDIC Insurance for Non-Interest-Bearing Transaction Accounts*. Each of our bank subsidiaries have also benefited from two federal programs which provide increased FDIC insurance coverage for certain deposit accounts. From December 2008 until the termination of the program in December 2010, our subsidiary banks participated in the FDIC’s Transaction Account Guarantee (“TAG”) program, which provided unlimited FDIC insurance coverage for the entire account balance in exchange for an additional insurance premium to be paid by the depository institution for certain accounts with balances in excess of the current FDIC insurance limit of $250,000. Although the TAG expired in 2010, the Dodd-Frank Act and implementing regulations issued by the FDIC presently provide unlimited Federal insurance of the net amount of certain non-interest-bearing transaction accounts at all insured depository institutions through December 31, 2012. After December 31, 2012, depositors will receive Federal insurance up to the standard maximum deposit insurance amount of $250,000, which increased amount was made permanent by the Dodd-Frank Act.

### Financial Regulatory Reform

In July 2010, the President signed into law the Dodd-Frank Act, which contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. While final rulemaking under the Dodd-Frank Act will occur over the course of several years, changes mandated by the Dodd-Frank Act, as well as other legislative and regulatory changes, could have a significant impact on us by, for example, requiring us to change our business practices, requiring us to meet more stringent capital, liquidity and leverage ratio requirements, limiting our ability to pursue business opportunities, imposing additional costs on us, limiting fees we can charge for services, impacting the value of our assets, or otherwise adversely affecting our businesses. These changes may also require us to invest significant management attention and resources in order to comply with new statutory and regulatory requirements. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact that such requirements will have on our operations is unclear.

The Dodd-Frank Act also addresses risks to the economy and the financial system. It contemplates enhanced regulation of derivatives, restrictions on and additional disclosure of executive compensation, additional corporate governance requirements, and oversight of credit rating agencies. It also strengthens the ability of the regulatory agencies to supervise and examine bank holding companies and their subsidiaries. Effective July 2011, the Dodd-Frank Act requires a bank holding company that elects treatment as a financial holding company, including us, to be both well-capitalized and well-managed in addition to the existing requirement that a financial holding company’s subsidiary banks be well-capitalized and well-managed. Bank holding companies and banks must also be both well-capitalized and well-managed in order to engage in interstate bank acquisitions.

Among other things, the Dodd-Frank Act requires the issuance of new banking regulations regarding the establishment of minimum leverage and risk-based capital requirements for bank holding companies and banks. These regulations, which are required to be effective within 18 months from the enactment of the Dodd-Frank Act, are required to be no less stringent than current capital requirements applied to insured depository institutions and may, in fact, be higher when established by the agencies. Although Wintrust’s outstanding trust preferred securities will remain eligible for Tier 1 capital treatment, any future issuances of trust preferred securities will not be Tier 1 capital. The Dodd-Frank Act also requires the regulatory agencies to seek to make capital requirements for bank holding companies and insured institutions countercyclical, so that capital requirements increase in times of economic expansion and decrease in times of economic contraction. The Dodd-Frank Act may also require us to conduct annual stress tests, in accordance with future regulations. Any such testing would result in increased compliance costs.

Certain provisions of the Dodd-Frank Act have near-term effect on the Company. In particular, effective one year from the date of enactment, the Dodd-Frank Act eliminates U.S. federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending upon market response, this change could have an adverse impact on our interest expense. In addition, the Dodd-Frank Act includes provisions that change the assessment base for federal deposit insurance from the amount of insured deposits to average total consolidated assets less average tangible capital, eliminate the maximum size of the deposit insurance fund (the “DIF”), eliminate the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds, and increase the minimum reserve ratio of the DIF from 1.15% to 1.35%. The FDIC adopted a final rule implementing these changes to the DIF on February 7, 2011. The FDIC has indicated that these changes will generally not require an increase in the level of assessments, and may result in decreased assessments, for depository institutions (such as each of our bank subsidiaries) with less than $10 billion in assets.

In addition, the Dodd-Frank Act gave the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers, such as our bank subsidiaries, and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve recently proposed capping such fees at seven to 12 cents, subject to adjustment for fraud prevention costs.

Additionally, the Dodd-Frank Act establishes the Bureau within the Federal Reserve, which will regulate consumer financial products and services. On July 21, 2011, many of the consumer financial protection functions currently assigned to the federal banking and other designated agencies will shift to the Bureau. The Bureau will have broad rulemaking authority over a wide range of consumer protection laws that apply to banks and thrifts, including the authority to prohibit “unfair, deceptive or abusive practices” to ensure that all consumers have access to markets for consumer financial products and services, and that such markets are fair, transparent and competitive. In particular, the Bureau may enact sweeping reforms in the mortgage broker industry which may increase the costs of engaging in these activities for all market participants, including our subsidiaries. The Bureau will have broad supervisory, examination and enforcement authority. In addition, state attorneys general and other state officials will be authorized to enforce consumer protection rules issued by the Bureau.

The Dodd-Frank Act weakens federal preemption available for national banks and eliminates federal preemption for subsidiaries of national banks, which may subject the Company’s national banks and their subsidiaries, including WMC, to additional state regulation. With regard to mortgage lending, the Dodd-Frank Act imposes new requirements regarding the origination and servicing of residential mortgage loans. The law creates a variety of new consumer protections, including limitations on the manner by which loan originators may be compensated and an obligation on the part of lenders to assess and verify a borrower’s “ability to repay” a residential mortgage loan.

The Dodd-Frank Act also enhances provisions relating to affiliate and insider lending restrictions and loans to one borrower limitations. Federal banking law currently limits a national bank’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions. It also eventually will prohibit state-chartered banks (including certain of the Company’s banking subsidiaries) from engaging in derivative transactions unless the state lending limit laws take into account credit exposure to such transactions.

### Recent Actions Related to Capital and Liquidity

In December 2010 and January 2011, the Basel Committee on Banking Supervision published reforms regarding changes to bank capital, leverage and liquidity requirements, commonly referred to as “Basel III.” If implemented without change by U.S. banking regulators, the provisions of Basel III may have significant impact on requirements including heightened requirements regarding Tier 1 common equity, and alterations to bank liquidity standards.

While the U.S. federal banking agencies have expressed support for the Basel III initiative, implementation of any final provisions of Basel III in the U.S. will require implementing regulations and guidelines by U.S. banking regulators, which may differ in significant ways from the recommendations published by the Basel Committee. For example, it is unclear how U.S. banking regulators would define “well-capitalized” in any implementation of Basel III.

We are not able to predict at this time the content of capital and liquidity guidelines or regulations that may be adopted by regulatory agencies having authority over us and our subsidiaries or the impact that any changes in regulation would have on us. If new standards require us or our banking subsidiaries to maintain more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities in order to comply with formulaic liquidity requirements, such regulation could significantly impact our return on equity, financial condition, operations, capital position and ability to pursue business opportunities.

### Acquisition of the Life Insurance Premium Finance Business

#### Overview

As previously described, on July 28, 2009 our subsidiary FIFC purchased the majority of the U.S. life insurance premium finance assets of subsidiaries of American International Group, Inc. Life insurance premium finance loans are generally used for estate planning purposes of high net worth borrowers, and, as described below, are collateralized by life insurance policies and their related cash surrender value and are often additionally secured by letters of credit, annuities, cash and marketable securities.

#### Credit Risk

The Company believes that its life insurance premium finance loans have a lower level of risk and delinquency than the Company’s commercial and residential real estate loans because of the nature of the collateral. The life insurance policy is the primary form of collateral. If cash surrender value is not sufficient, then letters of credit, marketable securities or certificates of deposit are used to provide additional security. Since the collateral is highly liquid and generally has a value in excess of the loan amount, any defaults or delinquencies are generally cured relatively quickly by the borrower or the collateral is generally liquidated in an expeditious manner to satisfy the loan obligation. Greater than 95% of loans are fully secured. However, less than 5% of the loans are partially unsecured and in those cases, a greater risk exists for default. No loans are originated on a fully unsecured basis.

#### Fair Market Valuation at Date of Purchase and Allowance for Loan Losses

ASC 805, “Business Combinations” (ASC 805), requires acquired loans to be recorded at fair market value. The application of ASC 805 requires incorporation of credit related factors directly into the fair value of the loans recorded at the acquisition date, thereby eliminating separate recognition of the acquired allowance for loan losses on the acquirer’s balance sheet. Accordingly, the Company established a credit discount for each loan as part of the determination of the fair market value of such loan in accordance with those accounting principles at the date of acquisition. Any adverse changes in the deemed collectible nature of a loan would subsequently be provided through a charge to the income statement through a provision for credit losses and a corresponding establishment of an allowance for loan losses. There was no allowance for loan losses associated with this portfolio of loans at December 31, 2010 compared to an allowance of $615,000 at December 31, 2009.

### FDIC-Assisted Transactions — Acquisition of Lincoln Park Bank, Wheatland Bank and Ravenswood Bank

On August 6, 2010, Northbrook Bank acquired the banking operations of Ravenswood in an FDIC-assisted transaction. Northbrook Bank acquired assets with a fair value of approximately $174 million, and assumed liabilities with a fair value of approximately $123 million. Additionally, on April 23, 2010, the Company acquired the banking operations of two entities in FDIC-assisted transactions. Northbrook Bank acquired assets with a fair value of approximately $157 million and assumed liabilities with a fair value of approximately $192 million of Lincoln Park. Wheaton Bank acquired assets with a fair value of approximately $344 million and assumed liabilities with a fair value of approximately $416 million of 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 this loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At each acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $44.0 million for the Ravenswood acquisition, and $113.8 million for the Lincoln Park and Wheatland acquisitions. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

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 gains of $33.3 million, $6.8 million for Ravenswood, $22.3 million for Wheat-land, and $4.2 million for Lincoln Park, and is shown as a component of non-interest income on the Company’s Consolidated Statements of Income.

The Company created a dedicated division in 2010, the Purchased Assets Division. Comprised of experienced lenders and finance staff, the Purchased Asset Division is responsible for managing the loan portfolios acquired in FDIC-assisted transactions in addition to managing the financial and regulatory reporting of these transactions. For operations acquired in FDIC-assisted transactions, detailed reporting needs to be submitted to the FDIC on at least a quarterly basis for any assets which are subject to the loss-sharing agreements mentioned above. Reporting on the status of covered assets may continue for five to ten years from the date of acquisition depending on the type of assets acquired.

### Acquisition of a branch of the First National Bank of Brookfield

On October 22, 2010, the Company’s wholly-owned subsidiary bank, Wheaton Bank, acquired a branch of First National Bank of Brookfield that is located in Naperville, Illinois. Through this transaction, Wheaton Bank acquired approximately $23 million of deposits, approximately $11 million of performing loans, the property, bank facility and various other assets. This branch operates as Naperville Bank & Trust.

### SUMMARY OF CRITICAL ACCOUNTING POLICIES

The Company’s Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater possibility that changes in those estimates and assumptions could produce financial results that are materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event, are based on information available as of the date of the financial statements; accordingly, as information changes, the financial statements could reflect different estimates and assumptions.

A summary of the Company’s significant accounting policies is presented in Note 1 to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes and in this Management’s Discussion and Analysis section, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views critical accounting policies to include the determination of the allowance for loan losses 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 most subject to revision as new information becomes available.

#### Allowance for Loan Losses and Allowance for Losses on Lending-Related Commitments

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which are susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. The Company also maintains an allowance for lending-related commitments, specifically unfunded loan commitments and letters of credit, which relates to certain amounts the Company is committed to lend but for which funds have not yet been disbursed. See Note 1 to the Consolidated Financial Statements and the section titled “Credit Risk and Asset Quality” later in this report for a description of the methodology used to determine the allowance for loan losses and the allowance for lending-related commitments.

#### Estimations of Fair Value

*A* portion of the Company’s assets and liabilities are carried at fair value on the Consolidated Statements of Condition, with changes in fair value recorded either through earnings or other comprehensive income in accordance with applicable accounting principles generally accepted in the United States. These include the Company’s trading account securities, available-for-sale securities, derivatives, mortgage loans held-for-sale, mortgage servicing rights and retained interests from the sale of premium finance receivables. The estimation of fair value also affects certain other mortgage loans held-for-sale, which are not recorded at fair value but at the lower of cost or market. The determination of fair value is important for certain other assets, including goodwill and other intangible assets, impaired loans, and other real estate owned that are periodically evaluated for impairment using fair value estimates.

Fair value is generally defined as the amount at which an asset or liability could be exchanged in a current transaction between willing, unrelated parties, other than in a forced or liquidation sale. Fair value is based on quoted market prices in an active market, or if market prices are not available, is estimated using models employing techniques such as matrix pricing or discounting expected cash flows. The significant assumptions used in the models, which include assumptions for interest rates, discount rates, prepayments and credit losses, are independently verified against observable market data where possible. Where observable market data is not available, the estimate of fair value becomes more subjective and involves a high degree of judgment. In this circumstance, fair value is estimated based on management’s judgment regarding the value that market participants would assign to the asset or liability. This valuation process takes into consideration factors such as market illiquidity. Imprecision in estimating these factors can impact the amount recorded on the balance sheet for a particular asset or liability with related impacts to earnings or other comprehensive income. See Note 23 to the Consolidated Financial Statements later in this report for a further discussion of fair value measurements.

#### Impairment Testing of Goodwill

The Company performs impairment testing of goodwill on an annual basis or more frequently when events warrant. Valuations are estimated in good faith by management through the use of publicly available valuations of comparable entities or discounted cash flow models using internal financial projections in the reporting unit’s business plan.

The goodwill impairment analysis involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the carrying value of a reporting unit was determined to have been higher than its fair value, the second step would have to be performed to measure the amount of impairment loss. The second step allocates the fair value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.

The goodwill impairment analysis requires management to make subjective judgments in determining if an indicator of impairment has occurred. Events and factors that may significantly affect the analysis include: a significant decline in the Company’s expected future cash flows, a substantial increase in the discount factor, a sustained, significant decline in the Company’s stock price and market capitalization, a significant adverse change in legal factors or in the business climate. Other factors might include changing competitive forces, customer behaviors and attrition, revenue trends, cost structures, along with specific industry and market conditions. Adverse change in these factors could have a significant impact on the recoverability of intangible assets and could have a material impact on the Company’s consolidated financial statements.

#### Derivative Instruments

The Company utilizes derivative instruments to manage risks such as interest rate risk or market risk. The Company’s policy prohibits using derivatives for speculative purposes.

Accounting for derivatives differs significantly depending on whether a derivative is designated as a hedge, which is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is purchased. In order to qualify as a hedge, a derivative must be designated as such by management. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with that item. To determine if a derivative instrument continues to be an effective hedge, the Company must make assumptions and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If the Company’s hedging strategy were to become ineffective, hedge accounting would no longer apply and the reported results of operations or financial condition could be materially affected.

#### Income Taxes

The Company is subject to the income tax laws of the U.S., its states and other jurisdictions where it conducts business. These laws are complex and subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provision for income taxes, management must make judgments and estimates about the application of these inherently complex laws, related regulations and case law. In the process of preparing the Company’s tax returns, management attempts to make reasonable interpretations of the tax laws. These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law. Management reviews its uncertain tax positions and recognition of the benefits of such positions on a regular basis.

On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year. Deferred tax assets and liabilities are reassessed on a quarterly basis, if business events or circumstances warrant.

### CONSOLIDATED RESULTS OF OPERATIONS

The following discussion of Wintrust’s results of operations requires an understanding that a majority of the Company’s bank subsidiaries have been started as new banks since December 1991. Wintrust is still a relatively young company that has a strategy of continuing to build its customer base and securing broad product penetration in each marketplace that it serves. The Company has expanded its banking franchise from three banks with five offices in 1994 to 15 banks with 86 offices at the end of 2010. FIFC has matured from its limited operations in 1991 to a company that generated, on a national basis, $3.7 billion in premium finance receivables in 2010. In addition, the wealth management companies have been building a team of experienced professionals who are located within a majority of the banks. These expansion activities have understandably suppressed faster, opportunistic earnings. However, as the Company matures and its existing banks become more profitable, the start-up costs associated with bank and branch openings and other new financial services ventures will not have as significant an impact on earnings as in prior periods.

### Earnings Summary

Net income for the year ended December 31, 2010, totaled $63.3 million, or $1.02 per diluted common share, compared to $73.1 million, or $2.18 per diluted common share, in 2009, and $20.5 million, or $0.76 per diluted common share, in 2008. During 2010, net income decreased by $9.8 million while earnings per diluted common share decreased by $1.16. During 2009, net income increased by $52.6 million while earnings per diluted common share increased by $1.42. Financial results in 2010 decreased from 2009 as a result of fewer bargain purchase gains in 2010 partially offset by increases in interest income on loans as well as decreases in the provision for credit losses. Financial results in 2009 were driven by growth in earning assets, gains on bargain purchases of acquired life insurance premium finance loans, record mortgage banking revenues, partially offset by higher provision for credit losses, FDIC insurance premiums, and OREO expenses.

### Net Interest Income

The primary source of the Company’s revenue is net interest income. Net interest income is the difference between interest income and fees on earning assets, such as loans and securities, and interest expense on the liabilities to fund those assets, including interest bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of earning assets and interest bearing liabilities. In order to compare the tax-exempt asset yields to taxable yields, interest income in the following discussion and tables is adjusted to tax-equivalent yields based on the marginal corporate Federal tax rate of 35%.

Tax-equivalent net interest income in 2010 totaled $417.6 million, up from $314.1 million in 2009 and $247.1 million in 2008, representing an increase of $103.5 million, or 33%, in 2010 and an increase of $67.0 million, or 27%, in 2009. The table presented later in this section, titled “Changes in Interest Income and Expense,” presents the dollar amount of changes in interest income and expense, by major category, attributable to changes in the volume of the balance sheet category and changes in the rate earned or paid with respect to that category of assets or liabilities for 2010 and 2009. Average earning assets increased $2.0 billion, or 19%, in 2010 and $1.6 billion, or 19%, in 2009. Loans are the most significant component of the earning asset base as they earn interest at a higher rate than the other earning assets. Average loans, excluding covered loans, increased $1.1 billion, or 14%, in 2010 and $1.1 billion, or 15%, in 2009. Total average loans, excluding covered loans, as a percentage of total average earning assets were 76%, 80% and 82% in 2010, 2009 and 2008, respectively. The average yield on loans, excluding covered loans, was 5.67% in 2010, 5.59% in 2009 and 6.13% in 2008, reflecting an increase of 8 basis points in 2010 and a decrease of 54 basis points in 2009. The higher loan yield in 2010 compared to 2009 resulted primarily from higher accretion on the purchased life insurance portfolio as more prepayments occurred in 2010. The lower loan yield in 2009 compared to 2008 was a result of the low interest rate environment. The average rate paid on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, was 1.32% in 2010, 2.03% in 2009 and 3.13% in 2008, representing a decrease of 71 basis points in 2010 and 110 basis points in 2009. The lower level of interest bearing deposits rate in 2010 was due to downward re-pricing of retail deposits during the year. The lower level of interest bearing deposits rate in 2009 was due to a record low interest rate environment throughout the year compared to 2008. In 2008, the Company also expanded its MaxSafe® suite of products (primarily certificates of deposit and money market accounts) which, due to the Company’s fifteen individual bank charters, offer a customer higher FDIC insurance than a customer can achieve at a single charter bank. These MaxSafe® products can typically be priced at lower rates than other certificates of deposit or money market accounts due to the convenience of obtaining the higher FDIC insurance coverage by visiting only one location.

Net interest margin, which reflects net interest income as a percent of average earning assets, increased to 3.37% in 2010 compared to 3.01% in 2009. The increase in net interest margin in 2010 compared to 2009 was primarily caused by lower costs for interest-bearing deposits (increased net interest margin by 58 basis points), an additional $24.4 million of accretion on the purchased life insurance portfolio as more prepayments occurred throughout 2010 (increased net interest margin by 23 points) and lower costs for wholesale funding (increased net interest margin by 10 basis points), offset by higher balances and lower yields on liquidity management assets, including the negative impact of selling certain collateralized mortgage obligations (reduced net interest margin by 33 basis points), lower yields on loans (reduced net interest margin by 17 basis points) and lower contribution from net free funds (reduced net interest margin by five basis points).

Net interest income and net interest margin were also affected by amortization of valuation adjustments to earning assets and interest-bearing liabilities of acquired businesses. Under the acquisition method of accounting, assets and liabilities of acquired businesses are required to be recognized at their estimated fair value at the date of acquisition. These valuation adjustments represent the difference between the estimated fair value and the carrying value of assets and liabilities acquired. These adjustments are amortized into interest income and interest expense based upon the estimated remaining lives of the assets and liabilities acquired, typically on an accelerated basis.

### Average Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs

The following table sets forth the average balances, the interest earned or paid thereon, and the effective interest rate, yield or cost for each major category of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2010, 2009 and 2008. The yields and costs include loan origination fees and certain direct origination costs that are considered adjustments to yields. Interest income on non-accruing loans is reflected in the year that it is collected, to the extent it is not applied to principal. Such amounts are not material to net interest income or the net change in net interest income in any year. Non-accrual loans are included in the average balances. Net interest income and the related net interest margin have been adjusted to reflect tax-exempt income, such as interest on municipal securities and loans, on a tax-equivalent basis. This table should be referred to in conjunction with this analysis and discussion of the financial condition and results of operations (dollars in thousands):

| Assets | Years Ended December 31, 2010 Average Balance | Interest | Average Yield/ Rate | 2009 Average Balance | Interest | Average Yield/ Rate | 2008 Average Balance | Interest | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest bearing deposits with banks | **$1,202,750** | **5,171** | **0.43%** | $605,644 | 3,574 | 0.59% | $28,677 | $341 | 1.19% |
| Securities | **1,402,255** | **40,211** | **2.87** | 1,392,346 | 59,091 | 4.24 | 1,439,642 | 69,895 | 4.86 |
| Federal funds sold and securities purchased under resale agreements | **49,008** | **157** | **0.32** | 88,663 | 271 | 0.31 | 63,963 | 1,333 | 2.08 |
| Total liquidity management assets (1)(6) | **2,654,013** | **45,539** | **1.72** | 2,086,653 | 62,936 | 3.02 | 1,532,282 | 71,569 | 4.67 |
| Other earning assets (1)(2)(6) | **45,021** | **1,067** | **2.37** | 23,979 | 659 | 2.75 | 23,052 | 1,147 | 4.98 |
| Loans, net of unearned income (1)(3)(6) | **9,473,589** | **537,534** | **5.67** | 8,335,421 | 466,239 | 5.59 | 7,245,609 | 444,494 | 6.13 |
| Covered loans | **232,206** | **10,695** | **4.61** | — | — | — | — | — | — |
| Total earning assets(6) | **12,404,829** | **594,835** | **4.80** | 10,446,053 | 529,834 | 5.07 | 8,800,943 | 517,210 | 5.88 |
| Allowance for loan losses | **(111,503)** |  |  | (82,029) |  |  | (57,656) |  |  |
| Cash and due from banks | **137,547** |  |  | 108,471 |  |  | 117,923 |  |  |
| Other assets | **1,125,739** |  |  | 942,827 |  |  | 892,010 |  |  |
| Total assets | **$13,556,612** |  |  | $11,415,322 |  |  | $9,753,220 |  |  |
| **Liabilities and Shareholders’ Equity** |  |  |  |  |  |  |  |  |  |
| Deposits — interest bearing: |  |  |  |  |  |  |  |  |  |
| NOW accounts | **$1,508,063** | **8,840** | **0.59%** | $1,136,008 | 8,168 | 0.72% | $1,011,402 | $13,101 | 1.30% |
| Wealth management deposits | **734,837** | **2,263** | **0.31** | 907,013 | 6,301 | 0.69 | 622,842 | 14,583 | 2.34 |
| Money market accounts | **1,666,554** | **12,196** | **0.73** | 1,375,767 | 17,779 | 1.29 | 904,245 | 20,357 | 2.25 |
| Savings accounts | **619,024** | **3,655** | **0.59** | 457,139 | 4,385 | 0.96 | 319,128 | 3,164 | 0.99 |
| Time deposits | **4,881,472** | **96,825** | **1.98** | 4,543,154 | 134,626 | 2.96 | 4,156,600 | 168,232 | 4.05 |
| Total interest bearing deposits | **9,409,950** | **123,779** | **1.32** | 8,419,081 | 171,259 | 2.03 | 7,014,217 | 219,437 | 3.13 |
| Federal Home Loan Bank advances | **418,981** | **16,520** | **3.94** | 434,520 | 18,002 | 4.14 | 435,761 | 18,266 | 4.19 |
| Notes payable and other borrowings | **229,569** | **5,943** | **2.59** | 258,322 | 7,064 | 2.73 | 387,377 | 10,718 | 2.77 |
| Secured borrowings — owed to securitization investors | **600,000** | **12,365** | **2.06** | — | — | — | — | — | — |
| Subordinated notes | **56,370** | **995** | **1.74** | 66,205 | 1,627 | 2.42 | 74,589 | 3,486 | 4.60 |
| Junior subordinated debentures | **249,493** | **17,668** | **6.98** | 249,497 | 17,786 | 7.03 | 249,575 | 18,249 | 7.19 |
| Total interest bearing liabilities | **10,964,363** | **177,270** | **1.61** | 9,427,625 | 215,738 | 2.29 | 8,161,519 | 270,156 | 3.31 |
| Non-interest bearing deposits | **984,416** |  |  | 788,034 |  |  | 672,924 |  |  |
| Other liabilities | **255,698** |  |  | 117,871 |  |  | 139,340 |  |  |
| Equity | **1,352,135** |  |  | 1,081,792 |  |  | 779,437 |  |  |
| Total liabilities and shareholders’ equity | **$13,556,612** |  |  | $11,415,322 |  |  | $9,753,220 |  |  |
| Interest rate spread(4)(6) |  |  | **3.19%** |  |  | 2.78% |  |  | 2.57% |
| Net free funds/contribution (5) | **$1,440,466** |  | **0.18%** | $1,018,428 |  | 0.23% | $639,424 |  | 0.24% |
| Net interest income/Net interest margin (6) |  | **$417,565** | **3.37%** |  | $314,096 | 3.01% |  | $247,054 | 2.81% |

*(1) Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the twelve months ended December 31, 2010 and 2009 were $1.7 million and $2.2 million, respectively.*

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

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

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

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

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

48

### Changes In Interest Income and Expense

The following table shows the dollar amount of changes in interest income (on a tax-equivalent basis) and expense by major categories of interest-earning assets and interest-bearing liabilities attributable to changes in volume or rate for the periods indicated (in thousands):

| Interest income: | Years Ended December 31, 2010 Compared to 2009 Change Due to Rate | Change Due to Volume | Total Change | 2009 Compared to 2008 Change Due to Rate | Change Due to Volume | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest bearing deposits with banks | **$(1,176)** | **2,773** | **1,597** | $(256) | 3,490 | 3,234 |
| Securities | **(19,188)** | **308** | **(18,880)** | (8,441) | (2,363) | (10,804) |
| Federal funds sold and securities purchased under resale agreement | **8** | **(122)** | **(114)** | (1,434) | 371 | (1,063) |
| Total liquidity management assets | **(20,356)** | **2,959** | **(17,397)** | (10,131) | 1,498 | (8,633) |
| Other earning assets | **(102)** | **510** | **408** | (530) | 42 | (488) |
| Loans, net of unearned income | **6,758** | **64,537** | **71,295** | (40,751) | 62,496 | 21,745 |
| Covered loans | **—** | **10,695** | **10,695** | — | — | — |
| Total interest income | **(13,700)** | **78,701** | **65,001** | (51,412) | 64,036 | 12,624 |
| **Interest expense:** |  |  |  |  |  |  |
| Deposits — interest bearing: |  |  |  |  |  |  |
| NOW accounts | **(1,822)** | **2,494** | **672** | (6,366) | 1,432 | (4,934) |
| Wealth management deposits | **(1,982)** | **(2,056)** | **(4,038)** | (13,058) | 4,776 | (8,282) |
| Money market accounts | **(8,806)** | **3,223** | **(5,583)** | (10,659) | 8,082 | (2,577) |
| Savings accounts | **(2,000)** | **1,270** | **(730)** | (99) | 1,320 | 1,221 |
| Time deposits | **(48,078)** | **10,277** | **(37,801)** | (47,950) | 14,344 | (33,606) |
| Total interest expense — deposits | **(62,688)** | **15,208** | **(47,480)** | (78,132) | 29,954 | (48,178) |
| Federal Home Loan Bank advances | **(851)** | **(631)** | **(1,482)** | (173) | (91) | (264) |
| Notes payable and other borrowings | **(398)** | **(723)** | **(1,121)** | 1,963 | (5,617) | (3,654) |
| Secured borrowings — owed to |  |  |  |  |  |  |
| securitization investors | **—** | **12,365** | **12,365** | — | — | — |
| Subordinated notes | **(413)** | **(219)** | **(632)** | (1,496) | (364) | (1,860) |
| Junior subordinated debentures | **(118)** | **—** | **(118)** | (407) | (56) | (463) |
| Total interest expense | **(64,468)** | **26,000** | **(38,468)** | (78,245) | 23,826 | (54,419) |
| **Net interest income** | **$50,768** | **52,701** | **103,469** | $26,833 | 40,210 | 67,043 |

The changes in net interest income are created by changes in both interest rates and volumes. In the table above, volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each. The change in interest in 2009 compared to 2008 due to one less day resulting from the 2008 leap year has been allocated entirely to the change due to volume.

### Non-Interest Income

Non-interest income totaled $192.2 million in 2010, $317.6 million in 2009 and $99.7 million in 2008, reflecting a decrease of 40% in 2010 compared to 2009 and an increase of 219% in 2009 compared to 2008.

The following table presents non-interest income by category for 2010, 2009 and 2008 (in thousands):

|  | Years ended December 31, 2010 | 2009 | 2008 | 2010 compared to 2009 $ Change | % Change | 2009 compared to 2008 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Brokerage | **$23,713** | 17,726 | 18,649 | **$5,987** | **34%** | $(923) | (5)% |
| Trust and asset management | **13,228** | 10,631 | 10,736 | **2,597** | **24** | (105) | (1) |
| Total wealth management | **36,941** | 28,357 | 29,385 | **8,584** | **30** | (1,028) | (3) |
| Mortgage banking | **61,378** | 68,527 | 21,258 | **(7,149)** | **(10)** | 47,269 | 222 |
| Service charges on deposit accounts | **13,433** | 13,037 | 10,296 | **396** | **3** | 2,741 | 27 |
| Gain on sales of premium finance receivables | **—** | 8,576 | 2,524 | **(8,576)** | **(100)** | 6,052 | 240 |
| Gains (losses) on available - for-sale securities | **9,832** | (268) | (4,171) | **10,100** | **NM** | 3,903 | 94 |
| Fees from covered call options | **2,235** | 1,998 | 29,024 | **237** | **12** | (27,026) | (93) |
| Gain on bargain purchases | **44,231** | 156,013 | — | **(111,782)** | **(72)** | 156,013 | NM |
| Trading gains | **5,165** | 26,788 | (134) | **(21,623)** | **(81)** | 26,922 | NM |
| Other: |  |  |  |  |  |  |  |
| Bank Owned Life Insurance | **2,404** | 2,044 | 1,622 | **360** | **18** | 422 | 26 |
| Administrative services | **2,749** | 1,975 | 2,941 | **774** | **39** | (966) | (33) |
| Miscellaneous | **13,792** | 10,600 | 6,933 | **3,192** | **30** | 3,667 | 53 |
| Total other | **18,945** | 14,619 | 11,496 | **4,326** | **30** | 3,123 | 27 |
| Total non-interest income | **$192,160** | 317,647 | 99,678 | **$(125,487)** | **(40)%** | $217,969 | 219% |

#### NM — Not Meaningful

Wealth management is comprised of the trust and asset management revenue of the CTC, the asset management fees, brokerage commissions, trading commissions and insurance product commissions at WHI and WCM.

Brokerage revenue is directly impacted by trading volumes. In 2010, brokerage revenue totaled $23.7 million, reflecting an increase of $6.0 million, or 34%, compared to 2009. The increase in brokerage revenue can be attributed to the improvement in equity markets resulting in increased customer trading activity. In 2009, brokerage revenue totaled $17.7 million reflecting a decrease of $923,000, or 5%, compared to 2008 as a result of overall uncertainties surrounding the equity markets in 2009.

Trust and asset management revenue totaled $13.2 million in 2010, an increase of $2.6 million, or 24%, compared to 2009. In 2009, trust and asset management fees totaled $10.6 million and decreased $105,000, or 1%, compared to 2008. Trust and asset management fees are based primarily on the market value of the assets under management or administration. Increased asset valuations due to equity market improvements helped growth from trust and asset management activities in 2010. Starting in 2008 and continuing into 2009, decreased asset valuations due to equity market declines hindered the revenue growth from trust and asset management activities.

Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage banking revenue totaled $61.4 million in 2010, $68.5 million in 2009, and $21.3 million in 2008, reflecting a decrease of $7.1 million, or 10%, in 2010, and an increase of $47.3 million, or 222%, in 2009. Mortgages originated and sold totaled $3.7 billion in 2010 compared to $4.7 billion in 2009 and $1.6 billion in 2008. The decrease in mortgage banking revenue in 2010 compared to 2009 resulted primarily from an increase in loss indemnification claims, as described below, and lower origination volumes, partially offset by higher margins on sales of loans primarily driven by utilizing mandatory execution of forward commitments with investors in 2010. The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. The Company recognized an additional $11.0 million of recourse expense related to loss indemnification claims in 2010 for loans previously sold, an increase of $10.1 million over the $0.9 million of such expense recorded in 2009. This liability for loans expected to be repurchased is based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans that have been sold, and current economic conditions.

A summary of mortgage banking activities is shown below:

*(Dollars in thousands)*

|  | Years Ended December 31, 2010 | 2009 | 2008 |
| --- | ---: | ---: | ---: |
| **Mortgage loans originated and sold** | **$3,746,127** | 4,666,506 | 1,553,929 |
| **Mortgage loans serviced for others** | **$942,224** | 738,372 | 527,450 |
| **Fair value of mortgage servicing rights (MSRs)** | **$8,762** | 6,745 | 3,990 |
| **MSRs as a percentage of loans serviced** | **0.93%** | 0.91 | 0.76 |
| Gains on sales of loans and other fees | **$75,303** | 71,495 | 23,622 |
| Mortgage servicing rights fair value adjustments | **(2,955)** | (2,031) | (2,364) |
| Recourse obligation on loans previously sold | **(10,970)** | (937) | — |
| **Total mortgage banking revenue** | **$61,378** | 68,527 | 21,258 |
| **Gain on sales of loans and other fees as a percentage of loans sold** | **2.01%** | 1.53 | 1.52 |

Service charges on deposit accounts totaled $13.4 million in 2010, $13.0 million in 2009 and $10.3 million in 2008, reflecting an increase of 3% in 2010 and 27% in 2009. The majority of deposit service charges relate to customary fees on overdrawn accounts and returned items. The level of service charges received is substantially below peer group levels, as management believes in the philosophy of providing high quality service without encumbering that service with numerous activity charges.

As a result of the new accounting requirements beginning January 1, 2010, loans transferred into the securitization facility are accounted for as a secured borrowing rather than a sale. Therefore, the Company no longer recognizes gains on sales of premium finance receivables for loans transferred into the securitization. Gain on sales of premium finance receivables of $8.6 million in 2009 is mainly attributable to the transfer of $1.2 billion of premium finance receivables — commercial to a revolving securitization during the year. The gain on sales of premium finance receivables of $2.5 million in 2008 relate to the sale of premium finance receivables to unrelated third parties.

The Company recognized $9.8 million of net gains on available-for-sale securities in 2010 compared to a net loss of $268,000 in 2009 and a net loss of $4.2 million in 2008. The net gains in 2010 primarily relate to the sale of certain collateralized mortgage obligations. Included in net gains (losses) on available-for-sale securities are non-cash other-than-temporary-impairment (“OTTI”) charges recognized in income. The Company did not have any OTTI charges in 2010. OTTI charges on certain corporate debt investment securities were $2.6 million in 2009 and $8.2 million in 2008.

Fees from covered call option transactions totaled $2.2 million in 2010, $2.0 million in 2009 and $29.0 million in 2008. The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Historically, Management has effectively entered into these transactions with the goal of enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to increase the total return associated with holding certain investment securities and do not qualify as hedges pursuant to accounting guidance. In 2010 and 2009, Management chose to engage in minimal covered call option activity due to lower than acceptable security yields. In 2008, the interest rate environment was conducive to entering into a significantly higher level of covered call option transactions. There were no outstanding call option contracts at December 31, 2010, December 31, 2009 or December 31, 2008.

Gain on bargain purchases totaled $44.2 million in 2010, a decrease of $111.8 million from the $156.0 million of bargain purchase gains recognized in 2009. In 2010, the gains on bargain purchases primarily resulted from three FDIC-assisted bank acquisitions as well as the acquisition of the life insurance premium finance receivable portfolio. In 2010, third party consents were received and all remaining funds held in escrow for the purchase of the life insurance premium finance receivable portfolio were released, resulting in recognition of the remaining deferred bargain purchase gain. The gain on bargain purchase of $156.0 million recognized in 2009 resulted from the acquisition of the life insurance premium finance receivable portfolio. See Note 8 — Business Combinations for a discussion of the transaction and gain calculation.

The Company recognized $5.2 million of trading gains in 2010, $26.8 million in 2009 and a trading loss of $134,000 in 2008. The decrease in trading gains in 2010 compared to 2009 resulted primarily from realizing larger market value increases in 2009 on certain collateralized mortgage obligations which were sold in July 2010. The Company purchased these securities at a significant discount in the first quarter of 2009. These securities increased in value after their purchase due to market spreads tightening, increased mortgage prepayments due to the favorable mortgage rate environment and lower than projected default rates.

Bank owned life insurance (“BOLI”) generated non-interest income of $2.4 million in 2010, $2.0 million in 2009 and $1.6 million in 2008. This income typically represents adjustments to the cash surrender value of BOLI policies. The Company initially purchased BOLI to consolidate existing term life insurance contracts of executive officers and to mitigate the mortality risk associated with death benefits provided for in executive employment contracts and in connection with certain deferred compensation arrangements. The Company has also assumed additional BOLI since then as the result of the acquisition of certain banks. The cash surrender value of BOLI totaled $92.2 million at December 31, 2010 and $89.0 million at December 31, 2009, and is included in other assets.

Administrative services revenue generated by Tricom was $2.7 million in 2010, $2.0 million in 2009 and $2.9 million in 2008. This revenue comprises income from administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States. Tricom also earns interest and fee income from providing high-yielding, short-term accounts receivable financing to this same client base, which is included in the net interest income category.

Miscellaneous other non-interest income totaled $13.8 million in 2010, $10.6 million in 2009 and $6.9 million in 2008. Miscellaneous income includes loan servicing fees, service charges, swap fees and other fees. The increase in miscellaneous other income in recent years can be primarily attributed to increases in ATM fees and swap fees.

### Non-Interest Expense

Non-interest expense totaled $382.5 million in 2010, and increased $38.4 million, or 11%, compared to 2009. In 2009, non-interest expense totaled $344.1 million, and increased $87.9 million, or 34%, compared to 2008.

The following table presents non-interest expense by category for 2010, 2009 and 2008 (in thousands):

| Salaries and employee benefits: | Years ended December 31, 2010 | 2009 | 2008 | 2010 compared to 2009 $ Change | % Change | 2009 compared to 2008 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries | **$120,210** | 108,847 | 95,172 | **$11,363** | **10%** | $13,675 | 14% |
| Commissions and bonus | **58,107** | 45,503 | 23,055 | **12,604** | **28** | 22,448 | 97 |
| Benefits | **37,449** | 32,528 | 26,860 | **4,921** | **15** | 5,668 | 21 |
| Total salaries and employee benefits | **215,766** | 186,878 | 145,087 | **28,888** | **15** | 41,791 | 29 |
| Equipment | **16,529** | 16,119 | 16,215 | **410** | **3** | (96) | (1) |
| Occupancy, net | **24,444** | 23,806 | 22,918 | **638** | **3** | 888 | 4 |
| Data processing | **15,355** | 12,982 | 11,573 | **2,373** | **18** | 1,409 | 12 |
| Advertising and marketing | **6,315** | 5,369 | 5,351 | **946** | **18** | 18 | — |
| Professional fees | **16,394** | 13,399 | 8,824 | **2,995** | **22** | 4,575 | 52 |
| Amortization of other intangible assets | **2,739** | 2,784 | 3,129 | **(45)** | **(2)** | (345) | (11) |
| FDIC Insurance | **18,028** | 21,199 | 5,600 | **(3,171)** | **(15)** | 15,599 | 279 |
| OREO expenses, net | **19,331** | 18,963 | 2,023 | **368** | **2** | 16,940 | NM |
| Other: |  |  |  |  |  |  |  |
| Commissions - 3rd party brokers | **4,003** | 3,095 | 3,769 | **908** | **29** | (674) | (18) |
| Postage | **4,813** | 4,833 | 4,120 | **(20)** | **—** | 713 | 17 |
| Stationery and supplies | **3,374** | 3,189 | 3,005 | **185** | **6** | 184 | 6 |
| Miscellaneous | **35,434** | 31,471 | 24,549 | **3,963** | **13** | 6,922 | 28 |
| Total other | **47,624** | 42,588 | 35,443 | **5,036** | **12** | 7,145 | 20 |
| Total non-interest expense | **$382,525** | 344,087 | 256,163 | **$38,438** | **11%** | $87,924 | 34% |

#### NM — Not Meaningful

Salaries and employee benefits is the largest component of non-interest expense, accounting for 56% of the total in 2010, 54% of the total in 2009 and 57% in 2008. For the year ended December 31, 2010, salaries and employee benefits totaled $215.8 million and increased $28.9 million, or 15%, compared to 2009. This increase can be attributed to a $12.6 million increase in commissions and bonus as variable pay based revenue increased (primarily wealth management revenue and mortgage banking revenue from gains on loans sold), an $11.4 million increase in salaries resulting from additional employees from the three FDIC-assisted transactions and larger staffing as the company grows, and a $4.9 million increase in employee benefits (primarily health plan related). For the year ended December 31, 2009, salaries and employee benefits totaled $186.9 million, and increased $41.8 million, or 29%, compared to 2008. Salaries and employee benefits increased in 2009 as compared to 2008 as a result of a $22.4 million increase in commissions and bonus, a $13.7 million increase in salaries and a $5.7 million increase in employee benefits. Specifically, WMC accounted for approximately $22.0 million of the increase in variable pay commissions and bonus and approximately $10.0 million of the increase in salaries, both primarily due to the increase in mortgage origination volumes and the impact of the PMP transaction.

Equipment expense, which includes furniture, equipment and computer software, depreciation and repairs and maintenance costs, totaled $16.5 million in 2010, $16.1 million in 2009 and $16.2 million in 2008, reflecting an increase of 3% in 2010 and a decrease of 1% in 2009.

Occupancy expense for the years 2010, 2009 and 2008 was $24.4 million, $23.8 million and $22.9 million, respectively, reflecting increases of 3% in 2010 and 4% in 2009. Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for leased premises. The increase in 2010 is primarily the result of rent expense on additional leased premises and depreciation on owned locations which were obtained in the three FDIC-asssisted acqusitions.

Data processing expenses totaled $15.4 million in 2010, $13.0 million in 2009 and $11.6 million in 2008, representing increases of 18% in 2010 and 12% in 2009. The increases are primarily due to the overall growth of loan and deposit accounts as well as additional expenses incurred for FDIC-assisted transactions in 2010.

Advertising and marketing expenses totaled $6.3 million for 2010, $5.4 million for 2009 and $5.4 million for 2008. Marketing costs are necessary to promote the Company’s commercial banking capabilities, the Company’s MaxSafe® suite of products, to announce new branch openings as well as the expansion of the wealth management business, to continue to promote community-based products and to attract loans and deposits. The level of marketing expenditures depends on the type of marketing programs utilized which are determined based on the market area, targeted audience, competition and various other factors. Management continues to utilize mass market media promotions as well as targeted marketing programs in certain market areas.

Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. These fees totaled $16.4 million in 2010, $13.4 million in 2009 and $8.8 million in 2008. The increases for 2010 and 2009 are primarily related to increased legal costs related to non-performing assets and acquisition related activities.

Amortization of other intangibles assets relates to the amortization of core deposit premiums and customer list intangibles established in connection with certain business combinations. See Note 9 of the Consolidated Financial Statements for further information on these intangible assets.

FDIC insurance totaled $18.0 million in 2010, $21.2 million in 2009 and $5.6 million in 2008. The decrease in 2010 compared to 2009 is a result of an industry-wide special assessment imposed on financial institutions by the FDIC in the second quarter of 2009. Additionally, on December 30, 2009, FDIC insured institutions were required to prepay 13 quarters of estimated deposit insurance premiums. The Company recorded the prepaid deposit insurance premiums as an asset and is expensing them over the three year assessment period.

OREO expenses include all costs associated with obtaining, maintaining and selling other real estate owned properties. This expense was $19.3 million in 2010, $19.0 million in 2009, and $2.0 million in 2008. While relatively unchanged in 2010 compared to 2009, OREO expenses increased significantly in 2009 compared to 2008 due to the declining real estate market which resulted in a higher number of OREO properties as well as losses on sales of OREO properties.

Commissions paid to third party brokers primarily represent the commissions paid on revenue generated by WHI through its network of unaffiliated banks. The increase in this expense corresponds with the increase in brokerage revenue.

Miscellaneous non-interest expense includes ATM expenses, correspondent banking charges, directors’ fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions and lending origination costs that are not deferred. This category increased $4.0 million, or 13%, in 2010 and increased $6.9 million, or 28%, in 2009. The increase in 2010 compared to 2009 is mainly attributable to the general growth in the Company’s business. The increase in 2009 compared to 2008 is primarily attributable to increased loan expenses related to mortgage banking activities, a higher level of problem loan expenses and general growth in the Company’s business.

### Income Taxes

The Company recorded income tax expense of $37.5 million in 2010, *$44.4* million in 2009 and $10.2 million in 2008. The effective tax rates were 37.2%, 37.8% and 33.1% in 2010, 2009 and 2008, respectively. The lower effective tax rate in 2008 compared to 2009 and 2010 is primarily a result of a lower level of pre-tax net income in 2008 relative to tax-advantaged earnings than in 2009 and 2010. Please refer to Note 18 to the Consolidated Financial Statements for further discussion and analysis of the Company’s tax position, including a reconciliation of the tax expense computed at the statutory tax rate to the Company’s actual tax expense.

### Operating Segment Results

As described in Note 25 to the Consolidated Financial Statements, the Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. The net interest income of the community banking segment includes interest income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. (See “wealth management deposits” discussion in the Deposits and Other Funding Sources section of this report for more information on these deposits.)

The community banking segment’s net interest income for the year ended December 31, 2010 totaled $386.6 million as compared to $300.6 million for the same period in 2009, an increase of $86.0 million, or 29%. The increase in 2010 compared to 2009 was primarily attributable to the three FDIC-assisted bank acquisitions and the ability to gather interest-bearing deposits at more reasonable rates. The increase in net interest income in 2009 when compared to the total of $237.4 million in 2008 was $63.2 million, or 27%. The increase in 2009 compared to 2008 was primarily attributable to the acquisition of the life insurance premium finance portfolio and lower costs of interest-bearing deposits. Total loans, excluding covered loans, increased 5% in 2010, and 18% in 2009. Provision for credit losses decreased to $105.0 million in 2010 compared to $165.3 million in 2009 and $56.6 million in 2008. Provision for credit losses decreased in 2010 compared to 2009 because of improved credit quality ratios in 2010. The community banking segment’s non-interest income totaled $133.1 million in 2010, an increase of $40.5 million, or *44%,* when compared to the 2009 total of $92.6 million. This increase was primarily attributable to bargain purchase gains from the three FDIC-assisted acquisitions. In 2009, non-interest income for the community banking segment increased $21.4 million, or 30% when compared to the 2008 total of $71.2 million. This increase was primarily attributable to an increase in mortgage banking revenue offset by lower levels of fees from covered call options. The community banking segment’s net income for the year ended December 31, 2010 totaled $71.4 million, an increase of $97.3 million, compared to a net loss of $25.9 million in 2009. Net loss for the year ended December 31, 2009 of $25.9 million was a $63.9 million decrease in net income as compared to net income in 2008 of $38.0 million.

The specialty finance segment’s net interest income totaled $89.9 million for the year ended December 31, 2010, an increase of $20.0 million, or 29%, over the $69.9 million in 2009. The decrease in net interest income in 2009 when compared to the total of $74.3 million in 2008 was *$4.4* million, or 6%. The specialty finance segment’s non-interest income totaled $13.6 million for the year ended December 31, 2010 and decreased $148.5 million from the $162.1 million in 2009. The decrease in non-interest income in 2010 is primarily a result of the bargain purchase gain recognized in 2009 from the acquisition of the life insurance premium finance receivable portfolio and the gains recognized on the securitization of commercial premium finance receivables. See the “Overview and Strategy – Specialty Finance” section of this report and Note 8 of the Consolidated Financial Statements for a discussion of the bargain purchase. Net after-tax profit of the specialty finance segment totaled $45.6 million, $120.4 million and $34.9 million for the years ended December 31, 2010, 2009 and 2008, respectively. The decrease in net income in 2010 compared to 2009 is a result of the life insurance premium finance receivable bargain purchase gain in 2009 and, in the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, which increased the provision for credit losses by $15.7 million.

The wealth management segment reported net interest income of $12.3 million for 2010 and 2009 compared to $10.4 million for 2008. Net interest income is comprised of the net interest earned on brokerage customer receivables at WHI and an allocation of a portion of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks. The allocated net interest income included in this segment’s profitability was $11.8 million ($7.3 million after tax) in 2010, $11.8 million ($7.3 million after tax) in 2009 and $9.4 million ($5.9 million after tax) in 2008. The increase in 2009 compared to 2008 is mainly due to the equity market improvements that have helped revenue growth from trust and asset management activities. During the fourth quarter of 2009, the contribution attributable to the wealth management deposits was redefined to measure the value as an alternative source of funding for each bank. In previous periods, the contribution from these deposits was measured as the full net interest income contribution. The redefined measure better reflects the value of these deposits to the Company.

Wealth management customer account balances on deposit at the banks averaged $617.4 million, $634.4 million and $624.4 million in 2010, 2009 and 2008, respectively. This segment recorded non-interest income of $45.4 million for 2010 as compared to $38.3 million for 2009 and $36.3 million for 2008. Distribution of wealth management services through each bank continues to be a focus of the Company as the number of brokers in its banks continues to increase. Wintrust is committed to growing the wealth management segment in order to better service its customers and create a more diversified revenue stream. This segment reported net income of $6.9 million for 2010 compared to $5.6 million for 2009 and $5.3 million for 2008.

### ANALYSIS OF FINANCIAL CONDITION

Total assets were $14.0 billion at December 31, 2010, representing an increase of $1.8 billion, or 14%, when compared to December 31, 2009. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $12.4 billion at December 31, 2010 and $10.9 billion at December 31, 2009. See Notes 3, 4, and 11 through 15 of the Consolidated Financial Statements for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

### Interest-Earning Assets

The following table sets forth, by category, the composition of average earning assets and the relative percentage of each category to total average earning assets for the periods presented (dollars in thousands):

| Loans: | Years Ended December 31, 2010 Average Balance | Percent of Total | 2009 Average Balance | Percent of Total | 2008 Average Balance | Percent of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$1,828,897** | **15%** | $1,584,868 | 15% | $1,359,600 | 15% |
| Commercial real estate | **3,332,850** | **27** | 3,405,136 | 33 | 3,220,924 | 37 |
| Home equity | **922,907** | **7** | 919,233 | 9 | 772,361 | 9 |
| Residential real estate (1) | **587,629** | **5** | 503,910 | 5 | 335,714 | 4 |
| Premium finance receivables (2) | **2,622,935** | **21** | 1,653,786 | 16 | 1,178,421 | 13 |
| Indirect consumer loans | **70,295** | **1** | 134,757 | 1 | 215,453 | 2 |
| Other loans | **108,076** | **1** | 133,731 | 1 | 163,136 | 2 |
| Total loans, net of unearned income excluding covered loans (3) | **9,473,589** | **77** | 8,335,421 | 80 | 7,245,609 | 82 |
| Covered loans | **232,206** | **2** | **—** | **—** | **—** | **—** |
| Total loans, net of unearned income (3) | **9,705,795** | **79** | 8,335,421 | 80 | 7,245,609 | 82 |
| Liquidity management assets (4) | **2,654,013** | **21** | 2,086,653 | 20 | 1,532,282 | 18 |
| Other earning assets (5) | **45,021** | **—** | 23,979 | — | 23,052 | — |
| Total average earning assets | **$12,404,829** | **100%** | $10,446,053 | 100% | $8,800,943 | 100% |
| Total average assets | **$13,556,612** |  | $11,415,322 |  | $9,753,220 |  |
| Total average earning assets to total average assets |  | **92%** |  | 92% |  | 90% |

#### (1) Includes mortgage loans held-for-sale

#### (2) Includes premium finance receivables held-for-sale

#### (3) Includes mortgage loans held-for-sale, premium finance receivables held-for-sale and non-accrual loans

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

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

Average earning assets increased $2.0 billion, or 19%, in 2010 and $1.6 billion, or 19%, in 2009. Average earning assets comprised 92% of average total assets in 2010 and 2009, and 90% of average total assets in 2008.

*Loans.* Average total loans, net of unearned income, totaled $9.7 billion and increased $1.4 billion, or 16%, in 2010 and $1.1 billion, or 15%, in 2009. Average commercial loans totaled $1.8 billion in 2010, and increased $244.0 million, or 15%, over the average balance in 2009, while average commercial real estate loans totaled $3.3 billion in 2010, slightly decreasing $72.3 million, or 2%, since 2009. From 2008 to 2009, average commercial loans increased $225.3 million, or 17%, while average commercial real estate loans increased $184.2 million, or 6%. The growth realized in these categories for 2010 and 2009 is primarily attributable to increased business development efforts. Combined, these categories comprised 42% of the average loan portfolio in 2010 and 48% in 2009.

Home equity loans averaged $922.9 million in 2010, and increased $3.7 million, or 0.4%, when compared to the average balance in 2009. Home equity loans averaged $919.2 million in 2009, and increased $146.9 million, or 19%, when compared to the average balance in 2008. Unused commitments on home equity lines of credit totaled $829.9 million at December 31, 2010 and $854.2 million at December 31, 2009. The 19% increase in average home equity loans in 2009 was primarily a result of new loan originations and borrowers exhibiting a greater propensity to borrow on their existing lines of credit. As a result of economic conditions, the Company has been actively managing its home equity portfolio to ensure that diligent pricing, appraisal and other underwriting activities continue to exist.

Residential real estate loans averaged $587.6 million in 2010, and increased $83.7 million, or 17%, from the average balance in 2009. In 2009, residential real estate loans averaged $503.9 million, and increased $168.2 million, or 50%, from the average balance of $335.7 million in 2008. This category includes mortgage loans held-for-sale. By selling residential mortgage loans into the secondary market, the Company eliminates the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provides a source of non-interest revenue. The majority of the increase in residential mortgage loans in the last two years is a result of higher mortgage loan originations. The increase in originations resulted from the interest rate environment and the positive impact of the PMP transaction, completed at the end of 2008.

Average premium finance receivables totaled $2.6 billion in 2010, and accounted for 21% of the Company’s average total loans. In 2010, average premium finance receivables increased $969.1 million, or 59%, from the average balance of $1.7 billion in 2009. In 2009, average premium finance receivables increased $475.4 million, or 40%, compared to 2008. The increase in the average balance of premium finance receivables in 2010 is a result of recording the securitization receivables on the statement of condition effective January 1, 2010 and significant originations within the portfolio during the period. The increase in the average balance of premium finance receivables in 2009 compared to 2008 is primarily a result of FIFC’s purchase of a portfolio of domestic life insurance premium finance loans in 2009 with a fair value of $910.9 million. Historically, the majority of premium finance receivables, commercial and life insurance, were purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. FIFC originations of commercial premium finance receivables that were not purchased by the banks were typically sold to unrelated third parties with servicing retained. During the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such commercial premium finance receivables in a securitization transaction sponsored by FIFC. Under the terms of the securitization, FIFC has the right, but not the obligation, to securitize additional receivables in the future and is responsible for the servicing, administration and collection of securitized receivables and related security in accordance with FIFC’s credit and collection policy. FIFC’s obligations under the securitization are subject to customary covenants, including the obligation to file and amend financing statements; the obligation to pay costs and expenses; the obligation to indemnify other parties for its breach or failure to perform; the obligation to defend the right, title and interest of the transferee of the conveyed receivables against third party claims; the obligation to repurchase the securitized receivables if certain representations fail to be true and correct and receivables are materially and adversely affected thereby; the obligation to maintain its corporate existence and licenses to operate; and the obligation to qualify the securitized notes under the securities laws. In the event of a default by FIFC under certain of these obligations, the ability to add loans to securitization facility could terminate.

Indirect consumer loans are comprised primarily of automobile loans originated at Hinsdale Bank. These loans are financed from networks of unaffiliated automobile dealers located throughout the Chicago metropolitan area with which the Company had established relationships. The risks associated with the Company’s portfolios are diversified among many individual borrowers. Like other consumer loans, the indirect consumer loans are subject to the banks’ established credit standards. Management regards substantially all of these loans as prime quality loans. In the third quarter of 2008, as a result of competitive pricing pressures, the Company ceased the origination of indirect automobile loans through Hinsdale Bank. However, as a result of current favorable pricing opportunities coupled with reduced competition in the indirect consumer automobile lending business, the Company re-entered this business with originations through Hinsdale Bank in the fourth quarter of 2010. At December 31, 2010, the average maturity of indirect automobile loans is estimated to be approximately 27 months. During 2010, 2009 and 2008 average indirect consumer loans totaled $70.3 million, $134.8 million and $215.5 million, respectively.

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

Covered loans represent loans acquired in FDIC-assisted transactions in the second and third quarters of 2010. These loans are subject to loss sharing agreements with the FDIC. The FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, foreclosed real estate, and certain other assets. See Note 8 — Business Combinations for a discussion of these acquisitions.

*Liquidity Management Assets.* Funds that are not utilized for loan originations are used to purchase investment securities and short-term money market investments, to sell as federal funds and to maintain in interest-bearing deposits with banks. The balances of these assets fluctuate frequently based on deposit inflows, the level of other funding services and loan demand. Average liquidity management assets accounted for 21% of total average earning assets in 2010, 20% in 2009 and 18% in 2008. Average liquidity management assets increased $567.4 million in 2010 compared to 2009, and increased $554.4 million in 2009 compared to 2008. The balances of liquidity management assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes.

*Other earning assets.* Other earning assets include brokerage customer receivables and trading account securities at WHI. In the normal course of business, WHI activities involve the execution, settlement, and financing of various securities transactions. WHI’s customer securities activities are transacted on either a cash or margin basis. In margin transactions, WHI, under an agreement with the out-sourced securities firm, extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in customer’s accounts. In connection with these activities, WHI executes and the out-sourced firm clears customer transactions relating to the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose WHI to off-balance-sheet risk, particularly in volatile trading markets, in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event a customer fails to satisfy its obligations, WHI under an agreement with the outsourced securities firm, may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligations. WHI seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. WHI monitors required margin levels daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.

### Deposits and Other Funding Sources

The dynamics of community bank balance sheets are generally dependent upon the ability of management to attract additional deposit accounts to fund the growth of the institution. As the banks and branch offices are still relatively young, the generation of new deposit relationships to gain market share and establish themselves in the community as the bank of choice is particularly important. When determining a community to establish a *de novo* bank, the Company generally will enter a community where it believes the new bank can gain the number one or two position in deposit market share. This is usually accomplished by initially paying competitively high deposit rates to gain the relationship and then by introducing the customer to the Company’s unique way of providing local banking services.

*Deposits.* Total deposits at December 31, 2010, were $10.8 billion, increasing $886.6 million, or 9%, compared to the $9.9 billion at December 31, 2009. Average deposit balances in 2010 were $10.4 billion, reflecting an increase of $1.2 billion, or 13%, compared to the average balances in 2009. During 2009, average deposits increased $1.5 billion, or 20%, compared to the prior year.

The increase in year end and average deposits in 2010 over 2009 reflects the Company’s efforts to increase its deposit base. During 2010, **a** majority of the increase can be attributed to the Company’s acqusitions including approximately $400 million of deposits in the Wheatland acquisition, approximately $160 million of deposits in the Lincoln Park acquisition and approximately $120 million of deposits in the Ravenswood acquisition.

The following table presents the composition of average deposits by product category for each of the last three years (dollars in thousands):

|  | Years Ended December 31, 2010 Average Balance | Percent of Total | 2009 Average Balance | Percent of Total | 2008 Average Balance | Percent of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Non-interest bearing deposits | **$984,416** | **9%** | $788,034 | 9% | $672,924 | 9% |
| NOW accounts | **1,508,063** | **15** | 1,136,008 | 12 | 1,011,402 | 13 |
| Wealth management deposits | **734,837** | **7** | 907,013 | 10 | 622,842 | 8 |
| Money market accounts | **1,666,554** | **16** | 1,375,767 | 15 | 904,245 | 12 |
| Savings accounts | **619,024** | **6** | 457,139 | 5 | 319,128 | 4 |
| Time certificates of deposit | **4,881,472** | **47** | 4,543,154 | 49 | 4,156,600 | 54 |
| Total deposits | **$10,394,366** | **100%** | $9,207,115 | 100% | $7,687,141 | 100% |

Wealth management deposits are funds from the brokerage customers of WHI, the trust and asset management customers of CTC and brokerage customers from unaffiliated companies which have been placed into deposit accounts (primarily money market accounts) of the banks (“wealth management deposits” in table above). Average wealth management deposits decreased $172.2 million in 2010, of which $157.0 million was attributable to brokerage customers from unaffiliated companies. Consistent with reasonable interest rate risk parameters, the funds have generally been invested in loan production of the banks as well as other investments suitable for banks.

The following table presents average deposit balances for each Bank and the relative percentage of total consolidated average deposits held by each Bank during each of the past three years (dollars in thousands):

|  | Years Ended December 31, 2010 Average Balance | Percent of Total | 2009 Average Balance | Percent of Total | 2008 Average Balance | Percent of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Lake Forest Bank | **$1,411,511** | **14%** | $1,146,196 | 12% | $1,046,069 | 14% |
| Hinsdale Bank | **1,116,568** | **11** | 1,086,748 | 12 | 949,658 | 12 |
| North Shore Bank | **1,136,925** | **11** | 980,079 | 11 | 768,081 | 10 |
| Libertyville Bank | **904,783** | **9** | 882,366 | 10 | 781,708 | 10 |
| Barrington Bank | **886,261** | **8** | 776,009 | 8 | 694,471 | 9 |
| Northbrook Bank | **845,114** | **8** | 692,329 | 8 | 570,401 | 7 |
| Village Bank | **634,211** | **6** | 592,043 | 6 | 463,433 | 6 |
| Town Bank | **595,454** | **6** | 571,568 | 6 | 483,331 | 6 |
| Wheaton Bank | **593,409** | **6** | 353,845 | 4 | 268,174 | 4 |
| State Bank of The Lakes | **562,418** | **5** | 546,774 | 6 | 467,857 | 6 |
| Crystal Lake Bank | **555,920** | **5** | 536,091 | 6 | 469,022 | 6 |
| Advantage Bank | **370,890** | **4** | 353,938 | 4 | 286,722 | 4 |
| Beverly Bank | **297,878** | **3** | 246,474 | 3 | 169,732 | 2 |
| Old Plank Trail Bank | **257,336** | **2** | 248,121 | 3 | 166,675 | 2 |
| St. Charles Bank | **225,688** | **2** | 194,534 | 1 | 101,807 | 2 |
| Total deposits | **$10,394,366** | **100%** | $9,207,115 | 100% | $7,687,141 | 100% |
| Percentage increase from prior year |  | **13%** |  | 20% |  | 5% |

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

The composition of average other funding sources in 2010, 2009 and 2008 is presented in the following table (dollars in thousands):

|  | Years Ended December 31, 2010 Average Balance | Percent of Total | 2009 Average Balance | Percent of Total | 2008 Average Balance | Percent of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Notes payable | **$1,000** | **—%** | $1,000 | —% | $50,799 | 4% |
| Federal Home Loan Bank advances | **418,981** | **27** | 434,520 | 43 | 435,761 | 38 |
| Subordinated notes | **56,370** | **4** | 66,205 | 7 | 74,589 | 7 |
| Secured borrowings — owed to securitization investors | **600,000** | **39** | — | — | — | — |
| Short-term borrowings | **226,028** | **14** | 255,504 | 25 | 334,714 | 29 |
| Junior subordinated debentures | **249,493** | **16** | 249,497 | 25 | 249,575 | 22 |
| Other | **2,541** | **—** | 1,818 | — | 1,863 | — |
| Total other funding sources | **$1,554,413** | **100%** | $1,008,544 | 100% | $1,147,301 | 100% |

59

Notes payable balances represent the balances on a credit agreement with an unaffiliated bank. This $51 million credit facility is available for corporate purposes such as to provide capital to fund continued growth at existing bank subsidiaries, possible future acquisitions and for other general corporate matters. At December 31, 2010 and 2009, the Company had $1.0 million of notes payable outstanding. See Note 12 to the Consolidated Financial Statements for further discussion of the terms of this credit facility.

FHLB advances provide the banks with access to fixed rate funds which are useful in mitigating interest rate risk and achieving an acceptable interest rate spread on fixed rate loans or securities. FHLB advances to the banks totaled $423.5 million at December 31, 2010, and $431.0 million at December 31, 2009. See Note 13 to the Consolidated Financial Statements for further discussion of the terms of these advances.

The Company borrowed $75.0 million under three separate $25.0 million subordinated note agreements. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year of the note and has terms of ten years with final maturity dates in 2012, 2013 and 2015. These notes qualify as Tier II regulatory capital. Subordinated notes totaled $50.0 million and $60.0 million at December 31, 2010 and 2009, respectively. See Note 14 to the Consolidated Financial Statements for further discussion of the terms of the notes.

Beginning in 2010, the Company accounted for its third quarter 2009 securitization transaction as a secured borrowing. Secured borrowings totaled $600.0 million at December 31, 2010 and $0 at December 31, 2009. See Note 6 to the Consolidated Financial Statements for further discussion.

Short-term borrowings include securities sold under repurchase agreements and federal funds purchased. These borrowings totaled $217.3 million and $245.6 million at December 31, 2010 and 2009, respectively. Securities sold under repurchase agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks as well as short-term borrowings from banks and brokers. This funding category fluctuates based on customer preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries. See Note 15 to the Consolidated Financial Statements for further discussion of these borrowings.

The Company has $249.5 million of junior subordinated debentures outstanding as of December 31, 2010 and 2009. The amounts reflected on the balance sheet represent the junior subordinated debentures issued to nine trusts by the Company and equal the amount of the preferred and common securities issued by the trusts. See Note 16 of the Consolidated Financial Statements for further discussion of the Company’s junior subordinated debentures. Junior subordinated debentures, subject to certain limitations, currently qualify as Tier 1 regulatory capital. Interest expense on these debentures is deductible for tax purposes, resulting in a cost-efficient form of regulatory capital.

Debt issued by the Company in conjunction with its tangible equity unit offering in December 2010 is recorded within other borrowings. The total proceeds attributed to the debt component of the offering, net of issuance costs, was $43.3 million. See Note 24 to the Consolidated Financial Statements for further discussion of these units.

*Shareholders’ Equity*. Total shareholders’ equity was $1.4 billion at December 31, 2010, an increase of $297.9 million from the December 31, 2009 total of $1.1 billion. The increase in 2010 was primarily the result of $494.4 million from the issuance of common stock and tangible equity units in March and December of 2010, $42.1 million of earnings (net income of $63.3 million less preferred and common stock dividends of $21.2 million), offset by a reduction in preferred stock of $250.0 million.

Changes in shareholders’ equity from 2008 to 2009 included approximately $50.0 million of earnings (net income of $73.1 million less preferred stock dividends of $16.6 million and common stock dividends of $6.5 million), $11.7 million increase from the issuance of shares of the Company’s common stock (and related tax benefit) pursuant to various stock compensation plans and $6.9 million credited to surplus for stock-based compensation costs, and $4.0 million in net unrealized gains from available-for-sale securities and cash flow hedges, net of tax.

### LOAN PORTFOLIO AND ASSET QUALITY

### Loan Portfolio

The following table shows the Company’s loan portfolio by category as of December 31 for each of the five previous fiscal years (in thousands):

|  | 2010 Amount | % of Total | 2009 Amount | % of Total | 2008 Amount | % of Total | 2007 Amount | % of Total | 2006 Amount | % of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$2,049,326** | **21%** | 1,743,209 | 21 | 1,423,583 | 19 | 1,321,960 | 20 | 1,300,221 | 20 |
| Commercial real estate | **3,338,007** | **34** | 3,296,697 | 39 | 3,355,081 | 44 | 3,086,701 | 45 | 2,768,216 | 43 |
| Home equity | **914,412** | **9** | 930,482 | 11 | 896,438 | 12 | 678,298 | 10 | 666,471 | 10 |
| Residential real estate | **353,336** | **3** | 306,296 | 4 | 262,908 | 3 | 226,686 | 3 | 207,059 | 35 |
| Premium finance receivables — commercial | **1,265,500** | **13** | 730,144 | 9 | 1,243,858 | 16 | 1,069,781 | 16 | 1,165,846 | 18 |
| Premium finance receivables — life insurance | **1,521,886** | **15** | 1,197,893 | 14 | 102,728 | 2 | 8,404 | — | — | — |
| Indirect consumer loans | **51,147** | **1** | 98,134 | 1 | 175,955 | 2 | 241,393 | 4 | 249,534 | 4 |
| Consumer and other | **106,272** | **1** | 108,916 | 1 | 160,518 | 2 | 168,379 | 2 | 139,133 | 2 |
| Total loans, net of unearned income, excluding covered loans | **$9,599,886** | **97%** | 8,411,771 | 100 | 7,621,069 | 100 | 6,801,602 | 100 | 6,496,480 | 100 |
| Covered loans | **334,353** | **3** | — | — | — | — | — | — | — | — |
| Total loans, net of unearned income | **$9,934,239** | **100%** | 8,411,771 | 100 | 7,621,069 | 100 | 6,801,602 | 100 | 6,496,480 | 100 |

61

The tables below set forth information regarding the types, amounts and performance of our loans within the commercial and commercial real estate portfolios as of December 31, 2010 and 2009:

*(Dollars in thousands)*

| As of December 31, 2010 Commercial: | Balance | % of Total Loans | Non- accrual | \>90 Days Past Due and still accruing | Allowance for Loan Losses Allocation |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $1,653,394 | 17.2% | $16,339 | $478 | $28,316 |
| Franchise | 119,488 | 1.2 | — | — | 1,153 |
| Mortgage warehouse lines of credit | 131,306 | 1.4 | — | — | 1,177 |
| Community Advantage — homeowner associations | 75,542 | 0.8 | — | — | 323 |
| Aircraft | 24,618 | 0.3 | — | — | 315 |
| Other | 44,978 | 0.5 | 43 | — | 493 |
| **Total Commercial** | **$2,049,326** | **21.4%** | **$16,382** | **$478** | **$31,777** |
| **Commercial Real Estate:** |  |  |  |  |  |
| Residential construction | $95,947 | 1.0% | $10,010 | $— | $2,597 |
| Commercial construction | 131,672 | 1.4 | 1,820 | — | 4,035 |
| Land | 260,189 | 2.7 | 37,602 | — | 14,261 |
| Office | 535,331 | 5.6 | 12,718 | — | 8,005 |
| Industrial | 500,301 | 5.2 | 3,480 | — | 5,213 |
| Retail | 510,527 | 5.3 | 3,265 | — | 5,985 |
| Multi-family | 290,954 | 3.0 | 4,794 | — | 5,479 |
| Mixed use and other | 1,013,086 | 10.6 | 20,274 | — | 17,043 |
| **Total Commercial Real Estate Loans** | **$3,338,007** | **34.8%** | **$93,963** | **$—** | **$62,618** |
| **Total Commercial and Commercial Real Estate** | **$5,387,333** | **56.2%** | **$110,345** | **$478** | **$94,395** |
| **Commercial Real Estate—collateral location by state:** |  |  |  |  |  |
| Illinois | $2,695,581 | 80.8% |  |  |  |
| Wisconsin | 356,696 | 10.7 |  |  |  |
| **Total primary markets** | **$3,052,277** | **91.5%** |  |  |  |
| Florida | 52,457 | 1.6 |  |  |  |
| Arizona | 42,100 | 1.3 |  |  |  |
| Indiana | 47,828 | 1.4 |  |  |  |
| Other (no individual state greater than 0.5%) | 143,345 | 4.2 |  |  |  |
| **Total** | **$3,338,007** | **100.0%** |  |  |  |

*(Dollars in thousands)*

| As of December 31, 2009 Commercial: | Balance | % of Total Loans | Non- accrual | \>90 Days Past Due and still accruing | Allowance for Loan Losses Allocation |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $1,361,225 | 16.2% | $15,094 | $561 | $22,579 |
| Franchise | 133,953 | 1.6 | — | — | 2,118 |
| Mortgage warehouse lines of credit | 121,781 | 1.4 | — | — | 1,643 |
| Community Advantage — homeowner associations | 67,086 | 0.8 | — | — | 161 |
| Aircraft | 41,654 | 0.5 | — | — | 167 |
| Other | 17,510 | 0.2 | 1,415 | — | 1,344 |
| **Total Commercial** | **$1,743,209** | **20.7%** | **$16,509** | **$561** | **$28,012** |
| **Commercial Real Estate:** |  |  |  |  |  |
| Residential construction | $174,423 | 2.1% | $14,065 | $— | $5,065 |
| Commercial construction | 308,580 | 3.5 | 5,232 | — | 6,304 |
| Land | 326,720 | 3.9 | 41,297 | — | 12,228 |
| Office | 467,587 | 5.6 | 2,675 | — | 5,221 |
| Industrial | 444,891 | 5.3 | 3,753 | — | 5,612 |
| Retail | 452,760 | 5.4 | 431 | — | 4,959 |
| Multi-family | 241,710 | 2.9 | 288 | — | 1,565 |
| Mixed use and other | 880,026 | 10.5 | 12,898 | — | 9,998 |
| **Total Commercial Real Estate Loans** | **$3,296,697** | **39.2%** | **$80,639** | **$—** | **$50,952** |
| **Total Commercial and Commercial Real Estate** | **$5,039,906** | **59.9%** | **$97,148** | **$561** | **$78,964** |
| **Commercial Real Estate—collateral location by state:** |  |  |  |  |  |
| Illinois | $2,641,291 | 80.1% |  |  |  |
| Wisconsin | 366,862 | 11.1 |  |  |  |
| **Total primary markets** | **$3,008,153** | **91.2%** |  |  |  |
| Florida | 45,655 | 1.4 |  |  |  |
| Arizona | 46,257 | 1.4 |  |  |  |
| Indiana | 46,099 | 1.4 |  |  |  |
| Other (no individual state greater than 0.9%) | 150,533 | 4.6 |  |  |  |
| **Total** | **$3,296,697** | **100.0%** |  |  |  |

62

Our commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the property. Since most of our bank branches are located in the Chicago metropolitan area and southeastern Wisconsin, 91.5% of our commercial real estate loan portfolio is located in this region. Commercial real estate market conditions continued to be under stress in 2010, and we expected this trend to continue. As of December 31, 2010, our allowance for loan losses related to this portfolio is $62.6 million.

We make commercial loans for many purposes, including: working capital lines, which are generally renewable annually and supported by business assets, personal guarantees and additional collateral; loans to condominium and homeowner associations originated through Barrington Bank’s Community Advantage program; small aircraft financing, an earning asset niche developed at Crystal Lake Bank; and franchise lending at Lake Forest Bank. Commercial business lending is generally considered to involve a higher degree of risk than traditional consumer bank lending, and as a result of the economic recession, allowance for loan losses in our commercial loan portfolio is $31.8 million as of December 31, 2010. The Company also participates in mortgage warehouse lending by providing interim funding to unaffiliated mortgage bankers to finance residential mortgages originated by such bankers for sale into the secondary market. The Company’s loans to the mortgage bankers are secured by the business assets of the mortgage companies as well as the specific mortgage loans funded by the Company, after they have been pre-approved for purchase by third party end lenders. End lender re-payments are sent directly to the Company upon end-lenders’ acceptance of final loan documentation. The Company may also provide interim financing for packages of mortgage loans on a bulk basis in circumstances where the mortgage bankers desire to competitively sell a number of mortgages as a package in the secondary market. Typically, the Company will serve as sole funding source for its mortgage warehouse lending customers under short-term revolving credit agreements. Amounts advanced with respect to any particular mortgage loan are usually required to be repaid within 21 days.

Despite poor economic conditions generally, and the particularly difficult conditions in the U.S. residential real estate market experienced since 2008, our mortgage warehouse lending business has expanded due to the high demand for mortgage re-financings given the historically low interest rate environment and the fact that many of our competitors exited the market in late 2008 and early 2009. The expansion of this business has caused our mortgage warehouse lines to increase to $131.3 million as of December 31, 2010 from $121.8 million as of December 31, 2009. Our allowance for loan losses with respect to these loans is $1.2 million as of December 31, 2010. Since the inception of this business, the Company has not suffered any related loan losses on these loans.

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

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

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

*Residential real estate mortgages.* Our residential real estate portfolio predominantly includes one- to four-family adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. As of December 31, 2010, our residential loan portfolio totaled $353.3 million, or 3% of our total outstanding loans.

Our adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southeastern Wisconsin or vacation homes owned by local residents, and may have terms based on differing indexes. These adjustable rate mortgages are often non-agency conforming because the outstanding balance of these loans exceeds the maximum balance that can be sold into the secondary market. Adjustable rate mortgage loans decrease the interest rate risk we face on our mortgage portfolio. However, this risk is not eliminated because, among other things, such loans generally provide for periodic and lifetime limits on the interest rate adjustments. Additionally, adjustable rate mortgages may pose a higher risk of delinquency and default because they require borrowers to make larger payments when interest rates rise. To date, we have not seen a significant elevation in delinquencies and foreclosures in our residential loan portfolio. As of December 31, 2010, $6.1 million of our residential real estate mortgages, or 1.7% of our residential real estate loan portfolio, were classified as nonaccrual, $10.1 million were 30 to 89 days past due (2.8%) and $337.2 million were current (95.5%). We believe that since our loan portfolio consists primarily of locally originated loans, and since the majority of our borrowers are longer-term customers with lower LTV ratios, we face a relatively low risk of borrower default and delinquency.

While we generally do not originate loans for our own portfolio with long-term fixed rates due to interest rate risk considerations, we can accommodate customer requests for fixed rate loans by originating such loans and then selling them into the secondary market, for which we receive fee income, or by selectively retaining certain of these loans within the banks’ own portfolios where they are non-agency conforming, or where the terms of the loans make them favorable to retain. A portion of the loans we sold into the secondary market were sold with the servicing of those loans retained. The amount of loans serviced for others as of December 31, 2010 and 2009 was $937.7 million and $738.4 million, respectively. All other mortgage loans sold into the secondary market were sold without the retention of servicing rights.

It is not our practice to underwrite, and we have no plans to underwrite, subprime, Alt A, no or little documentation loans, or option ARM loans. As of December 31, 2010, approximately $46.6 million of our mortgages consist of interest-only loans. To date, we have not participated in any mortgage modification programs.

*Premium finance receivables — commercial.* FIFC originated approximately $3.2 billion in commercial insurance premium finance receivables during 2010. FIFC makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by FIFC working through independent medium and large insurance agents and brokers located throughout the United States. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance.

This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending and because the borrowers are located nationwide, this segment is more susceptible to third party fraud than relationship lending. In the second quarter of 2010, a fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, increased both the Company’s net charge-offs and provision for credit losses by $15.7 million. Actions have been taken by the Company to decrease the likelihood of this type of loss from recurring in this line of business for the Company by the enhancement of various control procedures to mitigate the risks associated with this lending. The Company has conducted a thorough review of the premium finance — commercial portfolio and found no signs of similar situations.

The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. Historically, FIFC originations that were not purchased by the banks were sold to unrelated third parties with servicing retained. However, during the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such premium finance receivables in a securitization transaction sponsored by FIFC. Subsequent to December 31, 2009, this securitization transaction is accounted for as a secured borrowing and the securitization entity is treated as a consolidated subsidiary of the Company. See Note 6 of the Consolidated Financial Statements presented under Item 8 of this report for further discussion of this securitization transaction. Accordingly, beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statements of Condition.

*Premium finance receivables — life insurance.* In 2007, FIFC began financing life insurance policy premiums generally for high net-worth individuals. In 2009, FIFC expanded this niche lending business segment when it purchased a portfolio of domestic life insurance premium finance loans for a total aggregate purchase price of $745.9 million. See Note 8 of the Consolidated Financial Statements presented under Item 8 of this report for further discussion of this business combination.

FIFC originated approximately $456.5 million in life insurance premium finance receivables in 2010. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, FIFC may make a loan that has a partially unsecured position.

*Indirect consumer loans.* As part of its strategy to pursue specialized earning asset niches to augment loan generation within the banks’ target markets, the Company established fixed-rate automobile loan financing at Hinsdale Bank funded indirectly through unaffiliated automobile dealers. The risks associated with the Company’s portfolios are diversified among many individual borrowers. Like other consumer loans, the indirect consumer loans are subject to the banks’ established credit standards. Management regards substantially all of these loans as prime quality loans. In the third quarter of 2008, the Company, as a result of competitive pricing pressures, ceased the origination of indirect automobile loans through Hinsdale Bank. However, as a result of current favorable pricing opportunities coupled with reduced competition in the indirect consumer auto business, the Company re-entered this business in the fourth quarter of 2010 with originations through Hinsdale Bank. At December 31, 2010, the average actual maturity of indirect automobile loans is estimated to be approximately 27 months.

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

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

*Foreign.* The Company had no loans to businesses or governments of foreign countries at any time during 2010.

#### Maturities and Sensitivities of Loans to Changes In Interest Rates

The following table classifies the commercial loan portfolios at December 31, 2010 by date at which the loans reprice (in thousands):

|  | One year or less | From one to five years | Over five years | Total |
| --- | ---: | ---: | ---: | ---: |
| Commercial | $1,690,079 | 301,141 | 58,106 | 2,049,326 |
| Commercial real estate | 2,455,291 | 842,771 | 39,945 | 3,338,007 |
| Total premium finance receivables, net of unearned income (1) | 1,558,137 | — | 22,845 | 1,580,982 |

*(1) Includes the commercial portion of the premium finance receivables — life insurance portfolio.*

Of those loans repricing after one year, approximately $1.1 billion have fixed rates.

### Past Due Loans and Non-performing Assets

Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 10 with higher scores indicating higher risk. The credit risk rating structure used is shown below:

|  |  |  |
| --- | ---: | --- |
| 1 Rating | — | Minimal Risk (Loss Potential — none or extremely low) (Superior asset quality, excellent liquidity, minimal leverage) |
| 2 Rating | — | Modest Risk (Loss Potential demonstrably low) (Very good asset quality and liquidity, strong leverage capacity) |
| 3 Rating | — | Average Risk (Loss Potential low but no longer refutable) (Mostly satisfactory asset quality and liquidity, good leverage capacity) |
| 4 Rating | — | Above Average Risk (Loss Potential variable, but some potential for deterioration) (Acceptable asset quality, little excess liquidity, modest leverage capacity) |
| 5 Rating | — | Management Attention Risk (Loss Potential moderate if corrective action not taken) (Generally acceptable asset quality, somewhat strained liquidity, minimal leverage capacity) |
| 6 Rating | — | Special Mention (Loss Potential moderate if corrective action not taken) (Assets in this category are currently protected, potentially weak, but not to the point of substandard classification) |
| 7 Rating | — | Substandard Accrual (Loss Potential distinct possibility that the bank may sustain some loss, but no discernable impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt) |
| 8 Rating | — | Substandard Non-accrual (Loss Potential well documented probability of loss, including potential impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt) |
| 9 Rating | — | Doubtful (Loss Potential extremely high) (These assets have all the weaknesses in those classified “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly improbable) |
| 10 Rating | — | Loss (fully charged-off) (Loans in this category are considered fully uncollectible.) |

In the first quarter of 2010, the Company modified its credit risk rating scale to the above 1 through 10 risk ratings. Prior to this, the Company employed a 1 through 9 credit risk rating scale. The main change is that the Company now has two separate credit risk ratings for substandard loans. They are Substandard — Accrual (credit risk rating 7) and Substandard — Nonaccrual (credit risk rating 8). Previously, there was only one risk rating for loans classified as substandard. This change allows the Company to better monitor the credit risk of the portfolio.

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 or the directors’ loan committee. Credit risk ratings are determined by evaluating a number of factors including, a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. A third party loan review firm independently reviews a significant portion of the loan portfolio at each of the Company’s subsidiary banks to evaluate the appropriateness of the management-assigned credit risk ratings. These ratings are subject to further review at each of our bank subsidiaries by the applicable regulatory authority, including the Federal Reserve Bank of Chicago, the OCC, the State of Illinois and the State of Wisconsin and our internal audit staff.

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

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If we determine that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Managed Asset Division undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses.

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

#### Non-Performing Assets, excluding covered assets

The following table sets forth Wintrust’s non-performing assets, excluding covered assets, as of the dates shown:

(Dollars in thousands)

| Loans past due greater than 90 days and still accruing: | 2010 | 2009 | 2008 | 2007 | 2006 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$478** | 561 | 65 | 806 | 908 |
| Commercial real estate | — | — | 14,588 | 13,877 | 7,010 |
| Home equity | — | — | 617 | 51 | 211 |
| Residential real estate | — | 412 | — | — | 97 |
| Premium finance receivables – commercial | **8,096** | 6,271 | 9,339 | 8,703 | 4,306 |
| Premium finance receivables – life insurance | **—** | — | — | — | — |
| Indirect consumer | **318** | 461 | 679 | 517 | 297 |
| Consumer and other | **1** | 95 | 97 | 59 | 536 |
| Total loans past due greater than 90 days and still accruing | **8,893** | 7,800 | 25,385 | 24,013 | 13,365 |
| **Non-accrual loans:** |  |  |  |  |  |
| Commercial | **16,382** | 16,509 | 8,651 | 8,037 | 3,274 |
| Commercial real estate | **93,963** | 80,639 | 83,147 | 24,869 | 9,659 |
| Home equity | **7,425** | 8,883 | 828 | 1,325 | 619 |
| Residential real estate | **6,085** | 3,779 | 5,700 | 1,890 | 1,119 |
| Premium finance receivables – commercial | **8,587** | 11,878 | 11,454 | 10,725 | 8,112 |
| Premium finance receivables – life insurance | **354** | 704 | — | — | — |
| Indirect consumer | **191** | 995 | 913 | 560 | 376 |
| Consumer and other | **252** | 617 | 16 | 435 | 350 |
| Total non-accrual | **133,239** | 124,004 | 110,709 | 47,841 | 23,509 |
| **Total non-performing loans:** |  |  |  |  |  |
| Commercial | **16,860** | 17,070 | 8,716 | 8,843 | 4,182 |
| Commercial real estate | **93,963** | 80,639 | 97,735 | 38,746 | 16,669 |
| Home equity | **7,425** | 8,883 | 1,445 | 1,376 | 830 |
| Residential real estate | **6,085** | 4,191 | 5,700 | 1,890 | 1,216 |
| Premium finance receivables – commercial | **16,683** | 18,149 | 20,793 | 19,428 | 12,418 |
| Premium finance receivables – life insurance | **354** | 704 | — | — | — |
| Indirect consumer | **509** | 1,456 | 1,592 | 1,077 | 673 |
| Consumer and other | **253** | 712 | 113 | 494 | 886 |
| Total non-performing loans | **142,132** | 131,804 | 136,094 | 71,854 | 36,874 |
| Other real estate owned | **71,214** | 80,163 | 32,572 | 3,858 | 572 |
| Total non-performing assets | **213,346** | 211,967 | 168,666 | 75,712 | 37,446 |
| **Total non-performing loans by category as a percent of its own respective category’s** |  |  |  |  |  |
| **year end balance:** |  |  |  |  |  |
| Commercial | **0.82%** | 0.98% | 0.61% | 0.67% | 0.32% |
| Commercial real estate | **2.81** | 2.45 | 2.91 | 1.26 | 0.60 |
| Home equity | **0.81** | 0.95 | 0.16 | 0.20 | 0.12 |
| Residential real estate | **1.72** | 1.37 | 2.17 | 0.83 | 0.59 |
| Premium finance receivables – commercial | **1.32** | 2.49 | 1.67 | 1.82 | 1.07 |
| Premium finance receivables – life insurance | **0.02** | 0.06 | — | — | — |
| Indirect consumer | **0.99** | 1.48 | 0.90 | 0.45 | 0.27 |
| Consumer and other | **0.24** | 0.65 | 0.07 | 0.29 | 0.64 |
| Total non-performing loans | **1.48%** | 1.57% | 1.79% | 1.06% | 0.57% |
| **Total non-performing assets, excluding covered assets, as a percentage of total assets** | **1.53%** | 1.74% | 1.58% | 0.81% | 0.39% |
| **Allowance for loan losses as a percentage of non-performing loans** | **80.14%** | 74.56% | 51.26% | 70.13% | 124.90% |

68

#### Non-performing Commercial and Commercial Real Estate

The commercial non-performing loan category totaled $16.9 million as of December 31, 2010 compared to $17.1 million as of December 31, 2009, while the commercial real estate loan category totaled $94.0 million as of December 31, 2010 compared to $80.6 million as of December 31, 2009.

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

#### Non-performing Residential Real Estate and Home Equity

The non-performing residential real estate and home equity loans totaled $13.5 million as of December 31, 2010. The balance increased $436,000 from December 31, 2009. The December 31, 2010 non-performing balance is comprised of $6.1 million of residential real estate (22 individual credits) and $7.4 million of home equity loans (26 individual credits). On average, this is approximately three non-performing residential real estate loans and home equity loans per chartered bank within the Company. The Company believes control and collection of these loans is very manageable. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

#### Non-performing Commercial Premium Finance Receivables

The table below presents the level of non-performing property and casualty premium finance receivables as of December 31, 2010 and 2009, and the amount of net charge-offs for the years then ended.

(Dollars in thousands)

|  | December 31, 2010 | 2009 |
| --- | ---: | ---: |
| Non-performing premium finance receivables — commercial | **$16,683** | $18,149 |
| - as a percent of premium finance receivables — commercial outstanding | **1.32%** | 2.49% |
| Net charge-offs of premium finance receivables — commercial | **$22,224** | $7,502 |
| - as a percent of average premium finance receivables — commercial | **1.74%** | 0.67% |

69

Fluctuations in this category may occur due to timing and nature of account collections from insurance carriers. The Company’s underwriting standards, regardless of the condition of the economy, have remained consistent. We anticipate that net charge-offs and non-performing asset levels in the near term will continue to be at levels that are within acceptable operating ranges for this category of loans. Management is comfortable with administering the collections at this level of non-performing property and casualty premium finance receivables and believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits. In the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, increased both our net charge-offs and our provision for credit losses by $15.7 million. The remaining net charge-offs of premium finance receivables were $6.5 million for 2010, which is 0.51% of average premium finance receivables.

#### Non-performing Indirect Consumer Loans

Total non-performing indirect consumer loans were $509,000 at December 31, 2010, compared to $1.5 million at December 31, 2009. The ratio of these non-performing loans to total indirect consumer loans was 0.99% at December 31, 2010 compared to 1.48% at December 31, 2009. Net charge-offs as a percent of total indirect consumer loans were 1.09% for the year ended December 31, 2010 compared to 1.24% in the same period in 2009. The indirect consumer loan portfolio has decreased 48% since December 31, 2009 to a balance of $51.1 million at December 31, 2010.

#### Loan Portfolio Aging

The following table shows, as of December 31, 2010, only 1.5% of the entire portfolio, excluding covered loans, is in a non-performing (non-accrual or greater than 90 days past due and still accruing interest) with only 1.5% either one or two payments past due. In total, 97% of the Company’s total loan portfolio, excluding covered loans, as of December 31, 2010 is current according to the original contractual terms of the loan agreements.

The tables below show the aging of the Company’s loan portfolio at December 31, 2010 and 2009:

### As of December 31, 2010

(Dollars in thousands)

| Loan Balances: Commercial | Non- Accrual | 90+ days and still accruing | 60-89 days past due | 30-59 days past due | Current | Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $16,339 | 478 | 4,577 | 12,774 | 1,619,226 | 1,653,394 |
| Franchise | — | — | — | 2,250 | 117,238 | 119,488 |
| Mortgage warehouse lines of credit | — | — | — | — | 131,306 | 131,306 |
| Community Advantage – homeowners association | — | — | — | — | 75,542 | 75,542 |
| Aircraft | — | — | 178 | 1,000 | 23,440 | 24,618 |
| Other | 43 | — | — | — | 44,935 | 44,978 |
| Total commercial | 16,382 | 478 | 4,755 | 16,024 | 2,011,687 | 2,049,326 |
| Commercial real estate |  |  |  |  |  |  |
| Residential construction | 10,010 | — | 96 | 1,801 | 84,040 | 95,947 |
| Commercial construction | 1,820 | — | — | 1,481 | 128,371 | 131,672 |
| Land | 37,602 | — | 6,815 | 11,915 | 203,857 | 260,189 |
| Office | 12,718 | — | 9,121 | 3,202 | 510,290 | 535,331 |
| Industrial | 3,480 | — | 686 | 2,276 | 493,859 | 500,301 |
| Retail | 3,265 | — | 4,088 | 3,839 | 499,335 | 510,527 |
| Multi-family | 4,794 | — | 1,573 | 3,062 | 281,525 | 290,954 |
| Mixed use and other | 20,274 | — | 8,481 | 15,059 | 969,272 | 1,013,086 |
| Total commercial real estate | $93,963 | — | 30,860 | 42,635 | 3,170,549 | 3,338,007 |
| Home equity loans | 7,425 | — | 2,181 | 7,098 | 897,708 | 914,412 |
| Residential real estate loans | 6,085 | — | 1,836 | 8,224 | 337,191 | 353,336 |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | 8,587 | 8,096 | 6,076 | 16,584 | 1,226,157 | 1,265,500 |
| Life insurance loans | 180 | — | — | — | 826,119 | 826,299 |
| Purchased life insurance loans | 174 | — | — | — | 695,413 | 695,587 |
| Indirect consumer | 191 | 318 | 301 | 918 | 49,419 | 51,147 |
| Consumer and other | 252 | 1 | 109 | 379 | 105,531 | 106,272 |
| Total loans, net of unearned income, excluding covered loans | $133,239 | 8,893 | 46,118 | 91,862 | 9,319,774 | 9,599,886 |
| Covered loans | — | 117,161 | 7,352 | 22,744 | 187,096 | 334,353 |
| Total loans, net of unearned income | $133,239 | 126,054 | 53,470 | 114,606 | 9,506,870 | 9,934,239 |
| **Aging as a % of Loan Balance:** |  |  |  |  |  |  |
| Commercial |  |  |  |  |  |  |
| Commercial and industrial | 1.0% | —% | 0.3% | 0.8% | 97.9% | 100.0% |
| Franchise | — | — | — | 1.9 | 98.1 | 100.0 |
| Mortgage warehouse lines of credit | — | — | — | — | 100.0 | 100.0 |
| Community Advantage – homeowners association | — | — | — | — | 100.0 | 100.0 |
| Aircraft | — | — | 0.7 | 4.1 | 95.2 | 100.0 |
| Other | 0.1 | — | — | — | 99.9 | 100.0 |
| Total commercial | 0.8 | — | 0.2 | 0.8 | 98.2 | 100.0 |
| Commercial real estate |  |  |  |  |  |  |
| Residential construction | 10.4 | — | 0.1 | 1.9 | 87.6 | 100.0 |
| Commercial construction | 1.4 | — | — | 1.1 | 97.5 | 100.0 |
| Land | 14.5 | — | 2.6 | 4.6 | 78.3 | 100.0 |
| Office | 2.4 | — | 1.7 | 0.6 | 95.3 | 100.0 |
| Industrial | 0.7 | — | 0.1 | 0.5 | 98.7 | 100.0 |
| Retail | 0.6 | — | 0.8 | 0.8 | 97.8 | 100.0 |
| Multi-family | 1.6 | — | 0.5 | 1.1 | 96.8 | 100.0 |
| Mixed use and other | 2.0 | — | 0.8 | 1.5 | 95.7 | 100.0 |
| Total commercial real estate | 2.8 | — | 0.9 | 1.3 | 95.0 | 100.0 |
| Home equity | 0.8 | — | 0.2 | 0.8 | 98.2 | 100.0 |
| Residential real estate | 1.7 | — | 0.5 | 2.3 | 95.5 | 100.0 |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | 0.7 | 0.6 | 0.5 | 1.3 | 96.9 | 100.0 |
| Life insurance loans | — | — | — | — | 100.0 | 100.0 |
| Purchased life insurance loans | — | — | — | — | 100.0 | 100.0 |
| Indirect consumer | 0.4 | 0.6 | 0.6 | 1.8 | 96.6 | 100.0 |
| Consumer and other | 0.2 | — | 0.1 | 0.4 | 99.3 | 100.0 |
| Total loans, net of unearned income, excluding covered loans | 1.4% | 0.1% | 0.5% | 1.0% | 97.0% | 100.0% |
| Covered loans | — | 35.0 | 2.2 | 6.8 | 56.0 | 100.0 |
| Total loans, net of unearned income | 1.3% | 1.3% | 0.5% | 1.2% | 95.7% | 100.0% |

71

### As of December 31, 2009

(Dollars in thousands)

| Loan Balances: Commercial | Non- Accrual | 90+ days and still accruing | 60-89 days past due | 30-59 days past due | Current | Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $15,094 | 561 | 5,526 | 2,990 | 1,337,054 | 1,361,225 |
| Franchise | — | — | — | — | 133,953 | 133,953 |
| Mortgage warehouse lines of credit | — | — | — | — | 121,781 | 121,781 |
| Community Advantage – homeowners association | — | — | — | — | 67,086 | 67,086 |
| Aircraft | — | — | — | 178 | 41,476 | 41,654 |
| Other | 1,415 | — | 1,220 | — | 14,875 | 17,510 |
| Total commercial | 16,509 | 561 | 6,746 | 3,168 | 1,716,225 | 1,743,209 |
| Commercial real estate |  |  |  |  |  |  |
| Residential construction | 14,065 | — | 1,877 | 6,332 | 152,149 | 174,423 |
| Commercial construction | 5,232 | — | — | 15,070 | 288,278 | 308,580 |
| Land | 41,297 | — | 8,548 | 2,468 | 274,407 | 326,720 |
| Office | 2,675 | — | — | 1,324 | 463,588 | 467,587 |
| Industrial | 3,753 | — | — | 1,141 | 439,997 | 444,891 |
| Retail | 431 | — | 2,978 | 1,050 | 448,301 | 452,760 |
| Multi-family | 288 | — | 627 | 9,372 | 231,423 | 241,710 |
| Mixed use and other | 12,898 | — | 4,517 | 4,464 | 858,147 | 880,026 |
| Total commercial real estate | $80,639 | — | 18,547 | 41,221 | 3,156,290 | 3,296,697 |
| Home equity loans | 8,883 | — | 894 | 2,107 | 918,598 | 930,482 |
| Residential real estate loans | 3,779 | 412 | 406 | 3,043 | 298,656 | 306,296 |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | 11,878 | 6,271 | 3,975 | 9,639 | 698,381 | 730,144 |
| Life insurance loans | — | — | — | — | 365,555 | 365,555 |
| Purchased life insurance loans | 704 | — | 5,385 | 1,854 | 824,395 | 832,338 |
| Indirect consumer | 995 | 461 | 614 | 2,143 | 93,921 | 98,134 |
| Consumer and other | 617 | 95 | 511 | 537 | 107,156 | 108,916 |
| Total loans, net of unearned income, excluding covered loans | $124,004 | 7,800 | 37,078 | 63,712 | 8,179,177 | 8,411,771 |
| Covered loans | — | — | — | — | — | — |
| Total loans, net of unearned income | $124,004 | 7,800 | 37,078 | 63,712 | 8,179,177 | 8,411,771 |
| **Aging as a % of Loan Balance:** |  |  |  |  |  |  |
| Commercial |  |  |  |  |  |  |
| Commercial and industrial | 1.1% | —% | 0.4% | 0.2% | 98.3% | 100.0% |
| Franchise | — | — | — | — | 100.0 | 100.0 |
| Mortgage warehouse lines of credit | — | — | — | — | 100.0 | 100.0 |
| Community Advantage – homeowners association | — | — | — | — | 100.0 | 100.0 |
| Aircraft | — | — | — | 0.4 | 99.6 | 100.0 |
| Other | 8.1 | — | 7.0 | — | 84.9 | 100.0 |
| Total commercial | 0.9 | — | 0.4 | 0.2 | 98.5 | 100.0 |
| Commercial real estate |  |  |  |  |  |  |
| Residential construction | 8.1 | — | 1.1 | 3.6 | 87.2 | 100.0 |
| Commercial construction | 1.7 | — | — | 4.9 | 93.4 | 100.0 |
| Land | 12.6 | — | 2.6 | 0.8 | 84.0 | 100.0 |
| Office | 0.6 | — | — | 0.3 | 99.1 | 100.0 |
| Industrial | 0.8 | — | — | 0.3 | 98.9 | 100.0 |
| Retail | 0.1 | — | 0.7 | 0.2 | 99.0 | 100.0 |
| Multi-family | 0.1 | — | 0.3 | 3.9 | 95.7 | 100.0 |
| Mixed use and other | 1.5 | — | 0.5 | 0.5 | 97.5 | 100.0 |
| Total commercial real estate | 2.4 | — | 0.6 | 1.3 | 95.7 | 100.0 |
| Home equity | 1.0 | — | 0.1 | 0.2 | 98.7 | 100.0 |
| Residential real estate | 1.2 | 0.1 | 0.1 | 1.0 | 97.6 | 100.0 |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | 1.6 | 0.9 | 0.5 | 1.3 | 95.7 | 100.0 |
| Life insurance loans | — | — | — | — | 100.0 | 100.0 |
| Purchased life insurance loans | 0.1 | — | 0.6 | 0.2 | 99.1 | 100.0 |
| Indirect consumer | 1.0 | 0.5 | 0.6 | 2.2 | 95.7 | 100.0 |
| Consumer and other | 0.6 | 0.1 | 0.5 | 0.5 | 98.3 | 100.0 |
| Total loans, net of unearned income, excluding covered loans | 1.5% | 0.1% | 0.4% | 0.8% | 97.2% | 100.0% |
| Covered loans | — | — | — | — | — | — |
| Total loans, net of unearned income | 1.5% | 0.1% | 0.4% | 0.8% | 97.2% | 100.0% |

72

As of December 31, 2010, only $46.1 million of all loans, excluding covered loans, or 0.5%, were 60 to 89 days past due and $91.9 million, or 1.0%, were 30 to 59 days (or one payment) past due. As of December 31, 2009, $37.1 million of all loans, excluding covered loans, or 0.4%, were 60 to 89 days past due and $63.7 million, or 0.8%, were 30 to 59 days (or one payment) past due.

The majority of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. Near-term delinquencies (30 to 59 days past due) increased $14.3 million since December 31, 2009.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at December 31, 2010 that are current with regard to the contractual terms of the loan agreement represent 98.2% of the total home equity portfolio. Residential real estate loans at December 31, 2010 that are current with regards to the contractual terms of the loan agreements comprise 95.5% of total residential real estate loans outstanding.

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

### Non-performing Loans Rollforward

The table below presents a summary of non-performing loans, excluding covered loans, as of December 31, 2010 and shows the changes in the balance during 2010:

(Dollars in thousands)

|  | December 31, 2010 |
| --- | ---: |
| Balance at beginning of period | $131,804 |
| Additions, net | 173,461 |
| Return to performing status | (4,914) |
| Payments received | (30,513) |
| Transfer to OREO | (68,663) |
| Charge-offs | (55,220) |
| Net change for niche loans (1) | (3,823) |
| Balance at end of period | **$142,132** |

(1) Includes activity for premium finance receivables, mortgages held for investment by WMC and indirect consumer loans.

### Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of the probable and reasonably estimable loan losses that our loan portfolio is expected to incur. The allowance for loan losses is determined quarterly using a methodology that incorporates important risk characteristics of each loan, as described below under “How We Determine the Allowance for Credit Losses.” This process is subject to review at each of our bank subsidiaries by the applicable regulatory authority, including the Federal Reserve Bank of Chicago, the OCC, the State of Illinois and the State of Wisconsin.

The following table sets forth the allocation of the allowance for loan losses and the allowance for losses on lending-related commitments by major loan type and the percentage of loans in each category to total loans for the past five fiscal years (dollars in thousands):

| Allowance for loan losses allocation: | 2010 Amount | % of Loan Type to Total Loans | 2009 Amount | % of Loan Type to Total Loans | 2008 Amount | % of Loan Type to Total Loans | 2007 Amount | % of Loan Type to Total Loans | 2006 Amount | % of Loan Type to Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$31,777** | **21%** | $28,012 | 21% | $17,495 | 19% | $16,185 | 20% | $15,224 | 20% |
| Commercial real estate | **62,618** | **34** | 50,952 | 39 | 39,490 | 44 | 22,810 | 45 | 17,719 | 43 |
| Home equity | **6,213** | **9** | 9,013 | 11 | 3,067 | 12 | 2,057 | 10 | 1,985 | 10 |
| Residential real estate | **5,107** | **3** | 3,139 | 4 | 1,698 | 3 | 1,290 | 3 | 1,381 | 3 |
| Consumer and other | **1,343** | **1** | 1,977 | 1 | 1,661 | 2 | 1,475 | 2 | 1,889 | 2 |
| Premium finance receivables – commercial | **5,482** | **13** | 2,836 | 9 | 4,358 | 16 | 3,643 | 16 | 4,838 | 18 |
| Premium finance receivables – life insurance | **837** | **15** | 980 | 14 | 308 | 2 | 29 | — | — | — |
| Indirect consumer loans | **526** | **1** | 1,368 | 1 | 1,690 | 2 | 2,900 | 4 | 3,019 | 4 |
| Covered loans | — | **3** | — | — | — | — | — | — | — | — |
| **Total allowance for loan losses** | **$113,903** | **100%** | $98,277 | 100% | $69,767 | 100% | $50,389 | 100% | $46,055 | 100% |
| **Allowance category as a percent of total allowance:** |  |  |  |  |  |  |  |  |  |  |
| Commercial | **28%** |  | 29% |  | 25% |  | 32% |  | 33% |  |
| Commercial real estate | **55** |  | 52 |  | 57 |  | 45 |  | 39 |  |
| Home equity | **5** |  | 9 |  | 5 |  | 4 |  | 4 |  |
| Residential real estate | **4** |  | 3 |  | 2 |  | 3 |  | 3 |  |
| Consumer and other | **1** |  | 2 |  | 2 |  | 3 |  | 4 |  |
| Premium finance receivables – commercial | **5** |  | 3 |  | 6 |  | 7 |  | 10 |  |
| Premium finance receivables – life insurance | **1** |  | 1 |  | 1 |  | — |  | — |  |
| Indirect consumer loans | **1** |  | 1 |  | 2 |  | 6 |  | 7 |  |
| Covered loans | — |  | — |  | — |  | — |  | — |  |
| **Total allowance for loan losses** | **100%** |  | 100% |  | 100% |  | 100% |  | 100% |  |
| **Allowance for losses on lending-related commitments:** |  |  |  |  |  |  |  |  |  |  |
| Commercial and commercial real estate | **$4,134** |  | $3,554 |  | $1,586 |  | $493 |  | $457 |  |
| **Total allowance for credit losses** | **$118,037** |  | $101,831 |  | $71,353 |  | $50,882 |  | $46,512 |  |

Management has determined that the allowance for loan losses was appropriate at December 31, 2010, and that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. While this process involves a high degree of management judgment, the allowance for credit losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses the levels of nonperforming loans, the ratio of nonperforming loans to the allowance for credit losses and the overall levels of net charge-offs. Historical trending of both the Company’s results and the industry peers is also reviewed to analyze comparative significance.

#### Allowance for Credit Losses

The following tables summarize the activity in our allowance for credit losses during the last five fiscal years.

(Dollars in thousands)

|  | 2010 | 2009 | 2008 | 2007 | 2006 |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Allowance for loan losses at beginning of year** | **$98,277** | 69,767 | 50,389 | 46,055 | 40,283 |
| **Provision for credit losses** | **124,664** | 167,932 | 57,441 | 14,879 | 7,057 |
| **Allowance acquired in business combinations** | **—** | **—** | — | 362 | 3,852 |
| **Adjustment for change in accounting for loan securization** | **1,943** | — | — | — | — |
| **Reclassification from/(to) allowance for lending-related commitments** | **(1,301)** | (2,037) | (1,093) | (36) | 92 |
| **Charge-offs:** |  |  |  |  |  |
| Commercial | **18,592** | 35,022 | 10,066 | 4,806 | 3,154 |
| Commercial real estate | **61,873** | 89,114 | 20,403 | 4,152 | 1,380 |
| Home equity | **5,926** | 4,605 | 284 | 289 | 97 |
| Residential real estate | **1,143** | 1,067 | 1,631 | 147 | 81 |
| Premium finance receivables – commercial | **23,005** | 8,153 | 4,073 | 2,425 | 2,760 |
| Premium finance receivables – life insurance | **233** | — | — | — | — |
| Indirect consumer | **967** | 1,848 | 1,322 | 873 | 584 |
| Consumer and other | **1,141** | 644 | 618 | 845 | 421 |
| Total charge-offs | **112,880** | 140,453 | 38,397 | 13,537 | 8,477 |
| **Recoveries:** |  |  |  |  |  |
| Commercial | **1,140** | 450 | 299 | 803 | 1,273 |
| Commercial real estate | **914** | 792 | 197 | 929 | 1,026 |
| Home equity | **24** | 815 | 1 | 61 | 31 |
| Residential real estate | **12** | **—** | — | 6 | 2 |
| Premium finance receivables – commercial | **781** | 651 | 662 | 514 | 567 |
| Premium finance receivables – life insurance | **—** | — | — | — | — |
| Indirect consumer | **198** | 179 | 173 | 172 | 191 |
| Consumer and other | **131** | 181 | 95 | 181 | 158 |
| Total recoveries | **3,200** | 3,068 | 1,427 | 2,666 | 3,248 |
| Net charge-offs (excluding covered loans) | **(109,680)** | (137,385) | (36,970) | (10,871) | (5,229) |
| Covered loans | — | — | — | — | — |
| Net charge-offs | **(109,680)** | (137,385) | (36,970) | (10,871) | (5,229) |
| **Allowance for loan losses at end of year** | **$113,903** | 98,277 | 69,767 | 50,389 | 46,055 |
| **Allowance for lending-related commitments at end of year** | **4,134** | 3,554 | 1,586 | 493 | 457 |
| **Allowance for credit losses at end of year** | **$118,037** | 101,831 | 71,353 | 50,882 | 46,512 |
| **Net charge-offs by category as a percentage of its own respective category’s average:** |  |  |  |  |  |
| Commercial | **0.95%** | 2.18% | 0.72% | 0.31% | 0.16% |
| Commercial real estate | **1.83** | 2.59 | 0.63 | 0.11 | 0.01 |
| Home equity | **0.64** | 0.41 | 0.04 | 0.04 | 0.01 |
| Residential real estate | **0.19** | 0.21 | 0.49 | 0.04 | 0.02 |
| Premium finance receivables – commercial | **1.74** | 0.67 | 0.29 | 0.15 | 0.22 |
| Premium finance receivables – life insurance | **0.02** | — | — | — | — |
| Indirect consumer | **1.09** | 1.24 | 0.53 | 0.28 | 0.17 |
| Consumer and other | **0.93** | 0.35 | 0.32 | 0.47 | 0.19 |
| Total loans, net of unearned income, excluding covered loans | **1.16%** | 1.65% | 0.51% | 0.16% | 0.09% |
| Covered loans | — | — | — | — | — |
| Total loans, net of unearned income | **1.13%** | 1.65% | 0.51% | 0.16% | 0.09% |
| **Net charge-offs as a percentage of the provision for credit losses** | **87.98%** | 81.81% | 64.36% | 73.07% | 74.10% |
| **Year-end total loans (excluding covered loans)** | **$9,599,886** | 8,411,771 | 7,621,069 | 6,801,602 | 6,496,480 |
| **Allowance for loan losses as a percentage of loans at end of year** | **1.19%** | 1.17% | 0.92% | 0.74% | 0.71% |
| **Allowance for credit losses as a percentage of loans at end of year** | **1.23%** | 1.21% | 0.94% | 0.75% | 0.72% |
| **Year-end total loans (including covered loans)** | **$9,934,239** | 8,411,771 | 7,621,069 | 6,801,602 | 6,496,480 |
| **Allowance for loan losses as a percentage of loans at end of year** | **1.15%** | 1.17% | 0.92% | 0.74% | 0.71% |
| **Allowance for credit losses as a percentage of loans at end of year** | **1.19%** | 1.21% | 0.94% | 0.75% | 0.72% |

75

The allowance for credit losses is comprised of an allowance for loan losses, which is determined with respect to loans that we have originated, and an allowance for lending-related commitments. Our allowance for lending-related commitments is determined with respect to funds that we have committed to lend but for which funds have not yet been disbursed and is computed using a methodology similar to that used to determine the allowance for loan losses. Additions to the allowance for loan losses are charged to earnings through the provision for credit losses. Charge-offs represent the amount of loans that have been determined to be uncollectible during a given period, and are deducted from the allowance for loan losses, and recoveries represent the amount of collections received from loans that had previously been charged off, and are credited to the allowance for loan losses.

#### How We Determine the Allowance for Credit Losses

The allowance for loan losses includes an element for estimated probable but undetected losses and for imprecision in the credit risk models used to calculate the allowance. As part of the Problem Loan Reporting system review, the Company analyzes the loan for purposes of calculating our specific impairment reserves and a general reserve.

#### Specific Impairment Reserves:

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

#### General Reserves:

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

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

- historical loss experience;
- changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
- changes in national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio;
- changes in the nature and volume of the portfolio and in the terms of the loans;
- changes in the experience, ability, and depth of lending management and other relevant staff;
- changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;
- changes in the quality of the bank’s loan review system;
- changes in the underlying collateral for collateral dependent loans;
- the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
- the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the bank’s existing portfolio.

#### Home Equity and Residential Real Estate Loans:

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

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

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

#### Premium Finance Receivables and Indirect Consumer Loans:

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

#### Effects of Economic Recession and Real Estate Market:

The Company’s primary markets, which are mostly in Chicago metropolitan area, have not experienced the same levels of credit deterioration in residential mortgage and home equity loans as certain other major metropolitan markets, such as Miami, Phoenix or Southern California, however the Company’s markets have clearly been under stress. As of December 31, 2010, home equity loans and residential mortgages comprised 9% and 3%, respectively, of the Company’s total loan portfolio. At December 31, 2010 (excluding covered loans), approximately only 2.2% of all of the Company’s residential mortgage loans and approximately only 1.7% of all of the Company’s home equity loans are more than one payment past due. Although there is stress in the Chicago metropolitan and southeastern Wisconsin markets, our portfolios of residential mortgages and home equity loans are performing reasonably well as reflected in the aging of the Company’s loan portfolio table shown earlier in this section.

#### Methodology in Assessing Impairment and Charge-off Amounts

In determining the amount of impairment or charge-offs associated with collateral dependent loans, the Company values the loan generally by starting with a valuation obtained from an appraisal of the underlying collateral and then deducting estimated selling costs to arrive at a net appraised value. We obtain the appraisals of the underlying collateral from one of a pre-approved list of independent, third party appraisal firms.

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

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

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

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

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

Having determined the net value based on the factors such as those noted above and compared that value to the book value of the loan, the Company may arrive at a charge-off amount or a specific reserve included in the allowance for loan losses. In summary, for collateral dependent loans, appraisals are used as the fair value starting point in the estimate of net value. Estimated costs to sell are deducted from the appraised value to arrive at the net appraised value. Although an external appraisal is the primary source of valuation utilized for charge-offs on collateral dependent loans, we may utilize values obtained through purchase and sale agreements, legitimate indications of interest, negotiated short sales, realtor price opinions, sale of the note or support from guarantors as the basis for charge-offs. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. In addition, if an appraisal is not deemed current, a discount to appraised value may be utilized. Any adjustments from appraised value to net value are detailed and justified in an impairment analysis, which is reviewed and approved by the Company’s Managed Assets Division.

#### Restructured Loans

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

(Dollars in thousands)

| Accruing: | December 31, 2010 | December 31, 2009 |
| --- | ---: | ---: |
| Commercial | **$14,163** | 10,946 |
| Commercial real estate | **65,419** | 20,573 |
| Residential real estate | **1,562** | 234 |
| Total accrual | **$81,144** | 31,753 |
| Non-accrual: (1) |  |  |
| Commercial | **$3,865** | — |
| Commercial real estate | **15,947** | 679 |
| Residential real estate | **234** | — |
| Total non-accrual | **$20,046** | 679 |
| **Total restructured loans:** |  |  |
| Commercial | **$18,028** | 10,946 |
| Commercial real estate | **81,366** | 21,252 |
| Residential real estate | **1,796** | 234 |
| Total restructured loans | **$101,190** | 32,432 |

(1) Included in total non-performing loans.

At December 31, 2010, the Company had $101.2 million in loans with modified terms. The $101.2 million in modified loans represents 129 credit relationships in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay. These actions were taken on a case-by-case basis working with these borrowers to find a concession that would assist them in retaining their businesses or their homes and attempt to keep these loans in an accruing status for the Company. Typical concessions include reduction of the loan interest rate to a rate considered lower than market and other modification of terms including forgiveness of all or a portion of the loan balance, extension of the maturity date, and/or modifications from principal and interest payments to interest-only payments for a certain period.

Subsequent to its restructuring, any restructured loan with a below market rate concession that becomes nonaccrual, will remain classified by the Company as a restructured loan for its duration and will be included in the Company’s nonperforming loans. Each restructured loan was reviewed for collateral impairment at December 31, 2010 and approximately $11.3 million of collateral impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses.

#### Potential Problem Loans

Management believes that any loan where there are serious doubts as to the ability of such borrowers to comply with the present loan repayment terms should be identified as a non-performing loan and should be included in the disclosure of “Past Due Loans and Non-performing Assets.” Accordingly, at the periods presented in this report, the Company has no potential problem loans as defined by SEC regulations.

#### Loan Concentrations

Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. The Company had no concentrations of loans exceeding 10% of total loans at December 31, 2010, except for loans included in the specialty finance operating segment, which are diversified throughout the United States.

#### Other Real Estate Owned

The table below presents a summary of other real estate owned, excluding covered other real estate owned, as of December 31, 2010 and shows the activity for the respective periods and the balance for each property type:

(Dollars in thousands)

|  | Year Ended December 31, 2010 | December 31, 2009 |
| --- | ---: | ---: |
| Balance at beginning of period | **$80,163** | 32,572 |
| Disposals/resolved | **(63,562)** | (56,000) |
| Transfers in at fair value, less costs to sell | **63,615** | 112,015 |
| Fair value adjustments | **(9,002)** | (8,424) |
| Balance at end of period | **$71,214** | 80,163 |

| Balance by Property Type: | Period End December 31, 2010 | December 31, 2009 |
| --- | ---: | ---: |
| Residential real estate | **$5,694** | 5,889 |
| Residential real estate development | **17,781** | 41,992 |
| Commercial real estate | **47,739** | 32,282 |
| Balance at end of period | **$71,214** | 80,163 |

79

### Liquidity and Capital Resources

The Company and the banks are subject to various regulatory capital requirements established by the federal banking agencies that take into account risk attributable to balance sheet and off-balance sheet activities. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly discretionary — actions by regulators, that if undertaken could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the banks must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Federal Reserve’s capital guidelines require bank holding companies to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to total assets of 3.0% for strong bank holding companies (those rated a composite “1” under the Federal Reserve’s rating system). For all other bank holding companies, the minimum ratio of Tier 1 Capital to total assets is 4.0%. In addition the Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities.

The following table summarizes the capital guidelines for bank holding companies, as well as certain ratios relating to the Company’s equity and assets as of December 31, 2010, 2009 and 2008:

|  | Minimum Ratios | Well Capitalized Ratios | Wintrust’s Ratios at Year-end 2010 | Wintrust’s Ratios at Year-end 2009 | Wintrust’s Ratios at Year-end 2008 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Tier 1 Leverage Ratio | 4.0% | 5.0% | **10.1%** | 9.3% | 10.6% |
| Tier 1 Capital to Risk-Weighted Assets | 4.0% | 6.0% | **12.5%** | 11.0% | 11.6% |
| Total Capital to Risk-Weighted Assets | 8.0% | 10.0% | **13.8%** | 12.4% | 13.1% |
| Total average equity to total average assets | N/A | N/A | **10.0%** | 9.5% | 8.0% |
| Dividend payout ratio | N/A | N/A | **17.6%** | 12.4% | 47.4% |

As reflected in the table, each of the Company’s capital ratios at December 31, 2010, exceeded the well-capitalized ratios established by the Federal Reserve. Refer to Note 20 of the Consolidated Financial Statements for further information on the capital positions of the banks.

The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt, junior subordinated debentures and additional equity. Refer to Notes 12, 14, 16 and 24 of the Consolidated Financial Statements for further information on the Company’s notes payable, subordinated notes, junior subordinated debentures and shareholders’ equity, respectively. Management is committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the Federal Reserve for bank holding companies.

In March 2010, the Company issued through a public offering a total of 6.67 million shares of its common stock at $33.25 per share. Net proceeds to the Company totaled $210.3 million after deducting underwriting discounts and commissions and estimated offering expenses. Additionally, in December 2010, the Company sold 3.66 million shares of common stock at $30.00 per share and 4.6 million 7.50% tangible equity units (“TEU”) at a public offering price of $50.00 per unit. The Company received net proceeds of $104.8 million and $222.7 million from the common stock and TEU, respectively, after deducting underwriting discounts and commissions and estimated offering expenses. Each tangible equity unit is a unit composed of a prepaid stock purchase contract and a junior subordinated amortizing note due December 15, 2013. For additional discussion of these offerings and the terms of the TEUs, see Note 24 — Shareholders’ Equity and Note 15 — Other Borrowings.

On December 22, 2010, the Company repurchased all 250,000 shares of its Series B Preferred Stock, which it issued to the Treasury in December 2008 under the TARP CPP. The Series B Preferred Stock and the accompanying warrant to purchase Wintrust common stock were the only securities sold by the Company to the federal government.

The Company’s Board of Directors approved the first semiannual dividend on the Company’s common stock in January 2000 and has continued to approve semi-annual dividends since that time. The payment of dividends is also subject to statutory restrictions and restrictions arising under the terms of our 8.00% non-cumulative perpetual convertible preferred stock, Series A, the Company’s Trust Preferred Securities offerings, the Company’s 7.5% tangible equity units and under certain financial covenants in the Company’s credit agreement. Under the terms of the Company’s revolving credit facility entered into on October 30, 2009 (and amended on October 29, 2010), the Company is prohibited from paying dividends on any equity interests, including its common stock and preferred stock, if such payments would cause the Company to be in default under its credit facility. Prior to the repurchase of the Series B Preferred Stock, noted above, declarations of dividends were also limited by the terms of Series B Preferred Stock. In January and July 2010, Wintrust declared semi-annual cash dividends of $0.09 per common share, and in January and July 2009, Wintrust declared semi-annual cash dividends of $0.18 and $0.09 per common share, respectively. Taking into account the limitations on the payment of dividends, the final determination of timing, amount and payment of dividends is at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, financial condition, capital requirements and other relevant factors.

Banking laws impose restrictions upon the amount of dividends that can be paid to the holding company by the banks. Based on these laws, the banks could, subject to minimum capital requirements, declare dividends to the Company without obtaining regulatory approval in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for the current and prior two years.

At January 1, 2011, subject to minimum capital requirements at the banks, approximately $69.4 million was available as dividends from the banks without prior regulatory approval and without compromising the banks’ well-capitalized positions.

Since the banks are required to maintain their capital at the well-capitalized level (due to the Company being a financial holding company), funds otherwise available as dividends from the banks are limited to the amount that would not reduce any of the banks’ capital ratios below the well-capitalized level. During 2010, 2009 and 2008 the subsidiaries paid dividends to Win-trust totaling $11.5 million, $100.0 million and $73.2 million, respectively.

Liquidity management at the banks involves planning to meet anticipated funding needs at a reasonable cost. Liquidity management is guided by policies, formulated and monitored by the Company’s senior management and each Bank’s asset/liability committee, which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. The banks’ principal sources of funds are deposits, short-term borrowings and capital contributions from the holding company. In addition, the banks are eligible to borrow under Federal Home Loan Bank advances and certain banks are eligible to borrow at the Federal Reserve Bank Discount Window, another source of liquidity.

Core deposits are the most stable source of liquidity for community banks due to the nature of long-term relationships generally established with depositors and the security of deposit insurance provided by the FDIC. Core deposits are generally defined in the industry as total deposits less time deposits with balances greater than $100,000. Due to the affluent nature of many of the communities that the Company serves, management believes that many of its time deposits with balances in excess of $100,000 are also a stable source of funds. Standard deposit insurance coverage is $250,000 per depositor per insured bank, for each account ownership category. In addition, each of our subsidiary banks elected to participate in the Transaction Account Guarantee Program (TAGP), which provides unlimited FDIC insurance coverage for the entire account balance in exchange for an additional insurance premium to be paid by the depository institution for accounts with balances in excess of the permanent FDIC insurance limit of $250,000. This additional insurance coverage expired on December 31, 2010. Effective on that same date, the Dodd-Frank Act provided unlimited deposit insurance coverage for noninterest-bearing deposits through December 31, 2012. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other accounts at a bank.

While the Company obtains a portion of its total deposits through brokered deposits, the Company does so primarily as an asset-liability management tool to assist in the management of interest rate risk, and the Company does not consider brokered deposits to be a vital component of its current liquidity resources. For example, as of December 31, 2010, Wintrust had approximately $1.0 billion of cash, overnight funds and interest-bearing deposits with other banks (primarily the Federal Reserve) on its books, but only maintained $639.7 million of brokered deposits. Historically, brokered deposits have represented a small component of the Company’s total deposits outstanding, as set forth in the table below:

(Dollars in thousands)

|  | December 31, 2010 | 2009 | 2008 | 2007 | 2006 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total Deposits | **$10,803,673** | 9,917,074 | 8,376,750 | 7,471,441 | 7,869,240 |
| Brokered Deposits (1) | **639,687** | 927,722 | 800,042 | 505,069 | 591,579 |
| Brokered Deposits as a percentage of Total Deposits (1) | **5.9%** | 9.4% | 9.6% | 6.8% | 7.5% |

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

The banks routinely accept deposits from a variety of municipal entities. Typically, these municipal entities require that banks pledge marketable securities to collateralize these public deposits. At December 31, 2010 and 2009, the banks had approximately $875.7 million and $865.2 million, respectively, of securities collateralizing public deposits and other short-term borrowings. Public deposits requiring pledged assets are not considered to be core deposits, however they provide the Company with a more reliable, lower cost, short-term funding source than what is available through other wholesale alternatives.

As discussed in Note 6 of the Consolidated Financial Statements, in September 2009, the Company’s subsidiary, FIFC, sponsored a qualifying special-purpose entity (“QSPE”) that issued $600 million in aggregate principal amount of its Notes. The QSPE’s obligations under the Notes are secured by loans made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies. At the time of issuance, the Notes were eligible collateral under TALF and certain investors therefore received non-recourse funding from the New York Fed in order to purchase the Notes. As a result, FIFC believes it received greater proceeds at lower interest rates from the securitization than it otherwise would have received in a non-TALF-eligible transaction.

Other than as discussed in this section, the Company is not aware of any known trends, commitments, events, regulatory recommendations or uncertainties that would have any material adverse effect on the Company’s capital resources, operations or liquidity.

### CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS

The Company has various financial obligations, including contractual obligations and commitments, that may require future cash payments.

*Contractual Obligations.* The following table presents, as of December 31, 2010, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the Consolidated Financial Statements:

*(dollars in thousands)*

|  | Note Reference | Payments Due In One Year or Less | 1-3 Years | 3-5 Years | Over 5 Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Deposits (1) | 11 | $8,999,553 | 1,446,484 | 353,692 | 3,944 | 10,803,673 |
| Notes payable | 12 | — | — | 1,000 | — | 1,000 |
| FHLB advances (1) (2) | 13 | — | 233,500 | 60,000 | 130,000 | 423,500 |
| Subordinated notes | 14 | 15,000 | 25,000 | 10,000 | — | 50,000 |
| Other borrowings | 15 | 90,513 | 770,107 | — | — | 860,620 |
| Junior subordinated debentures | 16 | — | — | — | 249,493 | 249,493 |
| Operating leases | 17 | 4,066 | 7,374 | 5,278 | 9,850 | 26,568 |
| Purchase obligations (3) |  | 16,509 | 3,509 | 121 | 139 | 20,278 |
| Total |  | $9,125,641 | 2,485,974 | 430,091 | 393,426 | 12,435,132 |

#### (1) Excludes basis adjustment for purchase accounting valuations.

*(2) Certain advances provide the FHLB with call dates which are not reflected in the above table.*

*(3) Purchase obligations presented above primarily relate to certain contractual obligations for services related to the construction of facilities, data processing and the outsourcing of certain operational activities.*

The Company also enters into derivative contracts under which the Company is required to either receive cash from or pay cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value representing the net present value of expected future cash receipts or payments based on market rates as of the balance sheet date. Because the derivative assets and liabilities recorded on the balance sheet at December 31, 2010 do not represent the amounts that may ultimately be paid under these contracts, these assets and liabilities are not included in the table of contractual obligations presented above.

*Commitments.* The following table presents a summary of the amounts and expected maturities of significant commitments as of December 31, 2010. Further information on these commitments is included in Note 21 of the Consolidated Financial Statements.

*(dollars in thousands)*

| Commitment type: | One Year or Less | 1-3 Years | 3-5 Years | Over 5 Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial, commercial real estate and construction | $1,278,570 | 480,440 | 128,032 | 40,372 | 1,927,414 |
| Residential real estate | 303,132 | — | — | — | 303,132 |
| Revolving home equity lines of credit | 829,919 | — | — | — | 829,919 |
| Letters of credit | 109,018 | 63,951 | 14,846 | 115 | 187,930 |
| Commitments to sell mortgage loans | 670,085 | — | — | — | 670,085 |

*Contingencies.* The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements usually require certain representations concerning credit information, loan documentation, collateral and insurability. Investors have requested the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. Upon completion of its own investigation, the Company generally repurchases or provides indemnification on certain loans. Indemnification requests are generally received within two years subsequent to sale. Management maintains a liability for estimated losses on loans expected to be repurchased or on which indemnification is expected to be provided and regularly evaluates the adequacy of this recourse liability based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans and current economic conditions. At December 31, 2010 the liability for estimated losses on repurchase and indemnification was $8.9 million and was included in other liabilities on the balance sheet.

## Market risk

As filed, 6,589 characters.

### Effects of Inflation

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as does inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company. An analysis of the Company’s asset and liability structure provides the best indication of how the organization is positioned to respond to changing interest rates.

### Asset-Liability Management

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

Interest rate risk arises when the maturity or repricing periods and interest rate indices of the interest earning assets, interest bearing liabilities, and derivative financial instruments are different. It is the risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest earning assets, interest bearing liabilities and derivative financial instruments. The Company continuously monitors not only the organization’s current net interest margin, but also the historical trends of these margins. In addition, management attempts to identify potential adverse changes in net interest income in future years as a result interest rate fluctuations by performing simulation analysis of various interest rate environments. If a potential adverse change in net interest margin and/or net income is identified, management would take appropriate actions with its asset-liability structure to mitigate these potentially adverse situations. Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the net interest margin.

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

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

Management measures its exposure to changes in interest rates using many different interest rate scenarios. One interest rate scenario utilized is to measure the percentage change in net interest income assuming a ramped increase and decrease of 100 and 200 basis points that occurs in equal steps over a twelve-month time horizon. Utilizing this measurement concept, the interest rate risk of the Company, expressed as a percentage change in net interest income over a one-year time horizon due to changes in interest rates, at December 31, 2010 and December 31, 2009, is as follows:

|  |  |  |  |  |
| --- | --- | --- | ---: | ---: |
|  | **+ 200** | **+ 100** | **- 100** | **- 200** |
|  | **Basis** | **Basis** | **Basis** | **Basis** |
|  | **Points** | **Points** | **Points** | **Points** |
| Percentage change in net interest income due to a ramped 100 and 200 basis point shift in the yield curve: |  |  |  |  |
| **December 31, 2010** | **5.3%** | **2.4%** | **(2.9)%** | **(7.0)%** |
| December 31, 2009 | 3.7% | 1.5% | (2.4)% | (6.6)% |

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

One method utilized by financial institutions to manage interest rate risk is to enter into derivative financial instruments. A derivative financial instrument includes interest rate swaps, interest rate caps and floors, futures, forwards, option contracts and other financial instruments with similar characteristics. Additionally, the Company enters into commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors. See Note 22 of the Financial Statements presented under Item 8 of this report for further information on the Company’s derivative financial instruments.

During 2010 and 2009, the Company entered into certain covered call option transactions related to certain securities held by the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts, such as interest rate floors) to increase the total return associated with the related securities. Although the revenue received from these options is recorded as non-interest income rather than interest income, the increased return attributable to the related securities from these options contributes to the Company’s overall profitability. The Company’s exposure to interest rate risk may be impacted by these transactions. To mitigate this risk, the Company may acquire fixed rate term debt or use financial derivative instruments. There were no covered call options outstanding as of December 31, 2010 and 2009.

## Controls and procedures

As filed, 7,842 characters.

#### Disclosure Controls and Procedures

As of the end of the period covered by this report, management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in ensuring the information relating to the Company (and its consolidated subsidiaries) required to be disclosed by the Company in the reports it files or submits under the Exchange Act was recorded, processed, summarized and reported in a timely manner.

#### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

#### Report on Management’s Assessment of Internal Control Over Financial Reporting

Wintrust Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with generally accepted accounting principles in the United States and necessarily include some amounts that are based on management’s best estimates and judgments.

We, as management of Wintrust Financial Corporation, are responsible for establishing and maintaining adequate internal control over financial reporting that is designed to produce reliable financial statements in conformity with generally accepted accounting principles in the United States. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2010, in relation to criteria for the effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2010, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control -Integrated Framework.” Ernst & Young LLP, independent registered public accounting firm, has issued an attestation report on management’s assessment of the Corporation’s internal control over financial reporting. Their report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010.

|  |  |
| --- | --- |
| /s/ Edward J. Wehmer | /s/ David L. Stoehr |
| Edward J. Wehmer | David L. Stoehr |
| President and | Executive Vice President & |
| Chief Executive Officer | Chief Financial Officer |
| Lake Forest, Illinois |  |
| March 1, 2011 |  |

147

#### Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Wintrust Financial Corporation and subsidiaries

We have audited Wintrust Financial Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Wintrust Financial Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Wintrust Financial Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of Wintrust Financial Corporation and subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2010 and our report dated March 1, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young, LLP

Chicago, Illinois

March 1, 2011

Filed Mar 1, 2011.
Source: SEC EDGAR, the filing index for accession 0000950123-11-020362. Last ingested by Listed: Nov 5, 2026, 14:04 ET. No prices; not investment advice.