Edgar Filing: WINTRUST FINANCIAL CORP

WTFC-2014.03.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________



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

For the quarterly period ended March 31, 2014



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

For the transition period from to

Commission File Number 001-35077

_____________________________________

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



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

9700 W. Higgins Road, Suite 800

Rosemont, Illinois 60018

(Address of principal executive offices)

(847) 939-9000

(Registrant’s telephone number, including area code)

______________________________________

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

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

Common Stock — no par value, 46,541,444 shares, as of April 30, 2014

Table of Contents

TABLE OF CONTENTS



		Page
	PART I. — FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	93
ITEM 4.	Controls and Procedures	94
	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings	95
ITEM 1A.	Risk Factors	95
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	95
ITEM 3.	Defaults Upon Senior Securities	NA
ITEM 4.	Mine Safety Disclosures	NA
ITEM 5.	Other Information	NA
ITEM 6.	Exhibits	96
	Signatures	97

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION

	(Unaudited)						(Unaudited)
(In thousands, except share data)	March 31, 2014			December 31, 2013			March 31, 2013
Assets
Cash and due from banks	$	330,262		$	253,408		$	199,575
Federal funds sold and securities purchased under resale agreements	12,476			10,456			13,626
Interest-bearing deposits with other banks	540,964			495,574			685,302
Available-for-sale securities, at fair value	1,949,697			2,176,290			1,870,831
Trading account securities	1,068			497			1,036
Federal Home Loan Bank and Federal Reserve Bank stock	78,524			79,261			76,601
Brokerage customer receivables	26,884			30,953			25,614
Mortgage loans held-for-sale	215,231			334,327			380,922
Loans, net of unearned income, excluding covered loans	13,133,160			12,896,602			11,900,312
Covered loans	312,478			346,431			518,661
Total loans	13,445,638			13,243,033			12,418,973
Less: Allowance for loan losses	92,275			96,922			110,348
Less: Allowance for covered loan losses	3,447			10,092			12,272
Net loans	13,349,916			13,136,019			12,296,353
Premises and equipment, net	531,763			531,947			504,803
FDIC indemnification asset	60,298			85,672			170,696
Accrued interest receivable and other assets	549,705			569,619			485,746
Trade date securities receivable	182,600			—			—
Goodwill	373,725			374,547			343,632
Other intangible assets	18,050			19,213			19,510
Total assets	$	18,221,163		$	18,097,783		$	17,074,247
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	2,773,922		$	2,721,771		$	2,243,440
Interest bearing	12,355,123			11,947,018			11,719,317
Total deposits	15,129,045			14,668,789			13,962,757
Notes payable	182			364			31,911
Federal Home Loan Bank advances	387,672			417,762			414,032
Other borrowings	230,904			254,740			256,244
Subordinated notes	—			—			15,000
Junior subordinated debentures	249,493			249,493			249,493
Trade date securities payable	—			303,088			1,250
Accrued interest payable and other liabilities	283,724			302,958			317,872
Total liabilities	16,281,020			16,197,194			15,248,559
Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series A - $1,000 liquidation value; No shares issued and outstanding at March 31, 2014 and December 31, 2013, and 50,000 shares issued and outstanding at March 31, 2013	—			—			49,941
Series C - $1,000 liquidation value; 126,477 shares issued and outstanding at March 31, 2014 and December 31, 2013, and 126,500 shares issued and outstanding at March, 31, 2013	126,477			126,477			126,500
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at March 31, 2014, December 31, 2013, and March 31, 2013; 46,332,213 shares issued at March 31, 2014, 46,181,588 shares issued at December 31, 2013, and 37,272,279 shares issued at March 31, 2013	46,332			46,181			37,272
Surplus	1,122,233			1,117,032			1,040,098
Treasury stock, at cost, 73,253 shares at March 31, 2014, 65,005 shares at December 31, 2013, and 258,572 shares at March 31, 2013	(3,380		)	(3,000		)	(8,187		)
Retained earnings	705,234			676,935			581,131
Accumulated other comprehensive loss	(56,753		)	(63,036		)	(1,067		)
Total shareholders’ equity	1,940,143			1,900,589			1,825,688
Total liabilities and shareholders’ equity	$	18,221,163		$	18,097,783		$	17,074,247

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

	Three Months Ended
	March 31,
(In thousands, except per share data)	2014			2013
Interest income
Interest and fees on loans	$	147,030		$	142,114
Interest bearing deposits with banks	249			569
Federal funds sold and securities purchased under resale agreements	4			15
Securities	13,114			8,752
Trading account securities	9			5
Federal Home Loan Bank and Federal Reserve Bank stock	711			684
Brokerage customer receivables	209			174
Total interest income	161,326			152,313
Interest expense
Interest on deposits	11,923			14,504
Interest on Federal Home Loan Bank advances	2,643			2,764
Interest on notes payable and other borrowings	750			1,154
Interest on subordinated notes	—			59
Interest on junior subordinated debentures	2,004			3,119
Total interest expense	17,320			21,600
Net interest income	144,006			130,713
Provision for credit losses	1,880			15,687
Net interest income after provision for credit losses	142,126			115,026
Non-interest income
Wealth management	16,813			14,828
Mortgage banking	16,428			30,145
Service charges on deposit accounts	5,346			4,793
(Losses) gains on available-for-sale securities, net	(33		)	251
Fees from covered call options	1,542			1,639
Trading losses, net	(652		)	(435		)
Other	6,085			6,158
Total non-interest income	45,529			57,379
Non-interest expense
Salaries and employee benefits	79,934			77,513
Equipment	7,403			6,184
Occupancy, net	10,993			8,853
Data processing	4,715			4,599
Advertising and marketing	2,816			2,040
Professional fees	3,454			3,221
Amortization of other intangible assets	1,163			1,120
FDIC insurance	2,951			3,444
OREO expense (income), net	3,976			(1,620		)
Other	13,910			14,765
Total non-interest expense	131,315			120,119
Income before taxes	56,340			52,286
Income tax expense	21,840			20,234
Net income	$	34,500		$	32,052
Preferred stock dividends and discount accretion	1,581			2,616
Net income applicable to common shares	$	32,919		$	29,436
Net income per common share—Basic	$	0.71		$	0.80
Net income per common share—Diluted	$	0.68		$	0.65
Cash dividends declared per common share	$	0.10		$	0.09
Weighted average common shares outstanding	46,195			36,976
Dilutive potential common shares	4,509			12,463
Average common shares and dilutive common shares	50,704			49,439

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended
	March 31,
(In thousands)	2014			2013
Net income	$	34,500		$	32,052
Unrealized gains (losses) on securities
Before tax	22,526			(7,455		)
Tax effect	(8,804		)	2,806
Net of tax	13,722			(4,649		)
Less: Reclassification of net (losses) gains included in net income
Before tax	(33		)	251
Tax effect	13			(100		)
Net of tax	(20		)	151
Net unrealized gains (losses) on securities	13,742			(4,800		)
Unrealized (losses) gains on derivative instruments
Before tax	(98		)	1,474
Tax effect	39			(586		)
Net unrealized (losses) gains on derivative instruments	(59		)	888
Foreign currency translation adjustment
Before tax	(9,959		)	(6,304		)
Tax effect	2,559			1,438
Net foreign currency translation adjustment	(7,400		)	(4,866		)
Total other comprehensive income (loss)	6,283			(8,778		)
Comprehensive income	$	40,783		$	23,274

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

(In thousands)	Preferred stock		Common stock		Surplus		Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at December 31, 2012	$	176,406	$	37,108	$	1,036,295	$	(7,838	)	$	555,023		$	7,711		$	1,804,705
Net income	—		—		—		—			32,052			—			32,052
Other comprehensive loss, net of tax	—		—		—		—			—			(8,778		)	(8,778		)
Cash dividends declared on common stock	—		—		—		—			(3,328		)	—			(3,328		)
Dividends on preferred stock	—		—		—		—			(2,581		)	—			(2,581		)
Accretion on preferred stock	35		—		—		—			(35		)	—			—
Stock-based compensation	—		—		2,413		—			—			—			2,413
Common stock issued for:
Exercise of stock options and warrants	—		9		320		(214		)	—			—			115
Restricted stock awards	—		111		90		(135		)	—			—			66
Employee stock purchase plan	—		13		628		—			—			—			641
Director compensation plan	—		31		352		—			—			—			383
Balance at March 31, 2013	$	176,441	$	37,272	$	1,040,098	$	(8,187	)	$	581,131		$	(1,067	)	$	1,825,688
Balance at December 31, 2013	$	126,477	$	46,181	$	1,117,032	$	(3,000	)	$	676,935		$	(63,036	)	$	1,900,589
Net income	—		—		—		—			34,500			—			34,500
Other comprehensive income, net of tax	—		—		—		—			—			6,283			6,283
Cash dividends declared on common stock	—		—		—		—			(4,620		)	—			(4,620		)
Dividends on preferred stock	—		—		—		—			(1,581		)	—			(1,581		)
Stock-based compensation	—		—		1,681		—			—			—			1,681
Common stock issued for:
Exercise of stock options and warrants	—		77		2,464		(271		)	—			—			2,270
Restricted stock awards	—		41		111		(109		)	—			—			43
Employee stock purchase plan	—		13		587		—			—			—			600
Director compensation plan	—		20		358		—			—			—			378
Balance at March 31, 2014	$	126,477	$	46,332	$	1,122,233	$	(3,380	)	$	705,234		$	(56,753	)	$	1,940,143

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three Months Ended
	March 31,
(In thousands)	2014			2013
Operating Activities:
Net income	$	34,500		$	32,052
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	1,880			15,687
Depreciation and amortization	7,753			6,782
Stock-based compensation expense	1,681			2,413
Tax benefit from stock-based compensation arrangements	3			200
Excess tax benefits from stock-based compensation arrangements	(156		)	(222		)
Net amortization of premium on securities	233			3,424
Mortgage servicing rights fair value change, net	253			(273		)
Originations and purchases of mortgage loans held-for-sale	(527,272		)	(974,432		)
Proceeds from sales of mortgage loans held-for-sale	658,588			1,033,129
Increase in trading securities, net	(571		)	(453		)
Net decrease (increase) in brokerage customer receivables	4,069			(750		)
Gains on mortgage loans sold	(12,220		)	(27,419		)
Losses (gains) on available-for-sale securities, net	33			(251		)
Loss on sales of premises and equipment, net	795			1
Net loss (gains) on sales and fair value adjustments of other real estate owned	2,460			(2,658		)
Decrease in accrued interest receivable and other assets, net	27,584			32,068
Decrease in accrued interest payable and other liabilities, net	(37,348		)	(19,617		)
Net Cash Provided by Operating Activities	162,265			99,681
Investing Activities:
Proceeds from maturities of available-for-sale securities	98,007			67,941
Proceeds from sales of available-for-sale securities	14,800			41,056
Purchases of available-for-sale securities	(349,979		)	(192,379		)
Divestiture of operations	—			(149,100		)
Proceeds from sales of other real estate owned	20,362			30,641
Proceeds received from the FDIC related to reimbursements on covered assets	9,669			13,932
Net (increase) decrease in interest-bearing deposits with banks	(45,390		)	350,441
Net increase in loans	(227,040		)	(52,143		)
Purchases of premises and equipment, net	(7,596		)	(6,508		)
Net Cash (Used for) Provided by Investing Activities	(487,167		)	103,881
Financing Activities:
Increase (decrease) in deposit accounts	460,551			(314,618		)
(Decrease) increase in other borrowings, net	(24,018		)	11,576
Decrease in Federal Home Loan Bank advances, net	(30,000		)	—
Excess tax benefits from stock-based compensation arrangements	156			222
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants	3,668			1,354
Common stock repurchases	(380		)	(349		)
Dividends paid	(6,201		)	(3,574		)
Net Cash Provided by (Used for) Financing Activities	403,776			(305,389		)
Net Increase (Decrease) in Cash and Cash Equivalents	78,874			(101,827		)
Cash and Cash Equivalents at Beginning of Period	263,864			315,028
Cash and Cash Equivalents at End of Period	$	342,738		$	213,201

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

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

The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles ("GAAP"). The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”). Operating results reported for the three-month periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 - “Summary of Significant Accounting Policies” of the Company’s 2013 Form 10-K.

(2) Recent Accounting Developments

Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued ASU No. 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects,” to provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that invest in affordable housing projects that qualify for the low-income housing tax credit. This ASU permits new accounting treatment, if certain conditions are met, which allows the Company to amortize the initial cost of an investment in proportion to the amount of tax credits and other tax benefits received with recognition of the investment performance in income tax expense. This guidance is effective for fiscal years beginning after December 15, 2014 and is to be applied retrospectively. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.

Repossession of Residential Real Estate Collateral

In January 2014, the FASB issued ASU No. 2014-04, “Receivables - Troubled Debt Restructurings by Creditors (Topic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to address diversity in practice and clarify guidance regarding the accounting for an in-substance repossession or foreclosure of residential real estate collateral. This ASU clarifies that an in-substance repossession or foreclosure occurs upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor. Additionally, this ASU requires disclosure of both the amount of foreclosed residential real estate property held by the Company and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. This guidance is effective for fiscal years beginning after December 15, 2014. Other than requiring additional disclosures, the Company does not expect adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

Table of Contents

(3) Business Combinations

Non-FDIC Assisted Bank Acquisitions

On October 18, 2013, the Company acquired Diamond Bancorp, Inc. ("Diamond"). Diamond was the parent company of Diamond Bank, FSB ("Diamond Bank"), which operated four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. As part of the transaction, Diamond Bank was merged into North Shore Community Bank & Trust Company ("North Shore Bank"). The Company acquired assets with a fair value of approximately $172.5 million, including approximately $91.7 million of loans, and assumed liabilities with a fair value of approximately $169.1 million, including approximately $140.2 million of deposits. Additionally, the Company recorded goodwill of $8.4 million on the acquisition.

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

See Note 17—Subsequent Events for discussion regarding the Company's announcements in April 2014 of the signing of a definitive agreement to acquire certain branch offices and deposits of Talmer Bank & Trust, and a branch of THE National Bank.

FDIC-Assisted Transactions

Since 2010, the Company acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of nine financial institutions in FDIC-assisted transactions. Loans comprise the majority of the assets acquired in nearly all of these FDIC-assisted transactions since 2010, most of which are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. Additionally, the loss share agreements with the FDIC require the Company to reimburse the FDIC in the event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect of such assets in the loss share agreements. The Company refers to the loans subject to these loss-sharing agreements as “covered loans” and uses the term “covered assets” to refer to covered loans, covered OREO and certain other covered assets. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as an FDIC indemnification asset in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date. Therefore, the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration subsequent to the acquisition date. See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion of the allowance on covered loans.

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

Table of Contents

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



	Three Months Ended
(Dollars in thousands)	March 31, 2014			March 31, 2013
Balance at beginning of period	$	85,672		$	208,160
Additions from acquisitions	—			—
Additions from reimbursable expenses	1,282			5,033
Amortization	(1,603		)	(2,468		)
Changes in expected reimbursements from the FDIC for changes in expected credit losses	(15,384		)	(26,097		)
Payments received from the FDIC	(9,669		)	(13,932		)
Balance at end of period	$	60,298		$	170,696

Divestiture of Previous FDIC-Assisted Acquisition

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

Mortgage Banking Acquisitions

On October 1, 2013, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Surety Financial Services ("Surety") of Sherman Oaks, California. Surety had five offices located in southern California which originated approximately $1.0 billion in the twelve months prior to the acquisition date. The Company recorded goodwill of $9.5 million on the acquisition.

Purchased loans with evidence of credit quality deterioration since origination

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

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

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

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

(4) Cash and Cash Equivalents

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

Table of Contents

(5) Available-For-Sale Securities

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



	March 31, 2014
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	354,109	$	263	$	(14,194	)	$	340,178
U.S. Government agencies	874,845		3,286		(49,856		)	828,275
Municipal	175,028		3,439		(3,167		)	175,300
Corporate notes:
Financial issuers	129,413		2,306		(1,735		)	129,984
Other	4,986		100		(3		)	5,083
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	371,825		3,919		(13,188		)	362,556
Collateralized mortgage obligations	55,190		356		(799		)	54,747
Other equity securities	50,570		3,543		(539		)	53,574
Total available-for-sale securities	$	2,015,966	$	17,212	$	(83,481	)	$	1,949,697



	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	354,262	$	141	$	(18,308	)	$	336,095
U.S. Government agencies	950,086		1,680		(56,078		)	895,688
Municipal	154,463		2,551		(4,298		)	152,716
Corporate notes:
Financial issuers	129,362		1,993		(2,411		)	128,944
Other	5,994		105		(5		)	6,094
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	562,708		3,537		(18,047		)	548,198
Collateralized mortgage obligations	57,711		258		(942		)	57,027
Other equity securities	50,532		1,493		(497		)	51,528
Total available-for-sale securities	$	2,265,118	$	11,758	$	(100,586	)	$	2,176,290



	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	220,215	$	190	$	(2,760	)	$	217,645
U.S. Government agencies	975,386		2,960		(4,631		)	973,715
Municipal	107,947		2,628		(316		)	110,259
Corporate notes:
Financial issuers	136,761		2,569		(2,280		)	137,050
Other	11,628		195		—			11,823
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	294,728		7,360		(3,194		)	298,894
Collateralized mortgage obligations	68,496		897		(5		)	69,388
Other equity securities	52,413		745		(1,101		)	52,057
Total available-for-sale securities	$	1,867,574	$	17,544	$	(14,287	)	$	1,870,831


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

Table of Contents

The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014:



	Continuous unrealized losses existing for less than 12 months					Continuous unrealized losses existing for greater than 12 months					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury	$	—	$	—		$	185,969	$	(14,194	)	$	185,969	$	(14,194	)
U.S. Government agencies	463,254		(42,295		)	54,128		(7,561		)	517,382		(49,856		)
Municipal	61,280		(2,683		)	9,484		(484		)	70,764		(3,167		)
Corporate notes:
Financial issuers	1,327		(10		)	57,474		(1,725		)	58,801		(1,735		)
Other	997		(3		)	—		—			997		(3		)
Mortgage-backed:
Mortgage-backed securities	137,042		(1,352		)	137,661		(11,836		)	274,703		(13,188		)
Collateralized mortgage obligations	21,045		(275		)	11,944		(524		)	32,989		(799		)
Other equity securities	8,296		(213		)	5,674		(326		)	13,970		(539		)
Total	$	693,241	$	(46,831	)	$	462,334	$	(36,650	)	$	1,155,575	$	(83,481	)

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

The Company does not consider securities with unrealized losses at March 31, 2014 to be other-than-temporarily impaired. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Securities with continuous unrealized losses existing for more than twelve months were primarily treasury notes, mortgage-backed securities, and agency bonds. Unrealized losses recognized on treasury notes, mortgage backed securities and agency bonds are the result of increases in yields for similar types of securities which have a longer duration and maturity.

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



	Three months ended March 31,
(Dollars in thousands)	2014			2013
Realized gains	$	55		$	313
Realized losses	(88		)	(62		)
Net realized (losses) gains	$	(33	)	$	251
Other than temporary impairment charges	—			—
(Losses) gains on available-for-sale securities, net	$	(33	)	$	251
Proceeds from sales of available-for-sale securities	$	14,800		$	41,056

Table of Contents

The amortized cost and fair value of securities as of March 31, 2014, December 31, 2013 and March 31, 2013, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:



	March 31, 2014				December 31, 2013				March 31, 2013
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	203,749	$	203,942	$	268,847	$	269,168	$	247,388	$	247,836
Due in one to five years	338,130		338,980		358,108		358,357		337,431		338,633
Due in five to ten years	344,296		330,546		350,372		330,020		357,677		356,871
Due after ten years	652,206		605,352		616,840		561,992		509,441		507,152
Mortgage-backed	427,015		417,303		620,419		605,225		363,224		368,282
Other equity securities	50,570		53,574		50,532		51,528		52,413		52,057
Total available-for-sale securities	$	2,015,966	$	1,949,697	$	2,265,118	$	2,176,290	$	1,867,574	$	1,870,831

Securities having a carrying value of $1.2 billion at March 31, 2014, $1.2 billion at December 31, 2013 and $1.1 billion March 31, 2013, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At March 31, 2014, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

Table of Contents

(6) Loans

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



	March 31,			December 31,			March 31,
(Dollars in thousands)	2014			2013			2013
Balance:
Commercial	$	3,439,197		$	3,253,687		$	2,872,695
Commercial real-estate	4,262,255			4,230,035			3,990,465
Home equity	707,748			719,137			759,218
Residential real-estate	426,769			434,992			360,652
Premium finance receivables—commercial	2,208,361			2,167,565			1,997,160
Premium finance receivables—life insurance	1,929,334			1,923,698			1,753,512
Consumer and other	159,496			167,488			166,610
Total loans, net of unearned income, excluding covered loans	$	13,133,160		$	12,896,602		$	11,900,312
Covered loans	312,478			346,431			518,661
Total loans	$	13,445,638		$	13,243,033		$	12,418,973
Mix:
Commercial	26		%	25		%	23		%
Commercial real-estate	32			32			32
Home equity	5			5			6
Residential real-estate	3			3			3
Premium finance receivables—commercial	17			16			16
Premium finance receivables—life insurance	14			15			14
Consumer and other	1			1			2
Total loans, net of unearned income, excluding covered loans	98		%	97		%	96		%
Covered loans	2			3			4
Total loans	100		%	100		%	100		%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $40.3 million at March 31, 2014, $41.9 million at December 31, 2013 and $40.0 million at March 31, 2013, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as purchased credit impaired ("PCI") loans acquired with evidence of credit quality deterioration since origination are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Total loans, excluding PCI loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(6.2) million at March 31, 2014, $(9.2) million at December 31, 2013 and $10.5 million at March 31, 2013. The net credit balances at March 31, 2014 and December 31, 2013 are primarily the result of purchase accounting adjustments related to the acquisition of FNBI and Diamond during 2013.

The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses located within the geographic market areas that the banks serve. The premium finance receivables portfolios are made to customers throughout the United States and Canada. The Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.

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

Table of Contents

Acquired Loan Information at Acquisition—PCI Loans

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

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



	March 31, 2014				December 31, 2013
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	407,157	$	303,362	$	453,944	$	338,517
Life insurance premium finance loans acquisition	424,680		413,202		437,155		423,906

See Note 7—Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with PCI loans at March 31, 2014.

Accretable Yield Activity

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



	Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	107,655		$	8,254		$	143,224		$	13,055
Acquisitions	—			—			(78		)	—
Accretable yield amortized to interest income	(7,770		)	(1,771		)	(9,577		)	(2,019		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(5,648		)	—			(8,706		)	—
Reclassification from non-accretable difference ⁽²⁾	8,580			—			5,412			—
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(5,143		)	78			(8,550		)	182
Accretable yield, ending balance ⁽³⁾	$	97,674		$	6,561		$	121,725		$	11,218


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


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


(3)	As of March 31, 2014, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $28.1 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

Accretion to interest income from loans acquired in bank acquisitions totaled $7.8 million and $9.6 million in the first quarter of 2014 and 2013, respectively. These amounts include accretion from both covered and non-covered loans, and are included together within interest and fees on loans in the Consolidated Statements of Income.

Table of Contents

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

The tables below show the aging of the Company’s loan portfolio at March 31, 2014, December 31, 2013 and March 31, 2013:



As of March 31, 2014			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	11,112	$	387	$	2,235	$	16,150	$	1,965,425	$	1,995,309
Franchise	—		—		—		75		221,026		221,101
Mortgage warehouse lines of credit	—		—		—		—		60,809		60,809
Community Advantage—homeowners association	—		—		—		—		91,414		91,414
Aircraft	—		—		—		—		8,840		8,840
Asset-based lending	670		—		—		10,573		729,425		740,668
Tax exempt	—		—		—		—		177,973		177,973
Leases	—		—		—		—		121,986		121,986
Other	—		—		—		—		10,261		10,261
PCI - commercial ⁽¹⁾	—		1,079		—		865		8,892		10,836
Total commercial	11,782		1,466		2,235		27,663		3,396,051		3,439,197
Commercial real-estate:
Residential construction	—		—		680		27		35,690		36,397
Commercial construction	844		—		—		—		150,786		151,630
Land	2,405		—		2,682		3,438		99,445		107,970
Office	6,970		—		1,672		8,868		633,655		651,165
Industrial	6,101		—		1,114		2,706		615,139		625,060
Retail	9,540		—		217		3,089		664,584		677,430
Multi-family	1,327		—		—		3,820		570,616		575,763
Mixed use and other	6,546		—		6,626		10,744		1,337,320		1,361,236
PCI - commercial real-estate ⁽¹⁾	—		21,073		2,791		6,169		45,571		75,604
Total commercial real-estate	33,733		21,073		15,782		38,861		4,152,806		4,262,255
Home equity	7,311		—		1,650		4,972		693,815		707,748
Residential real estate	14,385		—		946		4,889		403,474		423,694
PCI - residential real estate ⁽¹⁾	—		1,414		—		248		1,413		3,075
Premium finance receivables
Commercial insurance loans	14,517		6,808		5,600		20,777		2,160,659		2,208,361
Life insurance loans	—		—		—		4,312		1,511,820		1,516,132
PCI - life insurance loans ⁽¹⁾	—		—		—		—		413,202		413,202
Consumer and other	1,144		57		213		550		157,290		159,254
PCI - consumer and other ⁽¹⁾	—		48		—		20		174		242
Total loans, net of unearned income, excluding covered loans	$	82,872	$	30,866	$	26,426	$	102,292	$	12,890,704	$	13,133,160
Covered loans	9,136		35,831		6,682		7,042		253,787		312,478
Total loans, net of unearned income	$	92,008	$	66,697	$	33,108	$	109,334	$	13,144,491	$	13,445,638


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

Table of Contents



As of December 31, 2013			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	10,143	$	—	$	4,938	$	7,404	$	1,813,721	$	1,836,206
Franchise	—		—		400		—		219,983		220,383
Mortgage warehouse lines of credit	—		—		—		—		67,470		67,470
Community Advantage—homeowners association	—		—		—		—		90,894		90,894
Aircraft	—		—		—		—		10,241		10,241
Asset-based lending	637		—		388		1,878		732,190		735,093
Tax exempt	—		—		—		—		161,239		161,239
Leases	—		—		—		788		109,043		109,831
Other	—		—		—		—		11,147		11,147
PCI - commercial ⁽¹⁾	—		274		156		1,685		9,068		11,183
Total commercial	10,780		274		5,882		11,755		3,224,996		3,253,687
Commercial real-estate
Residential construction	149		—		—		—		38,351		38,500
Commercial construction	6,969		—		—		505		129,232		136,706
Land	2,814		—		4,224		619		99,128		106,785
Office	10,087		—		2,265		3,862		626,027		642,241
Industrial	5,654		—		585		914		626,785		633,938
Retail	10,862		—		837		2,435		642,125		656,259
Multi-family	2,035		—		—		348		564,154		566,537
Mixed use and other	8,088		230		3,943		15,949		1,344,244		1,372,454
PCI - commercial real-estate ⁽¹⁾	—		18,582		3,540		5,238		49,255		76,615
Total commercial real-estate	46,658		18,812		15,394		29,870		4,119,301		4,230,035
Home equity	10,071		—		1,344		3,060		704,662		719,137
Residential real-estate	14,974		—		1,689		5,032		410,430		432,125
PCI - residential real-estate ⁽¹⁾	—		1,988		—		—		879		2,867
Premium finance receivables
Commercial insurance loans	10,537		8,842		6,912		24,094		2,117,180		2,167,565
Life insurance loans	—		—		2,524		1,808		1,495,460		1,499,792
PCI - life insurance loans ⁽¹⁾	—		—		—		—		423,906		423,906
Consumer and other	1,137		105		76		1,010		163,956		166,284
PCI - consumer and other ⁽¹⁾	—		181		—		—		1,023		1,204
Total loans, net of unearned income, excluding covered loans	$	94,157	$	30,202	$	33,821	$	76,629	$	12,661,793	$	12,896,602
Covered loans	9,425		56,282		5,877		7,937		266,910		346,431
Total loans, net of unearned income	$	103,582	$	86,484	$	39,698	$	84,566	$	12,928,703	$	13,243,033


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

Table of Contents



As of March 31, 2013			90+ days and still accruing		60-89 days past due		30-59 days past due
(Dollars in thousands)	Nonaccrual								Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	17,717	$	—	$	1,150	$	16,710	$	1,533,999	$	1,569,576
Franchise	125		—		—		76		194,310		194,511
Mortgage warehouse lines of credit	—		—		—		—		131,970		131,970
Community Advantage—homeowners association	—		—		—		—		82,763		82,763
Aircraft	—		—		—		—		14,112		14,112
Asset-based lending	531		—		483		5,518		680,723		687,255
Tax exempt	—		—		—		—		89,508		89,508
Leases	—		—		—		844		97,186		98,030
Other	—		—		—		—		127		127
PCI - commercial ⁽¹⁾	—		449		—		—		4,394		4,843
Total commercial	18,373		449		1,633		23,148		2,829,092		2,872,695
Commercial real-estate:
Residential construction	3,094		—		945		—		33,044		37,083
Commercial construction	1,086		—		9,521		—		151,751		162,358
Land	17,976		—		—		11,563		104,039		133,578
Office	3,564		—		8,990		4,797		567,333		584,684
Industrial	7,137		—		—		986		587,402		595,525
Retail	7,915		—		6,970		5,953		565,963		586,801
Multi-family	2,088		—		1,036		4,315		505,346		512,785
Mixed use and other	18,947		—		1,573		13,560		1,288,754		1,322,834
PCI - commercial real-estate ⁽¹⁾	—		1,866		251		3,333		49,367		54,817
Total commercial real-estate	61,807		1,866		29,286		44,507		3,852,999		3,990,465
Home equity	14,891		—		1,370		4,324		738,633		759,218
Residential real estate	9,606		—		782		8,680		340,751		359,819
PCI - residential real estate ⁽¹⁾	—		—		198		—		635		833
Premium finance receivables
Commercial insurance loans	12,068		7,677		4,647		19,323		1,953,445		1,997,160
Life insurance loans	20		2,256		—		1,340		1,250,165		1,253,781
PCI - life insurance loans ⁽¹⁾	—		—		—		—		499,731		499,731
Consumer and other	1,790		145		287		714		161,036		163,972
PCI - consumer and other ⁽¹⁾	—		—		—		20		2,618		2,638
Total loans, net of unearned income, excluding covered loans	$	118,555	$	12,393	$	38,203	$	102,056	$	11,629,105	$	11,900,312
Covered loans	1,820		115,482		1,454		12,268		387,637		518,661
Total loans, net of unearned income	$	120,375	$	127,875	$	39,657	$	114,324	$	12,016,742	$	12,418,973


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

Table of Contents

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

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

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

Table of Contents

Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest, excluding PCI loans. The remainder of the portfolio is considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at March 31, 2014, December 31, 2013 and March 31, 2013:



	Performing						Non-performing						Total
(Dollars in thousands)	March 31, 2014		December 31, 2013		March 31, 2013		March 31, 2014		December 31, 2013		March 31, 2013		March 31, 2014		December 31, 2013		March 31, 2013
Loan Balances:
Commercial
Commercial and industrial	$	1,983,810	$	1,826,063	$	1,551,859	$	11,499	$	10,143	$	17,717	$	1,995,309	$	1,836,206	$	1,569,576
Franchise	221,101		220,383		194,386		—		—		125		221,101		220,383		194,511
Mortgage warehouse lines of credit	60,809		67,470		131,970		—		—		—		60,809		67,470		131,970
Community Advantage—homeowners association	91,414		90,894		82,763		—		—		—		91,414		90,894		82,763
Aircraft	8,840		10,241		14,112		—		—		—		8,840		10,241		14,112
Asset-based lending	739,998		734,456		686,724		670		637		531		740,668		735,093		687,255
Tax exempt	177,973		161,239		89,508		—		—		—		177,973		161,239		89,508
Leases	121,986		109,831		98,030		—		—		—		121,986		109,831		98,030
Other	10,261		11,147		127		—		—		—		10,261		11,147		127
PCI - commercial ⁽¹⁾	10,836		11,183		4,843		—		—		—		10,836		11,183		4,843
Total commercial	3,427,028		3,242,907		2,854,322		12,169		10,780		18,373		3,439,197		3,253,687		2,872,695
Commercial real-estate
Residential construction	36,397		38,351		33,989		—		149		3,094		36,397		38,500		37,083
Commercial construction	150,786		129,737		161,272		844		6,969		1,086		151,630		136,706		162,358
Land	105,565		103,971		115,602		2,405		2,814		17,976		107,970		106,785		133,578
Office	644,195		632,154		581,120		6,970		10,087		3,564		651,165		642,241		584,684
Industrial	618,959		628,284		588,388		6,101		5,654		7,137		625,060		633,938		595,525
Retail	667,890		645,397		578,886		9,540		10,862		7,915		677,430		656,259		586,801
Multi-family	574,436		564,502		510,697		1,327		2,035		2,088		575,763		566,537		512,785
Mixed use and other	1,354,690		1,364,136		1,303,887		6,546		8,318		18,947		1,361,236		1,372,454		1,322,834
PCI - commercial real-estate⁽¹⁾	75,604		76,615		54,817		—		—		—		75,604		76,615		54,817
Total commercial real-estate	4,228,522		4,183,147		3,928,658		33,733		46,888		61,807		4,262,255		4,230,035		3,990,465
Home equity	700,437		709,066		744,327		7,311		10,071		14,891		707,748		719,137		759,218
Residential real-estate	409,309		417,151		350,213		14,385		14,974		9,606		423,694		432,125		359,819
PCI - residential real-estate ⁽¹⁾	3,075		2,867		833		—		—		—		3,075		2,867		833
Premium finance receivables
Commercial insurance loans	2,187,036		2,148,186		1,977,415		21,325		19,379		19,745		2,208,361		2,167,565		1,997,160
Life insurance loans	1,516,132		1,499,792		1,251,505		—		—		2,276		1,516,132		1,499,792		1,253,781
PCI - life insurance loans ⁽¹⁾	413,202		423,906		499,731		—		—		—		413,202		423,906		499,731
Consumer and other	158,053		165,042		162,037		1,201		1,242		1,935		159,254		166,284		163,972
PCI - consumer and other⁽¹⁾	242		1,204		2,638		—		—		—		242		1,204		2,638
Total loans, net of unearned income, excluding covered loans	$	13,043,036	$	12,793,268	$	11,771,679	$	90,124	$	103,334	$	128,633	$	13,133,160	$	12,896,602	$	11,900,312


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

Table of Contents

A summary of activity in the allowance for credit losses by loan portfolio (excluding covered loans) for the three ended March 31, 2014 and 2013 is as follows:



Three months ended March 31, 2014				Commercial Real-estate						Residential Real-estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	23,092		$	48,658		$	12,611		$	5,108		$	5,583		$	1,870		$	96,922
Other adjustments	(15		)	(121		)	(1		)	(2		)	(9		)	—			(148		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			(18		)	—			—			—			—			(18		)
Charge-offs	(648		)	(4,493		)	(2,267		)	(226		)	(1,210		)	(173		)	(9,017		)
Recoveries	317			145			257			131			321			61			1,232
Provision for credit losses	1,943			434			366			(320		)	897			(16		)	3,304
Allowance for loan losses at period end	$	24,689		$	44,605		$	10,966		$	4,691		$	5,582		$	1,742		$	92,275
Allowance for unfunded lending-related commitments at period end	$	—		$	737		$	—		$	—		$	—		$	—		$	737
Allowance for credit losses at period end	$	24,689		$	45,342		$	10,966		$	4,691		$	5,582		$	1,742		$	93,012
Individually evaluated for impairment	3,107			4,041			596			455			—			95			8,294
Collectively evaluated for impairment	21,512			41,301			10,370			4,147			5,582			1,647			84,559
Loans acquired with deteriorated credit quality	70			—			—			89			—			—			159
Loans at period end
Individually evaluated for impairment	$	18,350		$	99,480		$	7,537		$	18,026		$	—		$	1,592		$	144,985
Collectively evaluated for impairment	3,410,011			4,087,171			700,211			405,668			3,724,493			157,662			12,485,216
Loans acquired with deteriorated credit quality	10,836			75,604			—			3,075			413,202			242			502,959



Three months ended March 31, 2013				Commercial Real-estate						Residential Real-estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
(Dollars in thousands)	Commercial			Commercial Real-estate			Home Equity			Residential Real-estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	28,794		$	52,135		$	12,734		$	5,560		$	6,096		$	2,032		$	107,351
Other adjustments	(3		)	(217		)	—			(9		)	—			—			(229		)
Reclassification from (to) allowance for unfunded lending-related commitments	—			(213		)	—			—			—			—			(213		)
Charge-offs	(4,540		)	(3,299		)	(2,397		)	(1,728		)	(1,068		)	(129		)	(13,161		)
Recoveries	295			368			162			5			294			109			1,233
Provision for credit losses	4,406			7,634			1,623			1,312			749			(357		)	15,367
Allowance for loan losses at period end	$	28,952		$	56,408		$	12,122		$	5,140		$	6,071		$	1,655		$	110,348
Allowance for unfunded lending-related commitments at period end	$	—		$	15,287		$	—		$	—		$	—		$	—		$	15,287
Allowance for credit losses at period end	$	28,952		$	71,695		$	12,122		$	5,140		$	6,071		$	1,655		$	125,635
Individually evaluated for impairment	3,682			23,089			1,748			598			—			156			29,273
Collectively evaluated for impairment	25,270			48,409			10,374			4,532			6,071			1,499			96,155
Loans acquired with deteriorated credit quality	—			197			—			10			—			—			207
Loans at period end
Individually evaluated for impairment	$	27,447		$	145,203		$	16,057		$	12,984		$	—		$	1,863		$	203,554
Collectively evaluated for impairment	2,840,405			3,790,445			743,161			346,835			3,250,941			162,109			11,133,896
Loans acquired with deteriorated credit quality	4,843			54,817			—			833			499,731			2,638			562,862

Table of Contents

A summary of activity in the allowance for covered loan losses for the three months ended March 31, 2014 and 2013 is as follows:



	Three Months Ended
	March 31,			March 31,
(Dollars in thousands)	2014			2013
Balance at beginning of period	$	10,092		$	13,454
Provision for covered loan losses before benefit attributable to FDIC loss share agreements	(7,121		)	1,600
Benefit attributable to FDIC loss share agreements	5,697			(1,280		)
Net provision for covered loan losses	(1,424		)	320
(Decrease) increase in FDIC indemnification asset	(5,697		)	1,280
Loans charged-off	(2,864		)	(2,791		)
Recoveries of loans charged-off	3,340			9
Net recoveries (charge-offs)	476			(2,782		)
Balance at end of period	$	3,447		$	12,272

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

Impaired Loans

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



	March 31,		December 31,		March 31,
(Dollars in thousands)	2014		2013		2013
Impaired loans (included in non-performing and TDRs):
Impaired loans with an allowance for loan loss required ⁽¹⁾	$	86,381	$	92,184	$	101,565
Impaired loans with no allowance for loan loss required	56,596		70,045		101,989
Total impaired loans ⁽²⁾	$	142,977	$	162,229	$	203,554
Allowance for loan losses related to impaired loans	$	8,197	$	8,265	$	14,607
TDRs	$	92,517	$	107,103	$	116,345


(1)	These impaired loans require an allowance for loan losses because the estimated fair value of the loans or related collateral is less than the recorded investment in the loans.


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

Table of Contents

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



							For the Three Months Ended
	As of March 31, 2014						March 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	9,167	$	10,029	$	2,459	$	9,340	$	120
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	670		2,465		620		677		31
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	—		—		—		—		—
Commercial construction	3,099		3,099		24		3,099		28
Land	9,260		9,625		174		9,688		79
Office	8,712		9,398		1,069		8,767		90
Industrial	6,597		6,765		513		5,985		81
Retail	12,763		12,903		826		12,819		132
Multi-family	2,053		2,143		122		2,057		23
Mixed use and other	25,420		25,591		1,272		25,853		291
Home equity	2,109		2,534		596		2,117		24
Residential real-estate	6,222		6,362		427		6,094		68
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
PCI - life insurance	—		—		—		—		—
Consumer and other	309		367		95		290		5
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	7,789	$	14,415	$	—	$	8,179	$	208
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	—		—		—		—		—
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	891		891		—		1,245		12
Commercial construction	1,466		1,471		—		1,418		17
Land	4,982		8,764		—		4,985		109
Office	6,260		6,301		—		6,266		83
Industrial	2,298		2,470		—		2,314		47
Retail	10,419		12,273		—		11,006		140
Multi-family	1,078		2,013		—		1,201		23
Mixed use and other	3,161		5,044		—		3,096		67
Home equity	5,428		7,044		—		5,777		73
Residential real-estate	11,541		14,427		—		11,699		137
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
PCI - life insurance	—		—		—		—		—
Consumer and other	1,283		1,809		—		1,285		27
Total loans, net of unearned income, excluding covered loans	$	142,977	$	168,203	$	8,197	$	145,257	$	1,915

Table of Contents



							For the Twelve Months Ended
	As of December 31, 2013						December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	6,297	$	7,001	$	1,078	$	6,611	$	354
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	282		294		282		295		14
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	—		—		—		—		—
Commercial construction	3,099		3,099		18		3,098		115
Land	10,518		11,871		259		10,323		411
Office	7,792		8,444		1,253		8,148		333
Industrial	3,385		3,506		193		3,638		179
Retail	17,511		17,638		1,253		17,678		724
Multi-family	3,237		3,730		235		2,248		139
Mixed use and other	28,935		29,051		1,366		26,792		1,194
Home equity	3,985		5,238		1,593		4,855		236
Residential real-estate	6,876		7,023		626		6,335		273
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Consumer and other	267		269		109		273		11
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	9,890	$	16,333	$	—	$	13,928	$	1,043
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	354		2,311		—		2,162		121
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	1,463		1,530		—		1,609		64
Commercial construction	7,710		13,227		—		9,680		722
Land	5,035		8,813		—		5,384		418
Office	10,379		11,717		—		10,925		610
Industrial	5,087		5,267		—		5,160		328
Retail	7,047		8,610		—		8,462		400
Multi-family	608		1,030		—		903		47
Mixed use and other	4,077		6,213		—		5,046		352
Home equity	6,312		7,790		—		6,307		324
Residential real-estate	10,761		13,585		—		9,443		393
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Consumer and other	1,322		1,865		—		1,355		115
Total loans, net of unearned income, excluding covered loans	$	162,229	$	195,455	$	8,265	$	170,658	$	8,920

Table of Contents



							For the Three Months Ended
	As of March 31, 2013						March 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	12,827	$	14,544	$	3,627	$	13,034	$	230
Franchise	—		—		—		—		—
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	511		511		55		511		7
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	1,881		2,007		405		1,976		23
Commercial construction	8,682		8,682		49		8,983		86
Land	17,851		19,070		2,380		17,861		104
Office	5,792		5,996		659		5,853		61
Industrial	4,229		4,286		1,241		4,244		65
Retail	16,734		17,316		674		16,773		194
Multi-family	3,966		4,063		152		4,044		42
Mixed use and other	18,910		20,337		2,863		19,317		232
Home equity	5,160		5,751		1,748		5,488		57
Residential real-estate	4,357		4,974		598		4,365		49
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Consumer and other	665		665		156		665		8
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial and industrial	$	13,963	$	17,153	$	—	$	14,344	$	226
Franchise	125		1,544		—		1,189		26
Mortgage warehouse lines of credit	—		—		—		—		—
Community Advantage—homeowners association	—		—		—		—		—
Aircraft	—		—		—		—		—
Asset-based lending	21		1,358		—		23		18
Tax exempt	—		—		—		—		—
Leases	—		—		—		—		—
Other	—		—		—		—		—
Commercial real-estate
Residential construction	3,208		3,579		—		3,708		42
Commercial construction	3,970		4,450		—		4,016		49
Land	11,305		16,304		—		12,048		203
Office	8,283		8,357		—		8,306		95
Industrial	5,541		5,653		—		5,563		74
Retail	14,483		15,095		—		14,628		172
Multi-family	2,200		4,541		—		2,618		54
Mixed use and other	18,168		19,483		—		18,345		269
Home equity	10,897		13,179		—		11,395		131
Residential real-estate	8,627		9,053		—		8,703		94
Premium finance receivables
Commercial insurance	—		—		—		—		—
Life insurance	—		—		—		—		—
Purchased life insurance	—		—		—		—		—
Consumer and other	1,198		1,664		—		1,208		25
Total loans, net of unearned income, excluding covered loans	$	203,554	$	229,615	$	14,607	$	209,208	$	2,636

Table of Contents

TDRs

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

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

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

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

Each TDR was reviewed for impairment at March 31, 2014 and approximately $4.0 million of impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses. For TDRs in which impairment is calculated by the present value of future cash flows, the Company records interest income representing the decrease in impairment resulting from the passage of time during the respective period, which differs from interest income from contractually required interest on these specific loans. During the three months ended March 31, 2014 and 2013, the Company recorded $132,000 and $229,000, respectively, in interest income representing this decrease in impairment.

Table of Contents

The tables below present a summary of the post-modification balance of loans restructured during the three months ended March 31, 2014 and 2013, respectively, which represent TDRs:



Three months ended March 31, 2014 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt⁽²⁾
Three months ended March 31, 2014 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	1	$	88	1	$	88	—	$	—	1	$	88	—	$	—
Commercial real-estate
Land	—	—		—	—		—	—		—	—		—	—
Industrial	1	1,078		1	1,078		—	—		1	1,078		—	—
Retail	1	202		1	202		—	—		—	—		—	—
Multi-family	—	—		—	—		—	—		—	—		—	—
Mixed use and other	3	3,877		2	2,604		3	3,877		1	1,273		—	—
Residential real estate and other	—	—		—	—		—	—		—	—		—	—
Total loans	6	$	5,245	5	$	3,972	3	$	3,877	3	$	2,439	—	$	—



Three months ended March 31, 2013 (Dollars in thousands)	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt⁽²⁾
Three months ended March 31, 2013 (Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	6	$	708	5	$	573	4	$	553	2	$	185	—	$	—
Commercial real-estate
Land	2	287		2	287		2	287		—	—		1	73
Industrial	—	—		—	—		—	—		—	—		—	—
Retail	1	200		1	200		1	200		—	—		—	—
Multi-family	1	705		1	705		1	705		—	—		—	—
Mixed use and other	—	—		—	—		—	—		—	—		—	—
Residential real estate and other	4	377		2	70		3	361		1	123		—	—
Total loans	14	$	2,277	11	$	1,835	11	$	2,106	3	$	308	1	$	73


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


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

During the three months ended March 31, 2014, six loans totaling $5.2 million were determined to be TDRs, compared to 14 loans totaling $2.3 million in the same period of 2013. Of these loans extended at below market terms, the weighted average extension had a term of approximately 13 months during the three months ended March 31, 2014 compared to 21 months for the same period of 2013. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 176 basis points and 153 basis points during the three months ending March 31, 2014 and 2013, respectively. Interest-only payment terms were approximately nine months during the three months ending March 31, 2014 compared to approximately eight months during the three months ending March 31, 2013. Additionally, no principal balances were forgiven in the first quarter of 2014 compared to $50,000 of principal balances forgiven during the same period of 2013.

Table of Contents

The following table presents a summary of all loans restructured in TDRs during the twelve months ended March 31, 2014 and 2013, and such loans which were in payment default under the restructured terms during the respective periods below:



(Dollars in thousands)	Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
	Total ⁽¹⁾⁽³⁾			Payments in Default⁽²⁾⁽³⁾			Total ⁽¹⁾⁽³⁾			Payments in Default⁽²⁾⁽³⁾
	Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial and industrial	1	$	88	—	$	—	21	$	14,901	6	$	10,377
Commercial real-estate
Residential construction	—	—		—	—		3	2,147		—	—
Commercial construction	3	6,120		3	6,120		—	—		—	—
Land	1	2,352		—	—		5	4,131		1	651
Office	4	4,021		3	3,465		—	—		—	—
Industrial	2	2,027		—	—		1	727		—	—
Retail	1	202		—	—		4	5,085		—	—
Multi-family	—	—		—	—		2	1,085		1	705
Mixed use and other	9	8,919		2	399		12	6,061		4	2,603
Residential real estate and other	6	1,919		—	—		10	969		2	221
Total loans	27	$	25,648	8	$	9,984	58	$	35,106	14	$	14,557


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


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


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

Table of Contents

(8) Goodwill and Other Intangible Assets

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



(Dollars in thousands)	January 1, 2014		Goodwill Acquired		Impairment Loss		Goodwill Adjustments			March 31, 2014
Community banking	$	305,313	$	—	$	—	$	—		$	305,313
Specialty finance	37,370		—		—		(822		)	36,548
Wealth management	31,864		—		—		—			31,864
Total	$	374,547	$	—	$	—	$	(822	)	$	373,725

The specialty finance segment’s goodwill decreased $822,000 during the first quarter of 2014 as a result of foreign currency translation adjustments related to the acquisition of Macquarie Premium Funding Inc. in 2012.

A summary of finite-lived intangible assets as of the dates shown and the expected amortization as of March 31, 2014 is as follows:



(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Community banking segment:
Core deposit intangibles:
Gross carrying amount	$	40,770		$	40,770		$	37,860
Accumulated amortization	(30,209		)	(29,189		)	(26,127		)
Net carrying amount	$	10,561		$	11,581		$	11,733
Specialty finance segment:
Customer list intangibles:
Gross carrying amount	$	1,800		$	1,800		$	1,800
Accumulated amortization	(842		)	(805		)	(688		)
Net carrying amount	$	958		$	995		$	1,112
Wealth management segment:
Customer list and other intangibles:
Gross carrying amount	$	7,690		$	7,690		$	7,390
Accumulated amortization	(1,159		)	(1,053		)	(725		)
Net carrying amount	$	6,531		$	6,637		$	6,665
Total other intangible assets, net	$	18,050		$	19,213		$	19,510



Estimated amortization
Actual in three months ended March 31, 2014	$	1,163
Estimated remaining in 2014	3,207
Estimated—2015	2,791
Estimated—2016	2,180
Estimated—2017	1,764
Estimated—2018	1,544

The core deposit intangibles recognized in connection with prior bank acquisitions are amortized over a ten-year period on an accelerated basis. The customer list intangibles recognized in connection with the purchase of life insurance premium finance assets in 2009 are being amortized over an 18-year period on an accelerated basis while the customer list intangibles recognized in connection with prior acquisitions within the wealth management segment are being amortized over a ten-year period on a straight-line basis.

Total amortization expense associated with finite-lived intangibles totaled approximately $1.2 million and $1.1 million for the three months ended March 31, 2014 and 2013, respectively.

Table of Contents

(9) Deposits

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



(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance:
Non-interest bearing	$	2,773,922		$	2,721,771		$	2,243,440
NOW	1,983,251			1,953,882			2,043,227
Wealth management deposits	1,289,134			1,013,850			868,119
Money market	3,454,271			3,359,999			2,879,636
Savings	1,443,943			1,392,575			1,258,682
Time certificates of deposit	4,184,524			4,226,712			4,669,653
Total deposits	$	15,129,045		$	14,668,789		$	13,962,757
Mix:
Non-interest bearing	18		%	19		%	16		%
NOW	13			13			15
Wealth management deposits	8			7			6
Money market	23			23			21
Savings	10			9			9
Time certificates of deposit	28			29			33
Total deposits	100		%	100		%	100		%

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

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

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



(Dollars in thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Notes payable	$	182	$	364	$	31,911
Federal Home Loan Bank advances	387,672		417,762		414,032
Other borrowings:
Securities sold under repurchase agreements	211,692		235,347		224,297
Other	19,212		19,393		31,947
Total other borrowings	230,904		254,740		256,244
Subordinated notes	—		—		15,000
Total notes payable, Federal Home Loan Bank advances, other borrowings and subordinated notes	$	618,758	$	672,866	$	717,187

At March 31, 2014, the Company had notes payable of $182,000, which represents an unsecured promissory note to a Great Lakes Advisor shareholder ("Unsecured Promissory Note") assumed by the Company as a result of the respective acquisition. Under the Unsecured Promissory Note, the Company will make quarterly principal payments and pay interest at a rate of the federal funds rate plus 100 basis points until its maturity on September 30, 2014. As of March 31, 2014, the interest rate was 1.25%. At December 31, 2013 and March 31, 2013, this Unsecured Promissory Note had an outstanding balance of $364,000 and $911,000, respectively.

The Company previously had a $101.0 million loan agreement ("Agreement") with unaffiliated banks. The Agreement consisted of a $100.0 million revolving credit facility, maturing on October 25, 2013, and a $1.0 million term loan maturing on June 1, 2015. The Agreement was amended in 2013, effectively extending the maturity date on the revolving credit facility from October 25, 2013 to November 6, 2014. Additionally, the Company repaid and terminated its $1.0 million term loan at that time. At March 31, 2014, no amount was outstanding on the $100.0 million revolving credit facility. Borrowings under the Agreement that are

Table of Contents

considered “Base Rate Loans” will bear interest at a rate equal to the higher of (1) 350 basis points and (2) for the applicable period, the highest of (a) the federal funds rate plus 100 basis points, (b) the lender’s prime rate plus 50 basis points, and (c) the Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 150 basis points. Borrowings under the Agreement that are considered “Eurodollar Rate Loans” will bear interest at a rate equal to the higher of (1) the British Bankers Association’s LIBOR rate for the applicable period plus 250 basis points (the “Eurodollar Rate”) and (2) 350 basis points. A commitment fee is payable quarterly equal to 0.375% of the actual daily amount by which the lenders’ commitment under the revolving note exceeded the amount outstanding under such facility.

Borrowings under the Agreement are secured by the stock of some of the banks and contain several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. At March 31, 2014, the Company was in compliance with all such covenants. The revolving credit facility is available to be utilized, as needed, to provide capital to fund continued growth at the Company’s banks and to serve as an interim source of funds for acquisitions, common stock repurchases or other general corporate purposes.

Federal Home Loan Bank advances consist of obligations of the banks and are collateralized by qualifying residential real-estate and home equity loans and certain securities. FHLB advances are stated at par value of the debt adjusted for unamortized fair value adjustments recorded in connection with advances acquired through acquisitions.

At March 31, 2014, December 31, 2013 and March 31, 2013, securities sold under repurchase agreements represent $31.7 million, $55.3 million and $44.3 million, respectively, of customer sweep accounts in connection with master repurchase agreements at the banks, and $180.0 million of short-term borrowings from brokers. The Company records securities sold under repurchase agreements at their gross value and does not offset positions on the Consolidated Statements of Condition. As of March 31, 2014, the Company had pledged securities related to its customer balances in sweep accounts and short-term borrowings from brokers of $122.1 million and $192.1 million, respectively, which exceed the outstanding borrowings resulting in no net credit exposure. Securities pledged for customer balances in sweep accounts and short-term borrowings from brokers are maintained under the Company’s control and consist of U.S. Government agency, mortgage-backed and corporate securities. These securities are included in the available-for-sale securities portfolio as reflected on the Company’s Consolidated Statements of Condition.

Other borrowings at March 31, 2014 represent a fixed-rate promissory note issued by the Company in August 2012 ("Fixed-rate Promissory Note") related to and secured by an office building owned by the Company. At March 31, 2014, the Fixed-rate Promissory Note had an outstanding balance of $19.2 million. Under the Fixed-rate Promissory Note, the Company will make monthly principal payments and pay interest at a fixed rate of 3.75% until maturity on September 1, 2017.

Junior subordinated amortizing notes issued by the Company in connection with the issuance of the TEU's in December 2010 were paid off in 2013. At issuance, the junior subordinated notes were recorded at their initial principal balance of $44.7 million, net of issuance costs. These notes had a stated interest rate of 9.5% and required quarterly principal and interest payments of $4.3 million, with an initial payment of $4.6 million that was paid on March 15, 2011. The issuance costs were being amortized to interest expense using the effective-interest method. The scheduled final installment payment on the notes was December 15, 2013. See Note 16 – Shareholders’ Equity and Earnings Per Share for further discussion of the TEUs.

At March 31, 2014 and December 31, 2013, the Company had no outstanding subordinated notes. At March 31, 2013, the Company had an obligation for one note issued in October 2005 with a remaining balance of $15.0 million and a maturity in May 2015. In November 2013, this note was paid-off prior to maturity with a remaining balance of $10.0 million. Interest on each note was calculated at a rate equal to three-month LIBOR plus 130 basis points.

(11) Junior Subordinated Debentures

As of March 31, 2014, the Company owned 100% of the common securities of nine trusts, Wintrust Capital Trust III, Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, and First Northwest Capital Trust I (the “Trusts”) set up to provide long-term financing. The Northview, Town and First Northwest capital trusts were acquired as part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., and First Northwest Bancorp, Inc., respectively. The Trusts were formed for purposes of issuing trust preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.

The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as

Table of Contents

liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in available-for-sale securities.

The following table provides a summary of the Company’s junior subordinated debentures as of March 31, 2014. The junior subordinated debentures represent the par value of the obligations owed to the Trusts.



(Dollars in thousands)	Common Securities		Trust Preferred Securities		Junior Subordinated Debentures		Rate Structure	Contractual rate at 3/31/2014		Issue Date	Maturity Date	Earliest Redemption Date
Wintrust Capital Trust III	$	774	$	25,000	$	25,774	L+3.25	3.49	%	04/2003	04/2033	04/2008
Wintrust Statutory Trust IV	619		20,000		20,619		L+2.80	3.03	%	12/2003	12/2033	12/2008
Wintrust Statutory Trust V	1,238		40,000		41,238		L+2.60	2.83	%	05/2004	05/2034	06/2009
Wintrust Capital Trust VII	1,550		50,000		51,550		L+1.95	2.18	%	12/2004	03/2035	03/2010
Wintrust Capital Trust VIII	1,238		40,000		41,238		L+1.45	1.68	%	08/2005	09/2035	09/2010
Wintrust Captial Trust IX	1,547		50,000		51,547		L+1.63	1.86	%	09/2006	09/2036	09/2011
Northview Capital Trust I	186		6,000		6,186		L+3.00	3.24	%	08/2003	11/2033	08/2008
Town Bankshares Capital Trust I	186		6,000		6,186		L+3.00	3.24	%	08/2003	11/2033	08/2008
First Northwest Capital Trust I	155		5,000		5,155		L+3.00	3.23	%	05/2004	05/2034	05/2009
Total					$	249,493		2.42	%

The junior subordinated debentures totaled $249.5 million at March 31, 2014, December 31, 2013 and March 31, 2013.

The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. At March 31, 2014, the weighted average contractual interest rate on the junior subordinated debentures was 2.42%. The Company entered into interest rate swaps and caps with an aggregate notional value of $225 million to hedge the variable cash flows on certain junior subordinated debentures. Two of these interest rate caps, which were purchased in 2013 with an aggregate notional amount of $90 million, replaced two interest rate swaps that matured in September 2013. The hedge-adjusted rate on the junior subordinated debentures as of March 31, 2014, was 3.17%. Distributions on the common and preferred securities issued by the Trusts are payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.

The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts under the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations.

The junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. At March 31, 2014, all of the junior subordinated debentures, net of the Common Securities, were included in the Company’s Tier 1 regulatory capital.

(12) Segment Information

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

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

Table of Contents

As of December 31, 2013, management made changes in its approach to measure segment profitability. For purposes of internal segment profitability, management allocates certain intersegment and parent company balances. Management allocates a portion of revenues to the specialty finance segment related to loans originated by the specialty finance segment and sold to the community banking segment. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. See Note 9 — Deposits, for more information on these deposits. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment's risk-weighted assets.

The segment financial information provided in the following tables has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The accounting policies of the segments are substantially similar to as those described in “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2013 Form 10-K. The Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common to each segment.

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



	Three months ended March 31,						$ Change in Contribution			% Change in Contribution
(Dollars in thousands)	2014			2013			$ Change in Contribution			% Change in Contribution
Net interest income:
Community Banking	$	116,755		$	106,230		$	10,525		10	%
Specialty Finance	19,212			17,482			1,730			10
Wealth Management	4,099			3,447			652			19
Total Operating Segments	140,066			127,159			12,907			10
Intersegment Eliminations	3,940			3,554			386			11
Consolidated net interest income	$	144,006		$	130,713		$	13,293		10	%
Non-interest income:
Community Banking	$	27,319		$	40,601		$	(13,282	)	(33	)%
Specialty Finance	7,881			7,305			576			8
Wealth Management	16,941			15,442			1,499			10
Total Operating Segments	52,141			63,348			(11,207		)	(18	)
Intersegment Eliminations	(6,612		)	(5,969		)	(643		)	(11	)
Consolidated non-interest income	$	45,529		$	57,379		$	(11,850	)	(21	)%
Net revenue:
Community Banking	$	144,074		$	146,831		$	(2,757	)	(2	)%
Specialty Finance	27,093			24,787			2,306			9
Wealth Management	21,040			18,889			2,151			11
Total Operating Segments	192,207			190,507			1,700			1
Intersegment Eliminations	(2,672		)	(2,415		)	(257		)	(11	)
Consolidated net revenue	$	189,535		$	188,092		$	1,443		1	%
Segment profit:
Community Banking	$	22,581		$	20,979		$	1,602		8	%
Specialty Finance	8,982			8,629			353			4
Wealth Management	2,937			2,444			493			20
Consolidated net income	$	34,500		$	32,052		$	2,448		8	%
Segment assets:
Community Banking	$	15,160,507		$	14,295,418		$	865,089		6	%
Specialty Finance	2,532,362			2,291,140			241,222			11
Wealth Management	528,294			487,689			40,605			8
Consolidated total assets	$	18,221,163		$	17,074,247		$	1,146,916		7	%

Table of Contents

(13) Derivative Financial Instruments

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

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

The Company has purchased interest rate cap derivatives to hedge or manage its own risk exposures. Certain interest rate cap derivatives have been designated as cash flow hedge derivatives of the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures and certain deposits. Other cap derivatives are not designated for hedge accounting but are economic hedges of the Company's overall portfolio, therefore any mark to market changes in the value of these caps are recognized in earnings.

Below is a summary of the interest rate cap derivatives held by the Company as of March 31, 2014:



(Dollars in thousands)
		Notional		Accounting	Fair Value as of
Effective Date	Maturity Date	Amount		Treatment	March 31, 2014
September 30, 2011	September 30, 2014	$	20,000	Cash Flow Hedging	$	—
September 30, 2011	September 30, 2014	40,000		Cash Flow Hedging	—
May 3, 2012	May 3, 2015	77,000		Non-Hedge Designated	—
May 3, 2012	May 3, 2016	215,000		Non-Hedge Designated	391
June 1, 2012	April 1, 2015	96,530		Non-Hedge Designated	—
August 29, 2012	August 29, 2016	216,500		Cash Flow Hedging	801
February 22, 2013	August 22, 2016	56,500		Non-Hedge Designated	246
February 22, 2013	August 22, 2016	43,500		Cash Flow Hedging	190
March 21, 2013	March 21, 2017	100,000		Non-Hedge Designated	1,023
May 16, 2013	November 16, 2016	75,000		Non-Hedge Designated	482
September 15, 2013	September 15, 2017	50,000		Cash Flow Hedging	866
September 30, 2013	September 30, 2017	40,000		Cash Flow Hedging	721
		$	1,030,030		$	4,720

The Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as cash flow hedges, to the extent they are effective hedges, are recorded as a component of other comprehensive income, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings. Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815, including changes in fair value related to the ineffective portion of cash flow hedges, are reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and are corroborated by comparison with valuations provided by the respective

Table of Contents

counterparties. Fair values of certain mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans) are estimated based on changes in mortgage interest rates from the date of the loan commitment. The fair value of foreign currency derivatives is computed based on changes in foreign currency rates stated in the contract compared to those prevailing at the measurement date.

The table below presents the fair value of the Company’s derivative financial instruments as of March 31, 2014, December 31, 2013 and March 31, 2013:



	Derivative Assets						Derivative Liabilities
	Fair Value						Fair Value
(Dollars in thousands)	March 31, 2014		December 31, 2013		March 31, 2013		March 31, 2014		December 31, 2013		March 31, 2013
Derivatives designated as hedging instruments under ASC 815:
Interest rate derivatives designated as Cash Flow Hedges	$	2,578	$	1,776	$	1	$	2,892	$	3,160	$	6,556
Interest rate derivatives designated as Fair Value Hedges	90		107		93		1		1		—
Total derivatives designated as hedging instruments under ASC 815	$	2,668	$	1,883	$	94	$	2,893	$	3,161	$	6,556
Derivatives not designated as hedging instruments under ASC 815:
Interest rate derivatives	$	34,571	$	36,073	$	46,559	$	32,097	$	31,646	$	43,706
Interest rate lock commitments	13,658		7,500		5,551		115		147		1,315
Forward commitments to sell mortgage loans	625		2,761		213		2,688		2,310		3,015
Foreign exchange contracts	7		4		19		4		—		153
Total derivatives not designated as hedging instruments under ASC 815	$	48,861	$	46,338	$	52,342	$	34,904	$	34,103	$	48,189
Total derivatives	$	51,529	$	48,221	$	52,436	$	37,797	$	37,264	$	54,745

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of payments at the end of each period in which the interest rate specified in the contract exceeds the agreed upon strike price.

During the first quarter of 2014, the Company designated two existing interest rate cap derivatives as cash flow hedges of variable rate deposits. The cap derivatives had notional amounts of $216.5 million and $43.5 million, respectively, both maturing in August 2016. Additionally, as of March 31, 2014, the Company had two interest rate swaps and four interest rate caps designated as hedges of the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures. The effective portion of changes in the fair value of these cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate junior subordinated debentures. The changes in fair value (net of tax) are separately disclosed in the Consolidated Statements of Comprehensive Income. The ineffective portion of the change in fair value of these derivatives is recognized directly in earnings; however, no hedge ineffectiveness was recognized during the three months ended March 31, 2014 or March 31, 2013. The Company uses the hypothetical derivative method to assess and measure effectiveness.

Table of Contents

The table below provides details on each of these cash flow hedges as of March 31, 2014:



	March 31, 2014
(Dollars in thousands)	Notional		Fair Value
Maturity Date	Amount		Asset (Liability)
Interest Rate Swaps:
September 2016	50,000		(1,906		)
October 2016	25,000		(986		)
Total Interest Rate Swaps	75,000		(2,892		)
Interest Rate Caps:
September 2014	20,000		—
September 2014	40,000		—
August 2016	43,500		190
August 2016	216,500		801
September 2017	50,000		866
September 2017	40,000		721
Total Interest Rate Caps	410,000		2,578
Total Cash Flow Hedges	$	485,000	$	(314	)

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



	Three months ended March 31,
(Dollars in thousands)	2014			2013
Unrealized loss at beginning of period	$	(3,971	)	$	(8,673	)
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures	493			1,539
Amount of loss recognized in other comprehensive income	(591		)	(65		)
Unrealized loss at end of period	$	(4,069	)	$	(7,199	)

As of March 31, 2014, the Company estimates that during the next twelve months, $1.9 million will be reclassified from accumulated other comprehensive income as an increase to interest expense.

Fair Value Hedges of Interest Rate Risk

Interest rate swaps designated as fair value hedges involve the payment of fixed amounts to a counterparty in exchange for the Company receiving variable payments over the life of the agreements without the exchange of the underlying notional amount. As of March 31, 2014, the Company has three interest rate swaps with an aggregate notional amount of $5.8 million that were designated as fair value hedges associated with fixed rate commercial franchise loans.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged item in the same line item as the offsetting loss or gain on the related derivatives. The Company recognized net losses of $2,000 and $1,000 in other income related to hedge ineffectiveness for the three months ended March 31, 2014 and 2013, respectively. The Company also recognized net decreases in interest income of $10,000 and $2,000 for the respective three month periods ended March 31, 2014 and 2013 related to net settlements on the derivatives.

On June 1, 2013, the Company de-designated a $96.5 million cap which was previously designated as a fair value hedge of interest rate risk associated with an embedded cap in one of the Company’s floating rate loans. The hedged loan was restructured which resulted in the interest rate cap no longer qualifying as an effective fair value hedge. As such, the interest rate cap derivative is no longer accounted for under hedge accounting and all changes in value subsequent to June 1, 2013 are recorded in earnings. Additionally, in the three month period ended March 31, 2014 the Company recorded amortization of the basis in the previously hedged item as a reduction to interest income of $43,000.

Table of Contents

The following table presents the gain/(loss) and hedge ineffectiveness recognized on derivative instruments and the related hedged items that are designated as a fair value hedge accounting relationship as of March 31, 2014 and 2013:



(Dollars in thousands) Derivatives in Fair Value Hedging Relationships	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative Three Months Ended March 31,						Amount of Gain or (Loss) Recognized in Income on Hedged Item Three Months Ended March 31,				Income Statement Gain/ (Loss) due to Hedge Ineffectiveness Three Months Ended March 31,
		2014			2013			2014		2013		2014			2013
Interest rate products	Other income	$	(17	)	$	(11	)	$	15	$	10	$	(2	)	$	(1	)

Non-Designated Hedges

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

Interest Rate Derivatives—The Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At March 31, 2014, the Company had interest rate derivative transactions with an aggregate notional amount of approximately $2.9 billion (all interest rate swaps and caps with customers and third parties) related to this program. These interest rate derivatives had maturity dates ranging from April 2014 to January 2033.

Mortgage Banking Derivatives—These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of a portion of our residential mortgage loan production when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At March 31, 2014, the Company had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $445.0 million and interest rate lock commitments with an aggregate notional amount of approximately $306.6 million. Additionally, the Company’s total mortgage loans held-for-sale at March 31, 2014 was $215.2 million. The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.

Foreign Currency Derivatives—These derivatives include foreign currency contracts used to manage the foreign exchange risk associated with foreign currency denominated assets and transactions. Foreign currency contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. As a result of fluctuations in foreign currencies, the U.S. dollar-equivalent value of the foreign currency denominated assets or forecasted transactions increase or decrease. Gains or losses on the derivative instruments related to these foreign currency denominated assets or forecasted transactions are expected to substantially offset this variability. As of March 31, 2014 the Company held foreign currency derivatives with an aggregate notional amount of approximately $1.8 million.

Other Derivatives—Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the banks’ investment portfolios (covered call options). These option transactions are designed primarily as an economic hedge to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of March 31, 2014, December 31, 2013 or March 31, 2013.

As discussed above, the Company has entered into interest rate cap derivatives to protect the Company in a rising rate environment against increased margin compression due to the repricing of variable rate liabilities and lack of repricing of fixed rate loans and/

Table of Contents

or securities. As of March 31, 2014, the Company held six interest rate cap derivative contracts, which are not designated in hedge relationships, with an aggregate notional value of $620.0 million.

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



		Three Months Ended
(Dollars in thousands)		March 31,
Derivative	Location in income statement	2014			2013
Interest rate swaps and caps	Other income	$	(677	)	$	(297	)
Mortgage banking derivatives	Mortgage banking revenue	3,677			(670		)
Covered call options	Fees from covered call options	1,542			1,639
Foreign exchange contracts	Other income	(1		)	(146		)

Credit Risk

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

The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counterparty to terminate the derivative positions if the Company fails to maintain its status as a well or adequately capitalized institution, which would require the Company to settle its obligations under the agreements. As of March 31, 2014 the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $26.2 million. If the Company had breached any of these provisions at March 31, 2014 it would have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

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

Table of Contents

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



	Derivative Assets									Derivative Liabilities
	Fair Value									Fair Value
(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013			March 31, 2014			December 31, 2013			March 31, 2013
Gross Amounts Recognized	$	37,239		$	37,956		$	46,653		$	34,990		$	34,807		$	50,262
Less: Amounts offset in the Statements of Financial Condition	$	—		$	—		$	—		$	—		$	—		$	—
Net amount presented in the Statements of Financial Condition	$	37,239		$	37,956		$	46,653		$	34,990		$	34,807		$	50,262
Gross amounts not offset in the Statements of Financial Condition
Offsetting Derivative Positions	(7,359		)	(8,826		)	(1,523		)	(7,359		)	(8,826		)	(1,523		)
Securities Collateral Posted ⁽¹⁾	—			—			—			(27,631		)	(25,981		)	(43,361		)
Cash Collateral Posted	—			—			—			—			—			(2,445		)
Net Credit Exposure	$	29,880		$	29,130		$	45,130		$	—		$	—		$	2,933

(1) As of March 31, 2014 and December 31, 2013, the Company posted securities collateral of $37.1 million and $34.6 million, respectively, which resulted in excess collateral with its counterparties. For purposes of this disclosure, the amount of posted collateral is limited to the amount offsetting the derivative liability.

(14) Fair Values of Assets and Liabilities

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


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

•

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

•

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

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

Available-for-sale and trading account securities—Fair values for available-for-sale and trading securities are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research publications are used to fair value a security. When these inputs are not available, broker/dealer quotes may be obtained by the vendor to determine the fair value of the security. We review the vendor’s pricing methodologies to determine if observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy.

The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale securities. The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and

Table of Contents

unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

At March 31, 2014, the Company classified $39.8 million of municipal securities as Level 3. These municipal securities are bond issues for various municipal government entities, including park districts, located in the Chicago metropolitan area and southeastern Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company’s methodology for pricing the non-rated bonds focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal bond, the Investment Operations Department references a publicly issued bond by the same issuer if available. A reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). In the first quarter of 2014, all of the ratings derived in the above process by Investment Operations were BBB or better, for both bonds with and without comparable bond proxies. The fair value measurement of municipal bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Certain municipal bonds held by the Company at March 31, 2014 have a call date that has passed, and are now continuously callable. When valuing these bonds, the fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously callable bond.

At March 31, 2014, the Company held $23.4 million of other equity securities classified as Level 3. The securities in Level 3 are primarily comprised of auction rate preferred securities. The Company utilizes an independent pricing vendor to provide a fair market valuation of these securities. The vendor’s valuation methodology includes modeling the contractual cash flows of the underlying preferred securities and applying a discount to these cash flows by a credit spread derived from the market price of the securities underlying debt. At March 31, 2014, the vendor considered five different securities whose implied credit spreads were believed to provide a proxy for the Company’s auction rate preferred securities. The credit spreads ranged from 1.44%-2.33% with an average of 1.93% which was added to three-month LIBOR to be used as the discount rate input to the vendor’s model. Fair value of the securities is sensitive to the discount rate utilized as a higher discount rate results in a decreased fair value measurement.

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

Mortgage servicing rights—Fair value for mortgage servicing rights is determined utilizing a third party valuation model which stratifies the servicing rights into pools based on product type and interest rate. The fair value of each servicing rights pool is calculated based on the present value of estimated future cash flows using a discount rate commensurate with the risk associated with that pool, given current market conditions. At March 31, 2014, the Company classified $8.7 million of mortgage servicing rights as Level 3. The weighted average discount rate used as an input to value the pool of mortgage servicing rights at March 31, 2014 was 9.66% with discount rates applied ranging from 9.5%-13.0%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. Additionally, fair value estimates include assumptions about prepayment speeds which ranged from 10%-15% or a weighted average prepayment speed of 11.95% used as an input to value the pool of mortgage servicing rights at March 31, 2014. Prepayment speeds are inversely related to the fair value of mortgage servicing rights as an increase in prepayment speeds results in a decreased valuation.

Derivative instruments—The Company’s derivative instruments include interest rate swaps and caps, commitments to fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of mortgage loans and foreign currency contracts. Interest rate swaps and caps are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are corroborated by comparison with valuations provided by the respective counterparties. The fair value for mortgage derivatives is based on changes in mortgage rates from the date of the commitments. The fair value of foreign currency derivatives is computed based on change in foreign currency rates stated in the contract compared to those prevailing at the measurement date. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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

Table of Contents

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



	March 31, 2014
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	340,178	$	—	$	340,178	$	—
U.S. Government agencies	828,275		—		828,275		—
Municipal	175,300		—		135,528		39,772
Corporate notes	135,067		—		135,067		—
Mortgage-backed	417,303		—		417,303		—
Equity securities	53,574		—		30,136		23,438
Trading account securities	1,068		—		1,068		—
Mortgage loans held-for-sale	215,231		—		215,231		—
Mortgage servicing rights	8,719		—		—		8,719
Nonqualified deferred compensations assets	7,783		—		7,783		—
Derivative assets	51,529		—		51,529		—
Total	$	2,234,027	$	—	$	2,162,098	$	71,929
Derivative liabilities	$	37,797	$	—	$	37,797	$	—



	December 31, 2013
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	336,095	$	—	$	336,095	$	—
U.S. Government agencies	895,688		—		895,688		—
Municipal	152,716		—		116,330		36,386
Corporate notes	135,038		—		135,038		—
Mortgage-backed	605,225		—		605,225		—
Equity securities	51,528		—		29,365		22,163
Trading account securities	497		—		497		—
Mortgage loans held-for-sale	332,485		—		332,485		—
Mortgage servicing rights	8,946		—		—		8,946
Nonqualified deferred compensations assets	7,222		—		7,222		—
Derivative assets	48,221		—		48,221		—
Total	$	2,573,661	$	—	$	2,506,166	$	67,495
Derivative liabilities	$	37,264	$	—	$	37,264	$	—



	March 31, 2013
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	217,645	$	—	$	217,645	$	—
U.S. Government agencies	973,715		—		973,715		—
Municipal	110,259		—		77,935		32,324
Corporate notes	148,873		—		148,873		—
Mortgage-backed	368,282		—		368,282		—
Equity securities	52,057		—		27,587		24,470
Trading account securities	1,036		—		1,036		—
Mortgage loans held-for-sale	370,570		—		370,570		—
Mortgage servicing rights	7,344		—		—		7,344
Nonqualified deferred compensations assets	6,545		—		6,545		—
Derivative assets	52,436		—		52,436		—
Total	$	2,308,762	$	—	$	2,244,624	$	64,138
Derivative liabilities	$	54,745	$	—	$	54,745	$	—

Table of Contents

The aggregate remaining contractual principal balance outstanding as of March 31, 2014, December 31, 2013 and March 31, 2013 for mortgage loans held-for-sale measured at fair value under ASC 825 was $199.3 million, $314.9 million and $366.8 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $215.2 million, $332.5 million and $370.6 million, for the same respective periods, as shown in the above tables. There were no nonaccrual loans or loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio measured at fair value as of March 31, 2014, December 31, 2013 and March 31, 2013.

The changes in Level 3 assets measured at fair value on a recurring basis during the three months ended March 31, 2014 and 2013 are summarized as follows:



				Equity securities		Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities		Mortgage servicing rights
Balance at January 1, 2014	$	36,386		$	22,163	$	8,946
Total net gains (losses) included in:
Net loss ⁽¹⁾	—			—		(227		)
Other comprehensive income	147			1,275		—
Purchases	3,360			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(121		)	—		—
Net transfers into/(out of) Level 3	—			—		—
Balance at March 31, 2014	$	39,772		$	23,438	$	8,719


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



				Equity securities		Mortgage servicing rights
(Dollars in thousands)	Municipal			Equity securities		Mortgage servicing rights
Balance at January 1, 2013	$	30,770		$	22,169	$	6,750
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—		594
Other comprehensive (loss) income	(12		)	2,301		—
Purchases	1,687			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(121		)	—		—
Net transfers into/(out of) Level 3	—			—		—
Balance at March 31, 2013	$	32,324		$	24,470	$	7,344


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

Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from impairment charges on individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at March 31, 2014.



	March 31, 2014								Three Months Ended March 31, 2014 Fair Value Losses Recognized
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Impaired loans—collateral based	$	68,355	$	—	$	—	$	68,355	$	7,564
Other real estate owned, including covered other real estate owned ⁽¹⁾	129,279		—		—		129,279		6,172
Total	$	197,634	$	—	$	—	$	197,634	$	13,736


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

Table of Contents

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

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 measurements of impaired loans. For more information on the Managed Assets Division review of impaired loans refer to Note 7 – Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans. At March 31, 2014, the Company had $143.0 million of impaired loans classified as Level 3. Of the $143.0 million of impaired loans, $68.4 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $74.6 million were valued based on discounted cash flows in accordance with ASC 310.

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

The Company’s Managed Assets and Purchased Assets Divisions are primarily responsible for the valuation of Level 3 measurements for non-covered other real estate owned and covered other real estate owned, respectively. At March 31, 2014, the Company had $129.3 million of other real estate owned classified as Level 3. The unobservable input applied to other real estate owned relates to the valuation adjustment determined by the Company’s appraisals. The impairment adjustments applied to other real estate owned range from 0%-84% of the carrying value prior to impairment adjustments at March 31, 2014, with a weighted average input of 4.65%. An increased impairment adjustment applied to the carrying value results in a decreased valuation.

The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair value measurements at March 31, 2014 were as follows:

(Dollars in thousands)

Fair Value

Valuation Methodology

Significant Unobservable Input

Range

of Inputs

Weighted

Average

of Inputs

Impact to valuation

from an increased or

higher input value

Measured at fair value on a recurring basis:

Municipal Securities

39,772

Bond pricing

Equivalent rating

BBB-AA+

N/A

Increase

Other Equity Securities

23,438

Discounted cash flows

Discount rate

1.44%-2.33%

1.93%

Decrease

Mortgage Servicing Rights

8,719

Discounted cash flows

Discount rate

9.5%-13%

9.66%

Decrease

Constant prepayment rate (CPR)

10%-15%

11.95%

Decrease

Measured at fair value on a non-recurring basis:

Impaired loans—collateral based

68,355

Appraisal value

N/A

Other real estate owned, including covered other real estate owned

129,279

Appraisal value

Property specific impairment adjustment

0%-84%

4.65%

Decrease

Table of Contents

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



	At March 31, 2014				At December 31, 2013				At March 31, 2013
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	342,738	$	342,738	$	263,864	$	263,864	$	213,201	$	213,201
Interest bearing deposits with banks	540,964		540,964		495,574		495,574		685,302		685,302
Available-for-sale securities	1,949,697		1,949,697		2,176,290		2,176,290		1,870,831		1,870,831
Trading account securities	1,068		1,068		497		497		1,036		1,036
Brokerage customer receivables	26,884		26,884		30,953		30,953		25,614		25,614
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	78,524		78,524		79,261		79,261		76,601		76,601
Mortgage loans held-for-sale, at fair value	215,231		215,231		332,485		332,485		370,570		370,570
Mortgage loans held-for-sale, at lower of cost or market	—		—		1,842		1,857		10,352		10,458
Total loans	13,445,638		14,078,788		13,243,033		13,867,255		12,418,973		13,125,643
Mortgage servicing rights	8,719		8,719		8,946		8,946		7,344		7,344
Nonqualified deferred compensation assets	7,783		7,783		7,222		7,222		6,545		6,545
Derivative assets	51,529		51,529		48,221		48,221		52,436		52,436
FDIC indemnification asset	60,298		60,298		85,672		85,672		170,696		170,696
Accrued interest receivable and other	169,580		169,580		163,732		163,732		156,825		156,825
Total financial assets	$	16,898,653	$	17,531,803	$	16,937,592	$	17,561,829	$	16,066,326	$	16,773,102
Financial Liabilities
Non-maturity deposits	$	10,944,521	$	10,944,521	$	10,442,077	$	10,442,077	$	9,293,104	$	9,293,104
Deposits with stated maturities	4,184,524		4,197,918		4,226,712		4,242,172		4,669,653		4,701,049
Notes payable	182		182		364		364		31,911		31,911
Federal Home Loan Bank advances	387,672		393,145		417,762		422,750		414,032		425,103
Subordinated notes	—		—		—		—		15,000		15,000
Other borrowings	230,904		230,904		254,740		254,740		256,244		256,244
Junior subordinated debentures	249,493		250,578		249,493		250,672		249,493		250,470
Derivative liabilities	37,797		37,797		37,264		37,264		54,745		54,745
Accrued interest payable	7,218		7,218		8,556		8,556		11,520		11,520
Total financial liabilities	$	16,042,311	$	16,062,263	$	15,636,968	$	15,658,595	$	14,995,702	$	15,039,146

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

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

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

Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real-estate, etc. Each category is further segmented by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate risks inherent in the loan. The primary impact of credit risk on the present

Table of Contents

value of the loan portfolio, however, was accommodated through the use of the allowance for loan losses, which is believed to represent the current fair value of probable incurred losses for purposes of the fair value calculation. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value measurement.

Deposits with stated maturities. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. In accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.

Federal Home Loan Bank advances. The fair value of Federal Home Loan Bank advances is obtained from the Federal Home Loan Bank which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows. In accordance with ASC 820, the Company has categorized Federal Home Loan Bank advances as a Level 3 fair value measurement.

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

(15) Stock-Based Compensation Plans

The 2007 Stock Incentive Plan (“the 2007 Plan”), which was approved by the Company's shareholders in January 2007, permits the grant of incentive stock options, nonqualified stock options, rights and restricted stock, as well as the conversion of outstanding options of acquired companies to Wintrust options. The 2007 Plan replaced the Wintrust Financial Corporation 1997 Stock Incentive Plan (“the 1997 Plan”) which had substantially similar terms. The 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The Plans cover substantially all employees of Wintrust. The Compensation Committee of the Board of Directors administers all stock-based compensation programs and authorizes all awards granted pursuant to the Plans. The 2007 Plan initially provided for the issuance of up to 500,000 shares of common stock. In May 2009 and May 2011, the Company's shareholders approved an additional 325,000 shares and 2,860,000 shares, respectively, of common stock that may be offered under the 2007 Plan. All grants made after 2006 have been made pursuant to the 2007 Plan, and as of March 31, 2014, assuming all performance-based shares will be issued at the maximum levels, 361,834 shares were available for future grants.

The Company historically awarded stock-based compensation in the form of nonqualified stock options and time-vested restricted share awards (“restricted shares”). In general, the grants of options provide for the purchase shares of Wintrust's common stock at the fair market value of the stock on the date the options are granted. Options under the 2007 Plan generally vest ratably over periods of three to five years and have a maximum term of seven years from the date of grant. Stock options granted under the 1997 Plan provided for a maximum term of 10 years. Restricted shares entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted shares generally vest over periods of one to five years from the date of grant.

Beginning in 2011, the Company has awarded annual grants under The Long-Term Incentive Program (“LTIP”), which is administered under the 2007 Plan. The LTIP is designed in part to align the interests of management with the interests of shareholders, foster retention, create a long-term focus based on sustainable results and provide participants a target long-term incentive opportunity. It is anticipated that LTIP awards will continue to be granted annually. LTIP grants to date have consisted of time vested nonqualified stock options and performance-based stock and cash awards. Stock options granted under the LTIP have a term of seven years and will generally vest equally over three years based on continued service. Performance-based stock and cash awards granted under the LTIP are contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation Committee over a three-year period with overlapping performance periods starting at the beginning of each calendar year. These performance awards are granted at a target level, and based on the Company’s achievement of the pre-established long-term goals, the actual payouts can range from 0% to 200% of the target award. The awards vest in the quarter after the end of the performance period upon certification of the payout by the Compensation Committee of the Board of Directors. Holders of performance-based stock awards are entitled to shares of common stock at no cost.

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

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

Table of Contents

option's expected life and the price volatility of the underlying stock, which can materially affect the fair value estimate. Expected life has been based on historical exercise and termination behavior as well as the term of the option, but the expected life of the options granted pursuant to the LTIP awards has been based on the safe harbor rule of the SEC Staff Accounting Bulletin No. 107 “Share-Based Payment” as the Company believes historical exercise data may not provide a reasonable basis to estimate the expected term of these options. Expected stock price volatility is based on historical volatility of the Company's common stock, which correlates with the expected life of the options, and the risk-free interest rate is based on comparable U.S. Treasury rates. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

The following table presents the weighted average assumptions used to determine the fair value of options granted in the three month periods ending March 31, 2014 and 2013.



	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2014		2013
Expected dividend yield	0.4	%	0.5	%
Expected volatility	30.8	%	59.7	%
Risk-free rate	0.7	%	0.7	%
Expected option life (in years)	4.5		4.5

Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest. Forfeitures are estimated based on historical forfeiture experience. In addition, for performance-based awards, an estimate is made of the number of shares expected to vest as a result of projected performance against the performance criteria in the award to determine the amount of compensation expense to recognize. The estimate is reevaluated periodically and total compensation expense is adjusted for any change in estimate in the current period. Stock-based compensation expense recognized in the Consolidated Statements of Income was $3.8 million in the first quarter of 2014 and $2.3 million in the first quarter of 2013. The first quarter of 2014 includes a $2.1 million charge for a modification to the performance measurement criteria related to the 2011 LTIP performance-based stock grants that were vested and paid out in the first quarter of 2014. The cost of the modification was determined based on the stock price on the date of re-measurement and paid to the holders of the performance-based stock awards in cash. Similarly, in the first quarter of 2014, a modification was made to the performance measurement criteria related to the performance-based cash awards granted under the LTIP in 2011. These awards vested and were paid out in the first quarter of 2014 and the Company recognized an additional charge of $3.0 million related to the modification.

A summary of the Plans' stock option activity for the three months ended March 31, 2014 and March 31, 2013 is presented below:



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2014	1,524,672		$	42.00
Granted	358,440		46.86
Exercised	(77,311	)	34.79
Forfeited or canceled	(18,898	)	45.56
Outstanding at March 31, 2014	1,786,903		$	43.25	3.7	$	12,834
Exercisable at March 31, 2014	1,166,309		$	43.96	2.4	$	8,655



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term ⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2013	1,745,427		$	42.31
Granted	219,695		37.85
Exercised	(8,336	)	24.98
Forfeited or canceled	(6,330	)	41.49
Outstanding at March 31, 2013	1,950,456		$	41.89	3.3	$	3,975
Exercisable at March 31, 2013	1,437,240		$	44.64	2.3	$	2,318


(1)	Represents the remaining weighted average contractual life in years.

(2)

Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company's stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. Options with exercise prices above the stock price on the last trading day of the quarter are excluded from the calculation of intrinsic value. The intrinsic value will change based on the fair market value of the Company's stock.

Table of Contents

The weighted average grant date fair value per share of options granted during the three months ended March 31, 2014 and March 31, 2013 was $11.96 and $17.59, respectively. The aggregate intrinsic value of options exercised during the three months ended March 31, 2014 and 2013, was $911,000 and $102,000, respectively.

A summary of the Plans' restricted share activity for the three months ended March 31, 2014 and March 31, 2013 is presented below:



	Three months ended March 31, 2014				Three months ended March 31, 2013
Restricted Shares	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	181,522		$	43.39	314,226		$	37.99
Granted	2,775		46.86		—		—
Vested and issued	(24,900	)	33.81		(109,725	)	31.67
Forfeited	(451	)	44.29		(674	)	32.10
Outstanding at March 31	158,946		$	44.95	203,827		$	41.40
Vested, but not issuable at March 31	85,000		$	51.88	85,000		$	51.88

A summary of the 2007 Plan's performance-based stock award activity, based on the target level of the awards, for the three months ended March 31, 2014 and March 31, 2013 is presented below:



	Three months ended March 31, 2014				Three months ended March 31, 2013
Performance-based Stock	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	307,512		$	34.01	214,565		$	32.08
Granted	91,501		46.86		102,160		37.84
Vested and issued	(15,944	)	33.25		—		—
Forfeited	(81,551	)	33.38		(2,359	)	33.02
Outstanding at March 31	301,518		$	38.12	314,366		$	33.95

Based on the achievement of the pre-established performance goals over a three-year period, the actual performance-based award payouts can be adjusted downward to 0% or upward to a maximum of 200% of the target award. The awards vest in the quarter after the end of the performance period. In the first quarter of 2014, the 2011 grants vested and were paid.

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

Table of Contents

(16) Shareholders’ Equity and Earnings Per Share

Tangible Equity Units

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

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



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

Balance sheet impact
Other borrowings	—		43,331		43,331
Surplus	179,316		—		179,316


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

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

The fair value of the equity component was determined using Black-Scholes valuation models applied to the range of stock prices contemplated by the terms of the TEU and used the following assumptions: (1) risk-free interest rate of 0.95%; (2) expected stock price volatility in the range of 35%-45%; (3) dividend yield plus stock borrow cost of 0.85%; and (4) term of 3.02 years.

Each junior subordinated amortizing note, which had an initial principal amount of $9.728182, had a stated interest rate of 9.50% per annum, and had a scheduled final installment payment date of December 15, 2013. On each March 15, June 15, September 15 and December 15, the Company paid equal quarterly installments of $0.9375 on each amortizing note. The quarterly installment payable at March 15, 2011, however, was $0.989583. Each payment constituted a payment of interest and a partial repayment of principal. The issuance costs were amortized to interest expense using the effective-interest method.

Each prepaid common stock purchase contract automatically settled on December 15, 2013 and the Company delivered 1.3333 shares of its common stock based on the applicable market value (the average of the volume weighted average price of Company common stock for the twenty (20) consecutive trading days ending on the third trading day immediately preceding December 15, 2013). Upon settlement, an amount equal to $1.00 per common share issued was reclassified from surplus to common stock.

Series A Preferred Stock

In August 2008, the Company issued and sold 50,000 shares of non-cumulative perpetual convertible preferred stock, Series A, liquidation preference $1,000 per share (the “Series A Preferred Stock”) for $50 million in a private transaction. Dividends on the Series A Preferred Stock were paid quarterly in arrears at a rate of 8.00% per annum. The Series A Preferred Stock was convertible into common stock at the option of the holder at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. On July 19, 2013, pursuant to such terms, the holder of the Series A Preferred Stock elected to convert all 50,000 shares of the Series A Preferred Stock into 1,944,000 shares of the Company's common stock, no par value.

Table of Contents

Series C Preferred Stock

In March 2012, the Company issued and sold 126,500 shares of non-cumulative perpetual convertible preferred stock, Series C, liquidation preference $1,000 per share (the “Series C Preferred Stock”) for $126.5 million in an equity offering. If declared, dividends on the Series C Preferred Stock are payable quarterly in arrears at a rate of 5.00% per annum. The Series C Preferred Stock is convertible into common stock at the option of the holder at a conversion rate of 24.3132 shares of common stock per share of Series C Preferred Stock. In the fourth quarter of 2013, 23 shares of the Series C Preferred Stock were converted at the option of the respective holders into 558 shares of the Company's common stock. On and after April 15, 2017, the Company will have the right under certain circumstances to cause the Series C Preferred Stock to be converted into common stock if the closing price of the Company’s common stock exceeds a certain amount.

Common Stock Warrant

Pursuant to the U.S. Department of the Treasury’s (the “U.S. Treasury”) Capital Purchase Program, on December 19, 2008, the Company issued to the U.S. Treasury a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and with a term of 10 years. In February 2011, the U.S. Treasury sold all of its interest in the warrant issued to it in a secondary underwritten public offering. At March 31, 2014, the warrant to purchase 1,643,295 shares remains outstanding.

The Company previously issued other warrants to acquire common stock. These warrants entitled the holders to purchase one share of the Company’s common stock at a purchase price of $30.50 per share. Of the 19,000 warrants previously outstanding, 18,000 were exercised in March 2012 and 1,000 were exercised in February 2013. As a result, none of these warrants were outstanding at March 31, 2014.

Other

In May 2013, the Company issued 648,286 shares of its common stock in the acquisition of FLB.

At the January 2014 Board of Directors meeting, a quarterly cash dividend of $0.10 per share ($0.40 on an annualized basis) was declared. It was paid on February 20, 2014 to shareholders of record as of February 6, 2014.

Accumulated Other Comprehensive Income (Loss)

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



	Accumulated Unrealized (Losses) Gains on Securities			Accumulated Unrealized Losses on Derivative Instruments			Accumulated Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2014	$	(53,665	)	$	(2,462	)	$	(6,909	)	$	(63,036	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	13,722			(356		)	(7,400		)	5,966
Amount reclassified from accumulated other comprehensive income (loss), net of tax	20			297			—			317
Net other comprehensive income (loss) during the period, net of tax	$	13,742		$	(59	)	$	(7,400	)	$	6,283
Balance at March 31, 2014	$	(39,923	)	$	(2,521	)	$	(14,309	)	$	(56,753	)

Balance at January 1, 2013	$	6,710		$	(5,292	)	$	6,293		$	7,711
Other comprehensive income (loss) during the period, net of tax, before reclassifications	(4,649		)	(39		)	(4,866		)	(9,554		)
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(151		)	927			—			776
Net other comprehensive income (loss) during the period, net of tax	$	(4,800	)	$	888		$	(4,866	)	$	(8,778	)
Balance at March 31, 2013	$	1,910		$	(4,404	)	$	1,427		$	(1,067	)

Table of Contents



	Amount Reclassified from Accumulated Other Comprehensive Income for the
Details Regarding the Component of	Three Months Ended March 31,						Impacted Line on the
Accumulated Other Comprehensive Income	2014			2013			Consolidated Statements of Income
Accumulated unrealized losses on securities
Gains included in net income	$	(33	)	$	251		(Losses) gains on available-for-sale securities, net
	(33		)	251			Income before taxes
Tax effect	$	13		$	(100	)	Income tax expense
Net of tax	$	(20	)	$	151		Net income

Accumulated unrealized losses on derivative instruments
Amount reclassified to interest expense on junior subordinated debentures	$	493		$	1,539		Interest on junior subordinated debentures
	(493		)	(1,539		)	Loss before taxes
Tax effect	$	196		$	612		Income tax benefit
Net of tax	$	(297	)	$	(927	)	Net loss

Earnings per Share

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



		Three Months Ended March 31,
(In thousands, except per share data)		2014		2013
Net income		$	34,500	$	32,052
Less: Preferred stock dividends and discount accretion		1,581		2,616
Net income applicable to common shares—Basic	(A)	32,919		29,436
Add: Dividends on convertible preferred stock, if dilutive		1,581		2,581
Net income applicable to common shares—Diluted	(B)	34,500		32,017
Weighted average common shares outstanding	(C)	46,195		36,976
Effect of dilutive potential common shares
Common stock equivalents		1,434		7,443
Convertible preferred stock, if dilutive		3,075		5,020
Total dilutive potential common shares		4,509		12,463
Weighted average common shares and effect of dilutive potential common shares	(D)	50,704		49,439
Net income per common share:
Basic	(A/C)	$	0.71	$	0.80
Diluted	(B/D)	$	0.68	$	0.65

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

Table of Contents

(17) Subsequent Events

On April 28, 2014, the Company announced the acquisition, through its wholly-owned subsidiary, First Insurance Funding of Canada, Inc., of 100% of the shares of each of Policy Billing Services Inc. and Equity Premium Finance Inc., two affiliated Canadian insurance premium funding and payment services companies.

On April 8, 2014, the Company announced the signing of a definitive agreement to acquire, through its wholly-owned subsidiary Town Bank, certain branch offices and deposits of Talmer Bank & Trust. Through this transaction, subject to final adjustments, Town Bank will acquire 11 branch offices and deposits of approximately $360 million.

On April 7, 2014, the Company announced the signing of a definitive agreement to acquire, through its wholly-owned subsidiary Town Bank, the Pewaukee, Wisconsin branch of THE National Bank. Through this transaction, subject to final adjustments, Town Bank will acquire approximately $40 million of deposits, approximately $90 million of performing loans, the bank facility, property and various other assets.

Table of Contents

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition as of March 31, 2014 compared with December 31, 2013 and March 31, 2013, and the results of operations for the three month periods ended March 31, 2014 and 2013, should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the risk factors discussed herein and under Item 1A of the Company’s 2013 Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management’s current expectations. See the last section of this discussion for further information on forward-looking statements.

Introduction

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

Overview

First Quarter Highlights

The Company recorded net income of $34.5 million for the first quarter of 2014 compared to $32.1 million in the first quarter of 2013. The results for the first quarter of 2014 demonstrate continued operating strengths as net income increased, net interest margin increased, credit quality measures improved, loans outstanding increased and our deposit funding base mix continued its beneficial shift toward an aggregate lower cost of funds. In the first quarter of 2014, the Company acquired a bank branch and opened two bank facilities. The Company also recently announced the acquisition of bank branches in Illinois and Wisconsin. For more information, see “Overview—Recent Acquisition Transactions” and "Overview—Announced Acquisitions."

The Company increased its loan portfolio, excluding covered loans and mortgage loans held for sale, from $11.9 billion at March 31, 2013 and $12.9 billion at December 31, 2013 to $13.1 billion at March 31, 2014. The increase in the current quarter compared to the prior quarters was primarily a result of the Company’s commercial banking initiative and growth in the commercial insurance premium finance receivables portfolio. The Company is focused on making new loans, including in the commercial and commercial real-estate sector, where opportunities that meet our underwriting standards exist. For more information regarding changes in the Company’s loan portfolio, see “Financial Condition – Interest Earning Assets” and Note 6 “Loans” of the Financial Statements presented under Item 1 of this report.

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during the first quarter of 2014, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company continues to benefit from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources. At March 31, 2014, the Company had approximately $883.7 million in overnight liquid funds and interest-bearing deposits with banks.

The Company recorded net interest income of $144.0 million in the first quarter of 2014 compared to $130.7 million in the first quarter of 2013. The higher level of net interest income recorded in the first quarter of 2014 compared to the first quarter of 2013 resulted primarily from a $669.3 million increase in the balance of total average earning assets, a 7 basis point improvement in the yield on earnings assets and a 14 basis point decline in the rate paid on average interest bearing liabilities as a result of the positive re-pricing of retail interest-bearing deposits along with a more favorable funding mix. These improvements were partially offset by a $165.0 million increase in interest bearing liabilities. Combined, the increase in interest income of $9.0 million and the reduction of interest expense of $4.3 million created an increase in total net interest income of $13.3 million in the first quarter of 2014 compared to the first quarter of 2013.

Non-interest income totaled $45.5 million in the first quarter of 2014 a decrease of $11.9 million, or 21%, compared to the first quarter of 2013. The decrease in the first quarter of 2014 compared to the first quarter of 2013 was primarily attributable to a decrease in mortgage banking revenues and fewer interest rate swap fees, partially offset by higher wealth management revenues. Mortgage banking revenue decreased $13.7 million when compared to the first quarter of 2013. The decrease in mortgage banking revenue in the current quarter as compared to the first quarter of 2013 resulted primarily from decreased originations due to a general downturn in the mortgage banking business and a more favorable refinance market in the first quarter of 2013. Loans sold to the secondary market were $527.3 million in the first quarter of 2014 compared to $974.4 million in the first quarter of 2013 (see “-Non-Interest Income” for further detail).

Table of Contents

Non-interest expense totaled $131.3 million in the first quarter of 2014, increasing $11.2 million, or 9%, compared to the first quarter of 2013. The increase compared to the first quarter of 2013 was primarily attributable to higher OREO costs along with increases to salary, occupancy and equipment expenses (see “-Non-Interest Expense” for further detail).

The Current Economic Environment

The economic environment in the first quarter of 2014 was characterized by continued low interest rates and renewed competition as banks have experienced improvements in their financial condition allowing them to be more active in the lending market. While management believes interest rates will rebound over time, the Company has employed certain strategies to manage net income in the current rate environment, including those discussed below.

Net Interest Income

The Company has leveraged its internal loan pipeline and external growth opportunities to grow its earning assets base. The Company has also continued its efforts to shift a greater portion of its deposit base to non-interest bearing. Non-interest bearing deposits as a percentage of total deposits was 18% as of March 31, 2014 as compared to 16% as of March 31, 2013. In the current quarter, the Company was able to increase its net interest margin primarily due to higher yields on investment securities and reduced rates on interest-bearing deposits. As a result of the growth in earnings assets, improvement in funding mix and increased net interest margin, the Company increased net interest income by $13.3 million in the first quarter of 2014 compared to the first quarter of 2013.

The Company has continued its practice of writing call options against certain U.S. Treasury and Agency securities to economically hedge the security positions and receive fee income to compensate for net interest margin compression. In the first quarter of 2014, the Company recognized $1.5 million in fees on covered call options. In accordance with accounting guidance, these fees are not recorded as a component of net interest income, however the fee contribution is considered by the Company to be an additional return on the investment portfolio.

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

Non-Interest Income

In preparation for a rising rate environment, the Company has purchased interest rate cap contracts to offset the negative impact on the net interest margin in a rising rate environment caused by the repricing of variable rate liabilities and lack of repricing of fixed rate loans and securities. As of March 31, 2014, the Company held six interest rate cap derivatives with a total notional value of $620.0 million which are not designated as accounting hedges but are considered to be an economic hedge for the potential rise in interest rates. Because these are not accounting hedges, fluctuations in the cap values are recorded in earnings. In the first quarter of 2014, volatility in interest rates resulted in decreased cap valuations as compared to the prior quarter. The Company recognized $334,000 in trading losses in the first quarter of 2014 related to the mark to market of these interest rate caps. For more information, see Note 13 "Derivatives" of the Financial Statements presented under Item 1 of this report.

The current interest rate environment impacts the profitability and mix of the Company's mortgage banking business which generated revenues of $16.4 million in the first quarter of 2014 and $30.1 million in the first quarter of 2013, representing 9% and 16%, respectively, of each quarter's total net revenue. The Company's mortgage banking business was negatively impacted in the current quarter by a general downturn in the mortgage banking industry coupled with a prolonged winter season across the nation. Mortgage banking revenue is comprised of gains on originations for new home purchases as well as mortgage refinancing. Mortgage banking revenue is partially offset by corresponding commission and overhead costs. In the first quarter of 2014, approximately 68% of originations were mortgages associated with new home purchases while 32% of originations were related to refinancing of mortgages. As the housing market improves and interest rates rise, we expect a higher percentage of originations to be attributed to new home purchases.

Non-Interest Expense

Management believes expense management is important amid the low interest rate environment and increased competition to enhance profitability. Cost control and an efficient infrastructure should position the Company appropriately as it continues its growth strategy. Management continues to be disciplined in its approach to growth and will leverage the Company's existing expense infrastructure to expand its presence in existing and complimentary markets. Management believes that its recent acquisitions have provided operating capacity for balance sheet growth without a commensurate increase in operating expenses which should provide improvement in its overhead ratio, holding all else equal.

Table of Contents

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

Credit Quality

The Company’s credit quality metrics improved in the first quarter of 2014 compared to December 31, 2013 and March 31, 2013. The Company continues to address non-performing assets and remains disciplined in its approach to grow without sacrificing asset quality. Management primarily reviews credit quality excluding covered loans as those loans are obtained through FDIC-assisted acquisitions and therefore potential credit losses are subject to indemnification by the FDIC.

In particular:

•

The Company’s provision for credit losses, excluding covered loans, in the first quarter of 2014 totaled $3.3 million, a decrease of $12.1 million when compared to the first quarter of 2013. Net charge-offs decreased to $7.8 million in the first quarter of 2014 (of which $4.3 million related to commercial real-estate loans) compared to $11.9 million for the same period in 2013 (of which $4.2 million and $2.9 million related to commercial and commercial real-estate loans, respectively).

•

The Company’s allowance for loan losses, excluding covered loans, totaled $92.3 million at March 31, 2014, reflecting a decrease of $18.1 million, or 16%, when compared to the same period in 2013 and a decrease of $4.6 million, or 5%, when compared to December 31, 2013. At March 31, 2014, approximately $44.6 million, or 48%, of the allowance for loan losses, excluding covered loans, was associated with commercial real-estate loans and another $24.7 million, or 27%, was associated with commercial loans.

•

The Company has significant exposure to commercial real-estate. At March 31, 2014, $4.3 billion, or 32%, of our loan portfolio, excluding covered loans, was commercial real-estate, with approximately 94% located in the greater Chicago metropolitan and southeastern Wisconsin market areas. As of March 31, 2014, the commercial real-estate loan portfolio was comprised of $296.0 million related to land, residential and commercial construction, $651.2 million related to office buildings, $677.4 million related to retail, $625.1 million related to industrial use, $575.8 million related to multi-family and $1.4 billion related to mixed use and other use types. In analyzing the commercial real-estate market, the Company does not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of changes in real estate valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks. As of March 31, 2014, the Company had approximately $33.7 million of non-performing commercial real-estate loans representing approximately 0.8% of the total commercial real-estate loan portfolio.

•

Total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest), excluding covered loans, was $90.1 million (of which $33.7 million, or 37%, was related to commercial real-estate) at March 31, 2014, a decrease of approximately $13.2 million and $38.5 million compared to December 31, 2013 and March 31, 2013, respectively. Non-performing loans decreased due to both a decline in the volume of new non-performing loans as well as the continued reduction in existing non-performing loans through the efforts of our credit workout teams.

•

The Company’s other real estate owned, excluding covered other real estate owned, increased to $54.1 million during the first quarter of 2014, compared to $50.5 million at December 31, 2013 as a result of new properties transferred into OREO in the current period. Other real estate owned, excluding covered other real estate owned, decreased as of March 31, 2014 compared to $56.2 million at March 31, 2013 primarily due to disposals in recent quarters. The $54.1 million of other real estate owned as of March 31, 2014 was comprised of $3.5 million of residential real-estate development property, $44.1 million of commercial real-estate property and $6.5 million of residential real-estate property.

During the quarter, Management continued its strategic efforts to resolve problem loans through liquidation rather than retention of loans or real estate acquired as collateral through the foreclosure process. For more information regarding these efforts, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The level of loans past due 30 days

Table of Contents

or more and still accruing interest, excluding covered loans, totaled $159.6 million as of March 31, 2014, increasing $18.9 million compared to the balance of $140.7 million as of December 31, 2013 and increasing $6.9 million compared to the balance of $152.7 million as of March 31, 2013. Fluctuations from period to period in loans that are past due 30 days or more and still accruing interest are primarily the result of timing of payments for loans with near term delinquencies (i.e. 30-89 days past-due).

In addition, during the first quarter of 2014, the Company modified $5.2 million of loans in troubled debt restructurings, by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At March 31, 2014, approximately $92.5 million in loans had terms modified in TDRs, with $74.6 million of these TDRs in accruing status.

The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. At March 31, 2014, the Company had a $2.6 million estimated liability on loans expected to be repurchased from loans sold to investors compared to a $3.8 million liability and a $3.5 million liability for similar items as of December 31, 2013 and March 31, 2013, respectively. The decrease in the current quarter is primarily the result of lower than expected losses on loans previously sold. For more information regarding requests for indemnification on loans sold, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Overview and Strategy” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Trends in Our Three Operating Segments During the First Quarter

Community Banking

Net interest income. Net interest income for the community banking segment totaled $116.8 million for the first quarter of 2014 compared to $115.4 million for the fourth quarter of 2013 and $106.2 million for the first quarter of 2013. The increase in net interest income in the first quarter of 2014 compared to the fourth quarter of 2013 is primarily attributable to growth in earning assets and a six basis point increase in the yield on earnings assets, partially offset by two fewer days in the current quarter. The increase in net interest income in the current quarter compared to the first quarter of 2013 is attributable to growth in earnings assets, improvement in funding mix and increased net interest margin.

Funding mix and related costs. Community banking profitability has been bolstered in recent quarters as the Company funded strong loan growth with a more desirable funding blend. Additionally, non-interest bearing deposits have grown as a result of the Company’s commercial banking initiative and fixed term certificates of deposit have been running off and renewing at lower rates.

Level of non-performing loans and other real estate owned. The Company's credit quality measures have improved significantly over the past two quarters. Non-performing loans declined in the current quarter as compared to the fourth quarter of 2013 and the first quarter of 2013. The Company remains committed to the timely resolution of non-performing loans. However, other real estate owned increased in the current quarter as compared to the fourth quarter of 2013 as a result of new properties transfered into OREO in the current period.

Mortgage banking revenue. Mortgage banking revenue decreased $2.9 million when compared to the fourth quarter of 2013 and decreased $13.7 million when compared to the first quarter of 2013. The decrease in the current quarter as compared to the fourth quarter of 2013 and the first quarter of 2013 resulted primarily from lower origination volumes as a result of a general downturn in the mortgage banking business coupled with a prolonged winter season across the nation in the current quarter.

For more information regarding our community banking business, please see “Overview and Strategy—Community Banking” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Specialty Finance

Financing of Commercial Insurance Premiums. First Insurance Funding Corporation ("FIFC") and First Insurance Funding of Canada, Inc. ("FIFC Canada") originated approximately $1.4 billion of commercial insurance premium finance loans in the first quarter of 2014, up from $1.3 billion of commercial insurance premium finance loan originated in the fourth quarter of 2013 and up from originations of $1.2 billion in the first quarter of 2013.

Financing of Life Insurance Premiums. FIFC originated approximately $113.6 million in life insurance premium finance loans in the first quarter of 2014 compared to $162.9 million in the fourth quarter of 2013, and compared to $85.7 million in the first quarter of 2013. The decrease in originations in the first quarter of 2014 from the fourth quarter of 2013 can be attributed to seasonal shifts in the demand for life insurance financing. The increase in originations in the first quarter of 2014 compared to the first quarter of 2013 was a result of increased contract originations for both new business and renewal business.

Table of Contents

For more information regarding our specialty finance business, please see “Overview and Strategy—Specialty Finance” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Wealth Management Activities

The wealth management segment recorded higher non-interest income in the first quarter of 2014 compared to the fourth quarter of 2013 and the first quarter of 2013 mostly attributable to growth in assets under management due to new customers, as well as market appreciation.

For more information regarding our wealth management business, please see “Overview and Strategy—Wealth Management Activities” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Recent Acquisition Transactions

Acquisition of a bank facility and certain assets and liabilities of Baytree National Bank &Trust Company

On February 28, 2014, the Company, through its subsidiary Lake Forest Bank and Trust Company ("Lake Forest Bank"), completed an acquisition of a bank branch from Baytree National Bank & Trust Company. In addition to the banking facility, Lake Forest Bank acquired certain assets and approximately $15 million of deposits.

Acquisition of Diamond Bancorp, Inc.

On October 18, 2013, the Company completed its acquisition of Diamond Bancorp, Inc. ("Diamond"). Diamond was the parent company of Diamond Bank, FSB ("Diamond Bank"), which operated four banking locations in Chicago, Schaumburg, Elmhurst, and Northbrook, Illinois. As part of the transaction, Diamond Bank was merged into the Company's wholly-owned subsidiary bank, North Shore Community Bank. Diamond Bank had approximately $169 million in assets and $140 million in deposits as of the acquisition date, prior to purchase accounting adjustments. The Company recorded goodwill of $8.4 million on the acquisition.

Acquisition of certain assets and liabilities of Surety Financial Services

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

Acquisition of First Lansing Bancorp, Inc.

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

Announced Acquisitions

Acquisition of two affiliated Canadian insurance premium funding and payment services companies

On April 28, 2014, the Company announced the acquisition, through its wholly-owned subsidiary, FIFC Canada, of 100% of the shares of each of Policy Billing Services Inc. and Equity Premium Finance Inc., two affiliated Canadian insurance premium funding and payment services companies.

Acquisition of certain bank facilities and deposits of Talmer Bank & Trust

Acquisition of a bank facility and certain assets and liabilities of THE National Bank

Table of Contents

Acquisition of a bank facility and certain related deposits of Urban Partnership Bank

On February 12, 2014, the Company signed a definitive agreement to acquire, through its wholly-owned subsidiary Hinsdale Bank, the Stone Park branch office and certain related deposits of Urban Partnership Bank.

Divestiture of Previous FDIC-Assisted Acquisition

On February 1, 2013, Hinsdale Bank and Trust Company completed the sale of the deposits and the current banking operations of Second Federal Savings and Loan Association of Chicago, which were acquired in an FDIC-assisted transaction on July 20, 2012, to an unaffiliated credit union.

Other Completed Transactions

Tangible Equity Units

In December 2010, the Company sold 4.6 million 7.50% tangible equity units at a public offering price of $50.00 per unit. Each tangible equity unit was comprised of a prepaid common stock purchase contract and a junior subordinated amortizing note due December 15, 2013. In December 2013, the Company settled the prepaid common stock purchase contract by delivering approximately 6.1 million shares of the Company’s common stock to the holders of the purchase contract. No separate consideration was paid to the Company for the issuance of the shares of the Company's common stock. The Company also made the final payment on the junior subordinated amortizing note.

Conversion of Preferred Stock

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

Table of Contents

RESULTS OF OPERATIONS

Earnings Summary

The Company’s key operating measures for the three months ended March 31, 2014, as compared to the same period last year, are shown below:



(Dollars in thousands, except per share data)	Three months ended March 31, 2014			Three months ended March 31, 2013			Percentage (%) or Basis Point (bp)Change
Net income	$	34,500		$	32,052		8	%
Net income per common share—Diluted	0.68			0.65			5
Net revenue ⁽¹⁾	189,535			188,092			1
Net interest income	144,006			130,713			10
Net interest margin ⁽²⁾	3.61		%	3.41		%	20 bp
Net overhead ratio ⁽²⁾ ⁽³⁾	1.93			1.47			46
Efficiency ratio ^{(2) (4)}	69.02			63.78			524
Return on average assets	0.78			0.75			3
Return on average common equity	7.43			7.27			16
Return on average tangible common equity	9.71			9.57			14



At end of period
Total assets	$	18,221,163		$	17,074,247		7	%
Total loans, excluding loans held-for-sale, excluding covered loans	13,133,160			11,900,312			10
Total loans, including loans held-for-sale, excluding covered loans	13,348,391			12,281,234			9
Total deposits	15,129,045			13,962,757			8
Total shareholders’ equity	1,940,143			1,825,688			6
Tangible common equity ratio (TCE) ⁽²⁾	8.0		%	7.7		%	30 bp
Tangible common equity ratio, assuming full conversion of preferred stock ⁽²⁾	8.7			8.8			(10	)
Book value per common share ⁽²⁾	$	39.21		$	38.13		3	%
Tangible common book value per share ⁽²⁾	30.74			29.74			3
Market price per common share	48.66			37.04			31
Excluding covered loans:
Allowance for credit losses to total loans ⁽⁵⁾	0.71		%	1.06		%	(35) bp
Non-performing loans to total loans	0.69			1.08			(39	)


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


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


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


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


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

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

Table of Contents

Supplemental Financial Measures/Ratios

The accounting and reporting policies of Wintrust 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), the efficiency ratio, tangible common equity ratio, tangible common book value per share and return on average tangible common equity. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

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

Table of Contents

A reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is shown below:



	Three months ended March 31,
(Dollars and shares in thousands)	2014			2013
Calculation of Net Interest Margin and Efficiency Ratio
(A) Interest Income (GAAP)	$	161,326		$	152,313
Taxable-equivalent adjustment:
—Loans	231			150
—Liquidity management assets	455			343
—Other earning assets	4			1
Interest Income—FTE	$	162,016		$	152,807
(B) Interest Expense (GAAP)	17,320			21,600
Net interest income—FTE	144,696			131,207
(C) Net Interest Income (GAAP) (A minus B)	$	144,006		$	130,713
(D) Net interest margin (GAAP)	3.59		%	3.40		%
Net interest margin—FTE	3.61		%	3.41		%
(E) Efficiency ratio (GAAP)	69.27		%	63.95		%
Efficiency ratio—FTE	69.02		%	63.78		%
(F) Net Overhead ratio (GAAP)	1.93		%	1.47		%
Calculation of Tangible Common Equity ratio (at period end)
Total shareholders’ equity	$	1,940,143		$	1,825,688
(G) Less: Preferred stock	(126,477		)	(176,441		)
Less: Intangible assets	(391,775		)	(363,142		)
(H) Total tangible common shareholders’ equity	$	1,421,891		$	1,286,105
Total assets	$	18,221,163		$	17,074,247
Less: Intangible assets	(391,775		)	(363,142		)
(I) Total tangible assets	$	17,829,388		$	16,711,105
Tangible common equity ratio (H/I)	8.0		%	7.7		%
Tangible common equity ratio, assuming full conversion of preferred stock ((H-G)/I)	8.7		%	8.8		%
Calculation of book value per share
Total shareholders’ equity	$	1,940,143		$	1,825,688
Less: Preferred stock	(126,477		)	(176,441		)
(J) Total common equity	$	1,813,666		$	1,649,247
Actual common shares outstanding	46,259			37,014
Add: TEU conversion shares	—			6,238
(K) Common shares used for book value calculation	46,259			43,252
Book value per share (J/K)	$	39.21		$	38.13
Tangible common book value per share (H/K)	$	30.74		$	29.74
Calculation of return on average common equity
(L) Net income applicable to common shares	$	32,919		$	29,436
Add: After-tax intangible asset amortization	712			685
(M) Tangible net income applicable to common shares	33,631			30,121
Total average shareholders' equity	1,923,649			1,818,127
Less: Average preferred stock	(126,477		)	(176,422		)
(N) Total average common shareholders' equity	1,797,172			1,641,705
Less: Average intangible assets	(392,703		)	(365,505		)
(O) Total average tangible common shareholders’ equity	1,404,469			1,276,200
Return on average common equity, annualized (L/N)	7.43		%	7.27		%
Return on average tangible common equity, annualized (M/O)	9.71		%	9.57		%

Table of Contents

Critical Accounting Policies

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater possibility that changes in those estimates and assumptions could produce financial results that are materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event, are based on information available as of the date of the financial statements; accordingly, as information changes, the financial statements could reflect different estimates and assumptions. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views critical accounting policies to include the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes available. For a more detailed discussion on these critical accounting policies, see “Summary of Critical Accounting Policies” beginning on page 51 of the Company’s 2013 Form 10-K.

Net Income

Net income for the quarter ended March 31, 2014 totaled $34.5 million, an increase of $2.4 million, or 8%, compared to the first quarter of 2013. On a per share basis, net income for the first quarter of 2014 totaled $0.68 per diluted common share compared to $0.65 in the first quarter of 2013.

The most significant factors impacting net income for the first quarter of 2014 as compared to the same period in the prior year include an increase in net interest income as a result of growth in earning assets as well as reduced costs on interest-bearing deposits from a more favorable mix of the deposit funding base, lower provision for credit losses, and higher wealth management revenues due to an increased customer base and market appreciation. These improvements were partially offset by a reduction in mortgage banking revenue due to lower origination volumes, an increase in salary expense caused by the addition of employees from the various acquisitions and larger staffing as the Company grows, and an increase in OREO expenses as a result of a gain recognized in the prior year quarter on a covered OREO property sale. The return on average common equity for the first quarter 2014 was 7.43%, compared to 7.27% for the prior year first quarter.

Table of Contents

Net Interest Income

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

Quarter Ended March 31, 2014 compared to the Quarter Ended December 31, 2013 and March 31, 2013

The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the first quarter of 2014 as compared to the fourth quarter of 2013 (sequential quarters) and first quarter of 2013 (linked quarters):



	Average Balance for three months ended,									Interest for three months ended,						Yield/Rate for three months ended,
(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013			March 31, 2014		December 31, 2013		March 31, 2013		March 31, 2014		December 31, 2013		March 31, 2013
Liquidity management assets^(1)(2)(7)	$	2,646,720		$	2,613,876		$	2,797,310		$	14,533	$	11,185	$	10,363	2.23	%	1.70	%	1.50	%
Other earning assets^(2)(3)(7)	28,925			28,746			24,205			222		215		180		3.12		2.95		3.02
Loans, net of unearned income^(2)(4)(7)	13,278,122			13,043,666			12,252,558			140,320		142,071		131,740		4.29		4.32		4.36
Covered loans	325,885			388,148			536,284			6,941		7,683		10,524		8.64		7.85		7.96
Total earning assets⁽⁷⁾	$	16,279,652		$	16,074,436		$	15,610,357		$	162,016	$	161,154	$	152,807	4.04	%	3.98	%	3.97	%
Allowance for loan and covered loan losses	(110,304		)	(122,060		)	(125,221		)
Cash and due from banks	223,324			237,138			217,345
Other assets	1,588,271			1,646,485			1,554,362
Total assets	$	17,980,943		$	17,835,999		$	17,256,843

Interest-bearing deposits	$	12,121,185		$	11,945,314		$	11,857,400		$	11,923	$	12,488	$	14,504	0.40	%	0.41	%	0.50	%
Federal Home Loan Bank advances	388,975			389,583			414,092			2,643		2,700		2,764		2.76		2.75		2.71
Notes payable and other borrowings	244,950			251,168			297,151			750		1,145		1,154		1.24		1.81		1.57
Subordinated notes	—			4,022			15,000			—		16		59		—		1.56		1.56
Junior subordinated notes	249,493			249,493			249,493			2,004		1,925		3,119		3.21		3.02		5.00
Total interest-bearing liabilities	$	13,004,603		$	12,839,580		$	12,833,136		$	17,320	$	18,274	$	21,600	0.54	%	0.56	%	0.68	%
Non-interest bearing deposits	2,726,872			2,723,360			2,290,725
Other liabilities	325,819			377,561			314,855
Equity	1,923,649			1,895,498			1,818,127
Total liabilities and shareholders’ equity	$	17,980,943		$	17,835,999		$	17,256,843
Interest rate spread⁽⁵⁾⁽⁷⁾																3.50	%	3.42	%	3.29	%
Net free funds/contribution⁽⁶⁾	$	3,275,049		$	3,234,856		$	2,777,221								0.11	%	0.11	%	0.12	%
Net interest income/ margin⁽⁷⁾										$	144,696	$	142,880	$	131,207	3.61	%	3.53	%	3.41	%


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


(2)	Interest income on tax-advantaged loans, trading securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013 were $690,000, $572,000 and $494,000, respectively.


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


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


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


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


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

Table of Contents

The net interest margin in the first quarter of 2014 compared to the fourth quarter of 2013 and first quarter of 2013 increased by eight basis points and 20 basis points, respectively. The increase in the first quarter of 2014 compared to the fourth quarter of 2013 resulted from an increase of six basis points on the total average earning assets and a decrease of two basis points on total average interest-bearing liabilities. The increase in the first quarter of 2014 compared to the first quarter of 2013 resulted from an increase of seven basis points on total average earning assets and a decrease of 14 basis points on total interest bearing liabilities, partially offset by a one basis point decline on the contribution of net free funds.

Analysis of Changes in Tax-equivalent Net Interest Income

The following table presents an analysis of the changes in the Company’s tax-equivalent net interest income comparing the three month periods ended March 31, 2014 and December 31, 2013 and the three months ended March 31, 2014 and March 31, 2013. The reconciliations set forth the changes in the tax-equivalent net interest income as a result of changes in volumes, changes in rates and differing number of days in each period:



	First Quarter of 2014 Compared to Fourth Quarter of 2013			First Quarter of 2014 Compared to First Quarter of 2013
(Dollars in thousands)	First Quarter of 2014 Compared to Fourth Quarter of 2013			First Quarter of 2014 Compared to First Quarter of 2013
Tax-equivalent net interest income for comparative period	$	142,880		$	131,207
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)	1,225			6,091
Change due to interest rate fluctuations (rate)	3,766			7,398
Change due to number of days in each period	(3,175		)	—
Tax-equivalent net interest income for the period ended March 31, 2014	$	144,696		$	144,696

Table of Contents

Non-interest Income

For the first quarter of 2014, non-interest income totaled $45.5 million, a decrease of $11.9 million, or 21%, compared to the first quarter of 2013.

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



	Three months ended March 31,						$			%
(Dollars in thousands)	2014			2013			Change			Change
Brokerage	$	7,091		$	7,267		$	(176	)	(2	)%
Trust and asset management	9,722			7,561			2,161			29
Total wealth management	16,813			14,828			1,985			13
Mortgage banking	16,428			30,145			(13,717		)	(46	)
Service charges on deposit accounts	5,346			4,793			553			12
(Losses) gains on available-for-sale securities, net	(33		)	251			(284		)	(113	)
Fees from covered call options	1,542			1,639			(97		)	(6	)
Trading losses, net	(652		)	(435		)	(217		)	(50	)
Other:
Interest rate swap fees	951			2,270			(1,319		)	(58	)
Bank Owned Life Insurance	712			846			(134		)	(16	)
Administrative services	859			738			121			16
Miscellaneous	3,563			2,304			1,259			55
Total Other	6,085			6,158			(73		)	(1	)
Total Non-Interest Income	$	45,529		$	57,379		$	(11,850	)	(21	)%

The significant changes in non-interest income for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 are discussed below.

Wealth management revenue totaled $16.8 million in the first quarter of 2014 compared to $14.8 million in the first quarter of 2013, an increase of 13%. The increase during the current period compared to the prior year period is mostly attributable to growth in assets under management due to new customers, as well as market appreciation. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors and the brokerage commissions, money managed fees and insurance product commissions at Wayne Hummer Investments.

For the quarter ended March 31, 2014, mortgage banking revenue totaled $16.4 million, a decrease of $13.7 million, or 46% when compared to the first quarter of 2013. The decrease in mortgage banking revenue in the first quarter of 2014 as compared to the prior year period resulted primarily from lower origination volumes as a result of a general downturn in the mortgage banking business coupled with a prolonged winter season across the nation in the current quarter. Additionally, originations were higher in the first quarter of 2013 as a result of a more favorable refinance market as compared to the first quarter of 2014. Mortgage loan originations were $527.3 million in the first quarter of 2014 as compared to $974.4 million in the prior year quarter. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real-estate loans for the secondary market.

A summary of the mortgage banking components is shown below:



	Three months ended March 31,
(Dollars in thousands)	2014			2013
Mortgage loans originated and sold	$	527,272		$	974,432
Mortgage loans serviced for others	949,434			1,016,191
Fair value of mortgage servicing rights (MSRs)	8,719			7,344
MSRs as a percentage of loans serviced	0.92		%	0.72		%

Service charges on deposit accounts totaled $5.3 million in the first quarter of 2014, an increase of $553,000 compared to the quarter ended March 31, 2013. The increase in the current quarter is primarily a result of higher account analysis fees on deposit accounts which have increased as a result of the Company's commercial banking initiative.

Table of Contents

Non-interest Expense

Non-interest expense for the first quarter of 2014 totaled $131.3 million and increased approximately $11.2 million, or 9%, compared to the first quarter of 2013.

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



	Three months ended March 31,					$			%
(Dollars in thousands)	2014		2013			Change			Change
Salaries and employee benefits:
Salaries	$	43,736	$	41,831		$	1,905		5	%
Commissions and bonus	21,534		21,276			258			1
Benefits	14,664		14,406			258			2
Total salaries and employee benefits	79,934		77,513			2,421			3
Equipment	7,403		6,184			1,219			20
Occupancy, net	10,993		8,853			2,140			24
Data processing	4,715		4,599			116			3
Advertising and marketing	2,816		2,040			776			38
Professional fees	3,454		3,221			233			7
Amortization of other intangible assets	1,163		1,120			43			4
FDIC insurance	2,951		3,444			(493		)	(14	)
OREO expense (income), net	3,976		(1,620		)	5,596			NM
Other:
Commissions—3rd party brokers	1,657		1,233			424			34
Postage	1,429		1,249			180			14
Stationery and supplies	892		934			(42		)	(4	)
Miscellaneous	9,932		11,349			(1,417		)	(12	)
Total other	13,910		14,765			(855		)	(6	)
Total Non-Interest Expense	$	131,315	$	120,119		$	11,196		9	%

NM - Not Meaningful

The significant changes in non-interest expense for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 are discussed below.

Salaries and employee benefits expense increased $2.4 million, or 3%, in the first quarter of 2014 compared to the first quarter of 2013 primarily as a result of a $1.9 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows.

Equipment expense totaled $7.4 million for the first quarter of 2014, an increase of $1.2 million compared to the first quarter of 2013. The increase is primarily related to additional equipment depreciation as a result of acquisitions as well as increased software license fees. Equipment expense includes depreciation on equipment, maintenance and repairs, equipment rental and software license fees.

Occupancy expense for the first quarter of 2014 was $11.0 million, an increase of $2.1 million, or 24%, compared to the same period in 2013. The increase is primarily the result of elevated snow removal expenses and utility expenses on owned locations including those obtained in the Company's acquisitions as well as increased property taxes. Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for leased premises.

Data processing expenses increased $116,000 in the first quarter of 2014 totaling $4.7 million compared to $4.6 million recorded in the first quarter of 2013. The amount of data processing expenses incurred fluctuates based on the overall growth of loan and deposit accounts as well as additional expenses recorded related to acquired banks.

Professional fees for the first quarter of 2014 were $3.5 million, an increase of $233,000, or 7%, compared to the same period in 2013. The increase compared to the first quarter of 2013 is primarily the result of increased consulting fees during the period. Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments.

Table of Contents

OREO expense totaled $4.0 million in the first quarter of 2014 compared to OREO income of $1.6 million recorded in the first quarter of 2013. OREO expense increased primarily due to a $3.4 million gain recognized during the prior year quarter on a covered OREO property sale. OREO costs include all costs related to obtaining, maintaining and selling other real estate owned properties.

Miscellaneous other expenses in the first quarter of 2014 decreased $855,000, or 6%, compared to the quarter ended March 31, 2013. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.

Income Taxes

The Company recorded income tax expense of $21.8 million for the three months ended March 31, 2014, compared to $20.2 million for same period of 2013. The effective tax rates were 38.8% and 38.7% for the first quarters of 2014 and 2013, respectively.

Operating Segment Results

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. For purposes of internal segment profitability, management allocates certain intersegment and parent company balances. Management allocates a portion of revenues to the specialty finance segment related to loans originated by the specialty finance segment and sold to the community banking segment. 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. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment's risk-weighted assets.

The community banking segment’s net interest income for the quarter ended March 31, 2014 totaled $116.8 million as compared to $106.2 million for the same period in 2013, an increase of $10.5 million, or 10%. The increase is primarily attributable to growth in earning assets, including those obtained in acquisitions as well as the ability to gather interest-bearing deposits at more favorable rates. The community banking segment’s non-interest income totaled $27.3 million in the first quarter of 2014, a decrease of $13.3 million, or 33%, when compared to the first quarter of 2013 total of $40.6 million. The decrease in non-interest income in the current quarter was primarily attributable to lower mortgage banking revenues and fees from covered call options. The community banking segment’s after-tax profit for the quarter ended March 31, 2014 totaled $22.6 million, an increase of $1.6 million as compared to after-tax profit in the first quarter of 2013 of $21.0 million.

Net interest income for the specialty finance segment totaled $19.2 million for the quarter ended March 31, 2014, compared to $17.5 million for the same period in 2013, an increase of $1.7 million or 10%. The specialty finance segment’s non-interest income for the three month period ending March 31, 2014 totaled $7.9 million compared to the three month period ending March 31, 2013 total of $7.3 million. The increases in both net interest income and non-interest income in the current quarter are primarily attributable to both higher premium finance receivable originations and increased loan balances in the first quarter of 2014 as compared to the first quarter of 2013. Our commercial premium finance operations, life insurance finance operations and accounts receivable finance operations accounted for 60%, 32% and 8%, respectively, of the total revenues of our specialty finance business for the three month period ending March 31, 2014. The after-tax profit of the specialty finance segment for the quarter ended March 31, 2014 totaled $9.0 million as compared to $8.6 million for the quarter ended March 31, 2013.

The wealth management segment reported net interest income of $4.1 million for the first quarter of 2014 compared to $3.4 million in the same quarter of 2013. Net interest income for this segment is primarily comprised of an allocation of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks (“wealth management deposits”). The allocated net interest income included in this segment’s profitability was $3.9 million for the three month period ended March 31, 2014, compared to $3.4 million in the three month period ended March 31, 2013. This segment recorded non-interest income of $16.9 million for the first quarter of 2014 compared to $15.4 million for the first quarter of 2013. The increase in the first quarter of 2014 as compared to first quarter of 2013 is primarily attributable to growth in assets under management due to new customers, as well as market appreciation. The wealth management segment’s after-tax profit totaled $2.9 million for the first quarter of 2014 compared to after-tax profit of $2.4 million for the first quarter of 2013.

Table of Contents

Financial Condition

Total assets were $18.2 billion at March 31, 2014, representing an increase of $1.1 billion, or 7%, when compared to March 31, 2013 and an increase of approximately $123.4 million, or 3% on an annualized basis, when compared to December 31, 2013. Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $16.0 billion at March 31, 2014, $15.6 billion at December 31, 2013, and $14.9 billion at March 31, 2013. See Notes 5, 6, 9, 10 and 11 of the Consolidated Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

Interest-Earning Assets

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



	Three Months Ended
	March 31, 2014				December 31, 2013				March 31, 2013
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Loans:
Commercial	$	3,307,025	21	%	$	3,145,292	20	%	$	2,841,360	18	%
Commercial real-estate	4,256,012		26		4,198,126		26		3,916,871		25
Home equity	712,604		4		730,464		5		774,772		5
Residential real-estate ⁽¹⁾	661,253		4		712,798		4		751,473		5
Premium finance receivables	4,167,530		26		4,071,716		25		3,777,563		24
Other loans	173,698		1		185,270		1		190,519		2
Total loans, net of unearned income excluding covered loans ⁽²⁾	$	13,278,122	82	%	$	13,043,666	81	%	$	12,252,558	79	%
Covered loans	325,885		2		388,148		3		536,284		3
Total average loans ⁽²⁾	$	13,604,007	84	%	$	13,431,814	84	%	$	12,788,842	82	%
Liquidity management assets ⁽³⁾	$	2,646,720	16	%	$	2,613,876	16	%	2,797,310		18	%
Other earning assets ⁽⁴⁾	28,925		—		28,746		—		24,205		—
Total average earning assets	$	16,279,652	100	%	$	16,074,436	100	%	$	15,610,357	100	%
Total average assets	$	17,980,943			$	17,835,999			$	17,256,843
Total average earning assets to total average assets			91	%			90	%			90	%


(1)	Includes mortgage loans held-for-sale


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


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


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

Total average earning assets for the first quarter of 2014 increased $669.3 million, or 4%, to $16.3 billion, compared to the first quarter of 2013, and increased $205.2 million, or 5% on an annualized basis, compared to the fourth quarter of 2013. Average earning assets comprised 91% of average total assets at March 31, 2014 compared to 90% of average total assets at December 31, 2013 and March 31, 2013.

Average total loans, net of unearned income, totaled $13.6 billion in the first quarter of 2014, increasing $815.2 million, or 6%, from the first quarter of 2013 and $172.2 million, or 5% on an annualized basis, from the fourth quarter of 2013. Average commercial loans totaled $3.3 billion in the first quarter of 2014, and increased $465.7 million, or 16%, over the average balance in the same period of 2013, while average commercial real-estate loans totaled $4.3 billion in the first quarter of 2014, increasing $339.1 million, or 9%, compared to the first quarter of 2013. Combined, these categories comprised 56% and 53% of the average loan portfolio in the first quarters of 2014 and 2013, respectively. The growth realized in these categories for the first quarter of 2014 as compared to the prior year period is primarily attributable to increased business development efforts and various bank acquisitions. Average balances increased compared to the quarter ended December 31, 2013, with average commercial loans increasing by $161.7 million, or 20% annualized, and average commercial real-estate loans increasing by $57.9 million, or 5% annualized.

Home equity loans averaged $712.6 million in the first quarter of 2014, and decreased $62.2 million, or 8%, when compared to the average balance in the same period of 2013 and $17.9 million, or 10% annualized, when compared to quarter ended December 31,

Table of Contents

2013. As a result of economic conditions, the Company has been actively managing its home equity portfolio to ensure that diligent pricing, appraisal and other underwriting activities continue to exist. The Company has not sacrificed asset quality or pricing standards when originating new home equity loans. Our home equity loan portfolio has performed well in light of the variability in the overall residential real estate market. The number of home equity line of credit commitments originated by us has decreased due to a decline in homeowners' desire to use their remaining equity as collateral.

Residential real-estate loans averaged $661.3 million in the first quarter of 2014, and decreased $90.2 million, or 12% from the average balance of $751.5 million in same period of 2013. Additionally, compared to the quarter ended December 31, 2013, the average balance decreased $51.5 million, or 29% on an annualized basis. This category includes mortgage loans held-for-sale. By selling residential mortgage loans into the secondary market, the Company eliminates the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provides a source of non-interest revenue. Mortgage loans held-for-sale decreased since the same period of 2013 as a result of lower origination volumes during the current period due to the impact of higher rates on refinancing activity as well as competitive pricing pressure.

Average premium finance receivables totaled $4.2 billion in the first quarter of 2014, and accounted for 31% of the Company’s average total loans. Premium finance receivables consist of a commercial portfolio and a life portfolio, comprising approximately 54% and 46%, respectively, of the average total balance of premium finance receivables for the first quarter of 2014 and 2013. In the first quarter of 2014, average premium finance receivables increased $390.0 million, or 10%, from the average balance of $3.8 billion at the same period of 2013. Additionally, the average balance increased $95.8 million, or 10% on an annualized basis, from the average balance of $4.1 billion in the quarter ended December 31, 2013. The increase during 2014 compared to both periods was the result of continued originations within the portfolio due to the effective marketing and customer servicing. Approximately $1.5 billion of premium finance receivables were originated in the first quarter of 2014 compared to $1.3 billion during the same period of 2013.

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

Covered loans averaged $325.9 million in the first quarter of 2014, and decreased $210.4 million, or 39%, when compared to the average balance in the same period of 2013 and decreased $62.3 million, or 65% annualized, when compared to quarter ended December 31, 2013. Covered loans represent loans acquired in FDIC-assisted transactions. These loans are subject to loss sharing agreements with the FDIC. The FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, foreclosed real estate, and certain other assets. See Note 3 of the Consolidated Financial Statements presented under Item 1 of this report for a discussion of these acquisitions, including the aggregation of these loans by risk characteristics when determining the initial and subsequent fair value.

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. Average liquidity management assets accounted for 16% of total average earning assets in the first quarter of 2014 compared to 16% in the fourth quarter of 2013 and 18% in the first quarter of 2013. Average liquidity management assets decreased $150.6 million in the first quarter of 2014 compared to the same period in 2013, and increased $32.8 million compared to the fourth quarter of 2013. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes.

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

Table of Contents

Deposits

Total deposits at March 31, 2014 were $15.1 billion an increase of $1.2 billion, or 8%, compared to total deposits at March 31, 2013. See Note 9 to the Consolidated Financial Statements presented under Item 1 of this report for a summary of period end deposit balances.

The following table sets forth, by category, the maturity of time certificates of deposit as of March 31, 2014:



Time Certificates of Deposit Maturity/Re-pricing Analysis As of March 31, 2014 (Dollars in thousands)	CDARs & Brokered Certificates of Deposit ⁽¹⁾		MaxSafe Certificates of Deposit ⁽¹⁾		Variable Rate Certificates of Deposit ⁽²⁾		Other Fixed Rate Certificates of Deposit ⁽¹⁾		Total Time Certificates of Deposits		Weighted-Average Rate of Maturing Time Certificates of Deposit ⁽³⁾
1-3 months	$	5,113	$	65,185	$	158,924	$	677,414	$	906,636	0.50	%
4-6 months	18,241		71,470		—		533,772		623,483		0.62	%
7-9 months	80,000		43,148		—		470,978		594,126		0.57	%
10-12 months	95,661		31,194		—		412,183		539,038		1.01	%
13-18 months	72,302		22,877		—		527,552		622,731		1.05	%
19-24 months	2,167		22,515		—		199,832		224,514		1.11	%
24+ months	163,712		15,495		—		494,789		673,996		1.18	%
Total	$	437,196	$	271,884	$	158,924	$	3,316,520	$	4,184,524	0.82	%


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


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


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

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



	Three Months Ended
	March 31, 2014				December 31, 2013				March 31, 2013
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Non-interest bearing	$	2,726,872	18	%	$	2,723,360	19	%	$	2,290,725	16	%
NOW	1,934,403		13		1,915,450		13		2,005,668		14
Wealth management deposits	1,214,576		8		1,025,205		7		966,219		7
Money market	3,396,773		23		3,389,910		23		2,804,256		20
Savings	1,415,653		10		1,350,147		9		1,251,759		9
Time certificates of deposit	4,159,780		28		4,264,602		29		4,829,498		34
Total average deposits	$	14,848,057	100	%	$	14,668,674	100	%	$	14,148,125	100	%

Total average deposits for the first quarter of 2014 were $14.8 billion, an increase of $700.0 million, or 5%, from the first quarter of 2013. The increase in average deposits is primarily attributable to the Company’s acquisition activity in 2013, as well as additional deposits associated with the increased commercial lending relationships. The Company continues to see a beneficial shift in its deposit mix as average non-interest bearing deposits increased $436.1 million, or 19%, in the first quarter of 2014 compared to the first quarter of 2013.

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

Table of Contents

Brokered Deposits

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



	March 31,						December 31,
(Dollars in thousands)	2014			2013			2013			2012			2011
Total deposits	$	15,129,045		$	13,962,757		$	14,668,789		$	14,428,544		$	12,307,267
Brokered deposits	800,266			538,128			476,139			787,812			674,013
Brokered deposits as a percentage of total deposits	5.3		%	3.9		%	3.2		%	5.5		%	5.5		%

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

Other Funding Sources

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

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



	Three Months Ended
	March 31,		December 31,		March 31,
(Dollars in thousands)	2014		2013		2013
Notes payable	$	362	$	947	$	3,424
Federal Home Loan Bank advances	388,975		389,583		414,092
Other borrowings:
Federal funds purchased	797		359		108
Securities sold under repurchase agreements	224,480		226,925		258,360
Other	19,311		22,937		35,259
Total other borrowings	$	244,588	$	250,221	$	293,727
Subordinated notes	—		4,022		15,000
Junior subordinated debentures	249,493		249,493		249,493
Total other funding sources	$	883,418	$	894,266	$	975,736

Notes payable balances represent the balances on an unsecured promissory note acquired as a result of the Great Lakes Advisors acquisition and a loan agreement with unaffiliated banks. At March 31, 2014, the Company had a $182,000 outstanding balance on the unsecured promissory note resulting from the Great Lakes Advisors acquisition compared to $364,000 outstanding at December 31, 2013 and $911,000 outstanding at March 31, 2013. The loan agreement with unaffiliated banks is a $100.0 million revolving credit facility 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. In the fourth quarter of 2013, the Company amended the terms of the $100.0 million revolving credit facility, and repaid and terminated the related $1.0 million term loan. At March 31, 2014 and December 31, 2013, the Company had no outstanding balance on the loan agreement with unaffiliated banks as compared to $31.0 million outstanding at March 31, 2013.

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. Additionally, the banks have the ability to borrow shorter-term,

Table of Contents

overnight funding from the FHLB for for other general purposes. These FHLB advances to the banks totaled $387.7 million at March 31, 2014, compared to $417.8 million at December 31, 2013 and $414.0 million at March 31, 2013.

Other borrowings include securities sold under repurchase agreements, federal funds purchased, debt issued by the Company in conjunction with its tangible equity unit offering in December 2010 and a fixed-rate promissory note entered into in August 2012 related to an office building complex owned by the Company. These borrowings totaled $230.9 million, $254.7 million and $256.2 million at March 31, 2014, December 31, 2013 and March 31, 2013, 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. These borrowings totaled $211.7 million, $235.3 million, and $224.3 million at March 31, 2014, December 31, 2013, and March 31, 2013, respectively. In December 2013, the debt issued by the Company, in conjunction with its tangible equity unit offering was paid-off at maturity. At March 31, 2014, the fixed-rate promissory note related to an office building complex had an outstanding balance of $19.2 million.

In 2002, 2003 and 2005, the Company borrowed $75.0 million under three separate $25.0 million subordinated note agreements. Each subordinated note required annual principal payments of $5.0 million beginning in the sixth year of the note and has a term of ten years with final maturity dates in 2012, 2013, and 2015. During 2012, two subordinated notes issued in October 2002 and April 2003 with remaining balances of $5.0 million and $10.0 million, respectively, were paid off prior to maturity. During 2013, the remaining subordinated note issued in October 2005 with a remaining balance of $10.0 million was paid off prior to maturity. At March 31, 2014 and December 31, 2013, no balance remained on the subordinated notes compared to a balance of $15.0 million at March 31, 2013.

The Company had $249.5 million of junior subordinated debentures outstanding as of March 31, 2014, December 31, 2013 and March 31, 2013. The amounts reflected on the balance sheet represent the junior subordinated debentures issued to nine trusts by the Company and equal the amount of the preferred and common securities issued by the trusts. Junior subordinated debentures, subject to certain limitations, currently qualify as Tier 1 regulatory capital. Interest expense on these debentures is deductible for tax purposes, resulting in a cost-efficient form of regulatory capital.

See Notes 10 and 11 of the Consolidated Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. There were no material changes outside the ordinary course of business in the Company’s contractual obligations during the first three months of 2014 as compared to December 31, 2013 or the first three months of 2013.

Shareholders’ Equity

Total shareholders’ equity was $1.9 billion at March 31, 2014, reflecting an increase of $114.5 million since March 31, 2013 and $39.6 million since December 31, 2013. The increase from December 31, 2013 was the result of net income of $34.5 million less common stock dividends of $4.6 million and preferred stock dividends of $1.6 million, $1.7 million credited to surplus for stock-based compensation costs, $3.7 million from the issuance of shares of the Company’s common stock (and related tax benefit) pursuant to various stock compensation plans and $13.7 million in net unrealized gains from available-for-sale securities, net of tax, partially offset by $7.4 million of foreign currency translation adjustments, net of tax, $380,000 of common stock repurchases by the Company and $59,000 net unrealized losses from cash flow hedges, net of tax.

Table of Contents

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



	March 31, 2014		December 31, 2013		March 31, 2013
Leverage ratio	10.4	%	10.5	%	10.2	%
Tier 1 capital to risk-weighted assets	12.0		12.2		12.4
Total capital to risk-weighted assets	12.6		12.9		13.5
Total average equity-to-total average assets⁽¹⁾	10.7		10.6		10.5


(1)	Based on quarterly average balances.



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

The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt and additional common or preferred equity. Refer to Notes 10, 11 and 16 of the Consolidated Financial Statements presented under Item 1 of this report for further information on these various funding sources. The issuances of subordinated debt, preferred stock and additional common stock are the primary forms of regulatory capital that are considered as the Company evaluates increasing its capital position. Management is committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the Federal Reserve for bank holding companies.

The Company’s Board of Directors approves dividends from time to time, however, the ability to declare a dividend is limited by the Company's financial condition, the terms of the Company's 5.00% non-cumulative perpetual convertible preferred stock, Series C, the terms of the Company’s Trust Preferred Securities offerings and under certain financial covenants in the Company’s credit agreement. In each of January and April of 2014, The Company declared a quarterly cash dividend of $0.10 per common share. In each of January and July of 2013, the Company declared a semi-annual cash dividend of $0.09 per common share.

See Note 16 of the Consolidated Financial Statements presented under Item 1 of this report for details on the Company’s issuance of Series C preferred stock in March 2012, tangible equity units in December 2010 and Series A preferred stock in August 2008, and the conversion of Series A preferred stock and the settlement of the tangible equity units into the Company's common stock in July 2013 and December 2013, respectively.

Basel III Capital Rules

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

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


•	Revises regulatory capital definitions and minimum ratios


•	Redefines Tier 1 Capital as two components


◦	Common Equity Tier 1 Capital


◦	Additional Tier 1 Capital


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


•	Implements a capital conservation buffer


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


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

The Company is continuing to evaluate the final rules and their expected impact on the Company.

Table of Contents

LOAN PORTFOLIO AND ASSET QUALITY

Loan Portfolio

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



	March 31, 2014				December 31, 2013				March 31, 2013
			% of				% of				% of
(Dollars in thousands)	Amount		Total		Amount		Total		Amount		Total
Commercial	$	3,439,197	26	%	$	3,253,687	25	%	$	2,872,695	23	%
Commercial real-estate	4,262,255		32		4,230,035		32		3,990,465		32
Home equity	707,748		5		719,137		5		759,218		6
Residential real-estate	426,769		3		434,992		3		360,652		3
Premium finance receivables—commercial	2,208,361		17		2,167,565		16		1,997,160		16
Premium finance receivables—life insurance	1,929,334		14		1,923,698		15		1,753,512		14
Consumer and other	159,496		1		167,488		1		166,610		2
Total loans, net of unearned income, excluding covered loans	$	13,133,160	98	%	$	12,896,602	97	%	$	11,900,312	96	%
Covered loans	312,478		2		346,431		3		518,661		4
Total loans	$	13,445,638	100	%	$	13,243,033	100	%	$	12,418,973	100	%

Table of Contents

Commercial and commercial real-estate loans. Our commercial and commercial real-estate loan portfolios are comprised primarily of commercial real-estate loans and lines of credit for working capital purposes. The table below sets forth information regarding the types, amounts and performance of our loans within these portfolios (excluding covered loans) as of March 31, 2014 and 2013:



As of March 31, 2014			% of				> 90 Days Past Due		Allowance For Loan
As of March 31, 2014			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,995,309	26.0	%	$	11,112	$	387	$	16,018
Franchise	221,101		2.9		—		—		1,482
Mortgage warehouse lines of credit	60,809		0.8		—		—		494
Community Advantage—homeowner associations	91,414		1.2		—		—		—
Aircraft	8,840		0.1		—		—		17
Asset-based lending	740,668		9.6		670		—		5,303
Tax exempt	177,973		2.3		—		—		1,240
Leases	121,986		1.6		—		—		2
Other	10,261		0.1		—		—		63
PCI - commercial loans ⁽¹⁾	10,836		0.1		—		1,079		70
Total commercial	$	3,439,197	44.7	%	$	11,782	$	1,466	$	24,689
Commercial Real-Estate:
Residential construction	$	36,397	0.5	%	$	—	$	—	$	775
Commercial construction	151,630		2.0		844		—		2,298
Land	107,970		1.4		2,405		—		2,990
Office	651,165		8.5		6,970		—		5,767
Industrial	625,060		8.1		6,101		—		4,964
Retail	677,430		8.8		9,540		—		5,569
Multi-family	575,763		7.5		1,327		—		9,863
Mixed use and other	1,361,236		17.5		6,546		—		12,379
PCI - commercial real-estate ⁽¹⁾	75,604		1.0		—		21,073		—
Total commercial real-estate	$	4,262,255	55.3	%	$	33,733	$	21,073	$	44,605
Total commercial and commercial real-estate	$	7,701,452	100.0	%	$	45,515	$	22,539	$	69,294

Commercial real-estate—collateral location by state:
Illinois	$	3,637,173	85.3	%
Wisconsin	361,619		8.5
Total primary markets	$	3,998,792	93.8	%
Florida	67,260		1.6
Arizona	15,487		0.4
Indiana	79,469		1.9
Other (no individual state greater than 0.5%)	101,247		2.3
Total	$	4,262,255	100.0	%


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

Table of Contents



			% of				> 90 Days Past Due		Allowance For Loan
As of March 31, 2013			Total				and Still		Losses
(Dollars in thousands)	Balance		Balance		Nonaccrual		Accruing		Allocation
Commercial:
Commercial and industrial	$	1,569,576	22.9	%	$	17,717	$	—	$	18,279
Franchise	194,511		2.8		125		—		1,655
Mortgage warehouse lines of credit	131,970		1.9		—		—		1,288
Community Advantage—homeowner associations	82,763		1.2		—		—		207
Aircraft	14,112		0.2		—		—		74
Asset-based lending	687,255		10.0		531		—		6,307
Tax exempt	89,508		1.3		—		—		880
Leases	98,030		1.4		—		—		261
Other	127		—		—		—		1
PCI - commercial loans ⁽¹⁾	4,843		—		—		449		—
Total commercial	$	2,872,695	41.7	%	$	18,373	$	449	$	28,952
Commercial Real-Estate:
Residential construction	$	37,083	0.5	%	$	3,094	$	—	$	1,200
Commercial construction	162,358		2.4		1,086		—		2,749
Land	133,578		2.0		17,976		—		5,198
Office	584,684		8.5		3,564		—		5,634
Industrial	595,525		8.7		7,137		—		6,602
Retail	586,801		8.6		7,915		—		5,592
Multi-family	512,785		7.5		2,088		—		12,778
Mixed use and other	1,322,834		19.3		18,947		—		16,458
PCI - commercial real-estate ⁽¹⁾	54,817		0.8		—		1,866		197
Total commercial real-estate	$	3,990,465	58.3	%	$	61,807	$	1,866	$	56,408
Total commercial and commercial real-estate	$	6,863,160	100.0	%	$	80,180	$	2,315	$	85,360

Commercial real-estate—collateral location by state:
Illinois	$	3,359,815	84.2	%
Wisconsin	334,333		8.4
Total primary markets	$	3,694,148	92.6	%
Florida	64,999		1.6
Arizona	39,442		1.0
Indiana	53,401		1.3
Other (no individual state greater than 0.5%)	138,475		3.5
Total	$	3,990,465	100.0	%


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

We make commercial loans for many purposes, including working capital lines, which are generally renewable annually and supported by business assets, personal guarantees and additional collateral; loans to condominium and homeowner associations originated through Barrington Bank’s Community Advantage program; and franchise lending at Lake Forest Bank. Commercial business lending is generally considered to involve a higher degree of risk than traditional consumer bank lending. However, as a result of recent improvements in credit quality within the overall commercial portfolio, our allowance for loan losses in our commercial loan portfolio is $24.7 million as of March 31, 2014 compared to $29.0 million as of March 31, 2013.

Our commercial real-estate loans are generally secured by a first mortgage lien and assignment of rents on the property. Since most of our bank branches are located in the Chicago metropolitan area and southeastern Wisconsin, 93.8% of our commercial

Table of Contents

real-estate loan portfolio is located in this region. Commercial real-estate market conditions continued to be under stress in the first quarter of 2014, however we have been able to effectively manage and reduce our total non-performing commercial real-estate loans. As of March 31, 2014, our allowance for loan losses related to this portfolio is $44.6 million compared to $56.4 million as of March 31, 2013.

The Company also participates in mortgage warehouse lending by providing interim funding to unaffiliated mortgage bankers to finance residential mortgages originated by such bankers for sale into the secondary market. The Company’s loans to the mortgage bankers are secured by the business assets of the mortgage companies as well as the specific mortgage loans funded by the Company, after they have been pre-approved for purchase by third party end lenders. The Company may also provide interim financing for packages of mortgage loans on a bulk basis in circumstances where the mortgage bankers desire to competitively bid on a number of mortgages for sale as a package in the secondary market. Amounts advanced with respect to any particular mortgage loan are usually required to be repaid within 21 days. In the current period, mortgage warehouse lines decreased to $60.8 million as of March 31, 2014 from $132.0 million as of March 31, 2013 as a result of lower origination volumes during the current period as refinance activity declined as well as competitive pricing pressure.

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

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

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

Residential real-estate mortgages. Our residential real-estate portfolio predominantly includes one to four-family adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. As of March 31, 2014, our residential loan portfolio totaled $426.8 million, or 3% of our total outstanding loans.

Our adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southeastern Wisconsin or vacation homes owned by local residents, and may have terms based on differing indexes. These adjustable rate mortgages are often non-agency conforming because the outstanding balance of these loans exceeds the maximum balance that can be sold into the secondary market. Adjustable rate mortgage loans decrease the interest rate risk we face on our mortgage portfolio. However, this risk is not eliminated due to the fact that such loans generally provide for periodic and lifetime limits on the interest rate adjustments among other features. Additionally, adjustable rate mortgages may pose a higher risk of delinquency and default because they require borrowers to make larger payments when interest rates rise. To date, we have not seen a significant elevation in delinquencies and foreclosures in our residential loan portfolio. As of March 31, 2014, $14.4 million of our residential real-estate mortgages, or 3.4% of our residential real-estate loan portfolio, excluding PCI loans, were classified as nonaccrual, $5.8 million were 30 to 89 days past due (1.4%) and $403.5 million were current (95.2%). 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

Table of Contents

March 31, 2014 and 2013 was $949.4 million and $1.0 billion, respectively. All other mortgage loans sold into the secondary market were sold without the retention of servicing rights.

It is not our current practice to underwrite, and we have no plans to underwrite, subprime, Alt A, no or little documentation loans, or option ARM loans. As of March 31, 2014, approximately $14.6 million of our mortgage loans consist of interest-only loans.

Premium finance receivables – commercial. FIFC and FIFC Canada originated approximately $1.4 billion in commercial insurance premium finance receivables during the first quarter of 2014 compared to $1.2 billion in the same period of 2013. FIFC and FIFC Canada makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by working through independent medium and large insurance agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance.

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

Premium finance receivables—life insurance. FIFC originated approximately $113.6 million in life insurance premium finance receivables in the first quarter of 2014 as compared to $85.7 million of originations in the first quarter of 2013. The Company has experienced increased competition and pricing pressure within the current market in 2014. 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.

Consumer and other. Included in the consumer and other loan category is a wide variety of personal and consumer loans to individuals as well as indirect automobile and consumer loans and 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.

Variable Rate Loan Repricing and Rate Floors

The following table classifies the commercial and commercial real-estate loan portfolio at March 31, 2014 by date at which the loans reprice and the type of rate:



As of March 31, 2014	One year or less		From one to five years		Over five years
(Dollars in thousands)	One year or less		From one to five years		Over five years		Total
Commercial
Fixed rate	$	71,073	$	392,092	$	163,214	$	626,379
Variable rate
With floor feature	516,699		468		—		517,167
Without floor feature	2,278,618		4,667		12,366		2,295,651
Total commercial	2,866,390		397,227		175,580		3,439,197
Commercial real-estate
Fixed rate	$	332,772	$	1,357,659	$	176,297	$	1,866,728
Variable rate
With floor feature	436,072		16,094		—		452,166
Without floor feature	1,907,730		34,310		1,321		1,943,361
Total commercial real-estate	2,676,574		1,408,063		177,618		4,262,255

Table of Contents

Past Due Loans and Non-Performing Assets

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



1 Rating —		Minimal Risk (Loss Potential – none or extremely low) (Superior asset quality, excellent liquidity, minimal leverage)

2 Rating —		Modest Risk (Loss Potential demonstrably low) (Very good asset quality and liquidity, strong leverage capacity)

3 Rating —		Average Risk (Loss Potential low but no longer refutable) (Mostly satisfactory asset quality and liquidity, good leverage capacity)

4 Rating —		Above Average Risk (Loss Potential variable, but some potential for deterioration) (Acceptable asset quality, little excess liquidity, modest leverage capacity)

5 Rating —		Management Attention Risk (Loss Potential moderate if corrective action not taken) (Generally acceptable asset quality, somewhat strained liquidity, minimal leverage capacity)

6 Rating —		Special Mention (Loss Potential moderate if corrective action not taken) (Assets in this category are currently protected, potentially weak, but not to the point of substandard classification)

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

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

9 Rating —		Doubtful (Loss Potential extremely high) (These assets have all the weaknesses in those classified “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly improbable)

10 Rating —		Loss (fully charged-off) (Loans in this category are considered fully uncollectible.)

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors, including: a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. A third party loan review firm independently reviews a significant portion of the loan portfolio at each of the Company’s subsidiary banks to evaluate the appropriateness of the management-assigned credit risk ratings. These ratings are subject to further review at each of our bank subsidiaries by the applicable regulatory authority, including the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, the State of Illinois and the State of Wisconsin and are also reviewed by our internal audit staff.

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

Table of Contents

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

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

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

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

Table of Contents

Non-performing Assets, excluding covered assets

The following table sets forth Wintrust’s non-performing assets and TDRs performing under the contractual terms of the loan agreement, excluding covered assets and PCI loans, as of the dates shown:



(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Loans past due greater than 90 days and still accruing ⁽¹⁾:
Commercial	$	387		$	—		$	—
Commercial real-estate	—			230			—
Home equity	—			—			—
Residential real-estate	—			—			—
Premium finance receivables—commercial	6,808			8,842			7,677
Premium finance receivables—life insurance	—			—			2,256
Consumer and other	57			105			145
Total loans past due greater than 90 days and still accruing	7,252			9,177			10,078
Non-accrual loans ⁽²⁾:
Commercial	11,782			10,780			18,373
Commercial real-estate	33,733			46,658			61,807
Home equity	7,311			10,071			14,891
Residential real-estate	14,385			14,974			9,606
Premium finance receivables—commercial	14,517			10,537			12,068
Premium finance receivables—life insurance	—			—			20
Consumer and other	1,144			1,137			1,790
Total non-accrual loans	82,872			94,157			118,555
Total non-performing loans:
Commercial	12,169			10,780			18,373
Commercial real-estate	33,733			46,888			61,807
Home equity	7,311			10,071			14,891
Residential real-estate	14,385			14,974			9,606
Premium finance receivables—commercial	21,325			19,379			19,745
Premium finance receivables—life insurance	—			—			2,276
Consumer and other	1,201			1,242			1,935
Total non-performing loans	$	90,124		$	103,334		$	128,633
Other real estate owned	48,115			43,632			50,593
Other real estate owned—obtained in acquisition	6,016			6,822			5,584
Other repossessed assets	426			542			4,315
Total non-performing assets	$	144,681		$	154,330		$	189,125
TDRs performing under the contractual terms of the loan agreement	74,622			78,610			97,122
Total non-performing loans by category as a percent of its own respective category’s period-end balance:
Commercial	0.35		%	0.33		%	0.64		%
Commercial real-estate	0.79			1.11			1.55
Home equity	1.03			1.40			1.96
Residential real-estate	3.37			3.44			2.66
Premium finance receivables—commercial	0.97			0.89			0.99
Premium finance receivables—life insurance	—			—			0.13
Consumer and other	0.75			0.74			1.16
Total non-performing loans	0.69		%	0.80		%	1.08		%
Total non-performing assets, as a percentage of total assets	0.79		%	0.85		%	1.11		%
Allowance for loan losses as a percentage of total non-performing loans	102.39		%	93.80		%	85.79		%

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

(2) Non-accrual loans included TDRs totaling $17.9 million, $28.5 million and $19.2 million as of March 31, 2014, December 31, 2013 and March 31, 2013, respectively.

Table of Contents

Non-performing Commercial and Commercial Real-Estate

Commercial non-performing loans totaled $12.2 million as of March 31, 2014 compared to $10.8 million as of December 31, 2013 and $18.4 million as of March 31, 2013. Commercial real-estate non-performing loans totaled $33.7 million as of March 31, 2014 compared to $46.9 million as of December 31, 2013 and $61.8 million as of March 31, 2013. Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Non-performing Residential Real-Estate and Home Equity

Non-performing residential real-estate and home equity loans totaled $21.7 million as of March 31, 2014. The balance decreased $3.3 million from December 31, 2013 and decreased $2.8 million from March 31, 2013. The March 31, 2014 non-performing balance is comprised of $14.4 million of residential real-estate (72 individual credits) and $7.3 million of home equity loans (37 individual credits). On average, this is approximately seven 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 March 31, 2014 and 2013, and the amount of net charge-offs for the quarters then ended.



(Dollars in thousands)	March 31, 2014			March 31, 2013
Non-performing premium finance receivables—commercial	$	21,325		$	19,745
- as a percent of premium finance receivables—commercial outstanding	0.97		%	0.99		%
Net charge-offs of premium finance receivables—commercial	$	891		$	783
- annualized as a percent of average premium finance receivables—commercial	0.16		%	0.16		%

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

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

Table of Contents

Loan Portfolio Aging

The following table shows, as of March 31, 2014, only 0.8% of the entire portfolio, excluding covered loans, is non-accrual or greater than 90 days past due and still accruing interest with only 1.0% either one or two payments past due. In total, 98.2% of the Company’s total loan portfolio, excluding covered loans, as of March 31, 2014 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 March 31, 2014 and December 31, 2013:



			90+ days		60-89		30-59
As of March 31, 2014			and still		days past		days past
(Dollars in thousands)	Nonaccrual		accruing		due		due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial	$	11,112	$	387	$	2,235	$	16,150	$	1,965,425	$	1,995,309
Franchise	—		—		—		75		221,026		221,101
Mortgage warehouse lines of credit	—		—		—		—		60,809		60,809
Community Advantage—homeowners association	—		—		—		—		91,414		91,414
Aircraft	—		—		—		—		8,840		8,840
Asset-based lending	670		—		—		10,573		729,425		740,668
Tax exempt	—		—		—		—		177,973		177,973
Leases	—		—		—		—		121,986		121,986
Other	—		—		—		—		10,261		10,261
PCI - commercial ⁽¹⁾	—		1,079		—		865		8,892		10,836
Total commercial	11,782		1,466		2,235		27,663		3,396,051		3,439,197
Commercial real-estate
Residential construction	—		—		680		27		35,690		36,397
Commercial construction	844		—		—		—		150,786		151,630
Land	2,405		—		2,682		3,438		99,445		107,970
Office	6,970		—		1,672		8,868		633,655		651,165
Industrial	6,101		—		1,114		2,706		615,139		625,060
Retail	9,540		—		217		3,089		664,584		677,430
Multi-family	1,327		—		—		3,820		570,616		575,763
Mixed use and other	6,546		—		6,626		10,744		1,337,320		1,361,236
PCI - commercial real-estate ⁽¹⁾	—		21,073		2,791		6,169		45,571		75,604
Total commercial real-estate	33,733		21,073		15,782		38,861		4,152,806		4,262,255
Home equity	7,311		—		1,650		4,972		693,815		707,748
Residential real-estate	14,385		—		946		4,889		403,474		423,694
PCI - residential real-estate ⁽¹⁾	—		1,414		—		248		1,413		3,075
Premium finance receivables
Commercial insurance loans	14,517		6,808		5,600		20,777		2,160,659		2,208,361
Life insurance loans	—		—		—		4,312		1,511,820		1,516,132
PCI - life insurance loans ⁽¹⁾	—		—		—		—		413,202		413,202
Consumer and other	1,144		57		213		550		157,290		159,254
PCI - consumer and other ⁽¹⁾	—		48		—		20		174		242
Total loans, net of unearned income, excluding covered loans	$	82,872	$	30,866	$	26,426	$	102,292	$	12,890,704	$	13,133,160
Covered loans	9,136		35,831		6,682		7,042		253,787		312,478
Total loans, net of unearned income	$	92,008	$	66,697	$	33,108	$	109,334	$	13,144,491	$	13,445,638


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

Table of Contents



Aging as a % of Loan Balance: As of March 31, 2014	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Commercial
Commercial and industrial	0.6	%	—	%	0.1	%	0.8	%	98.5	%	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	—		—		—		—		100.0		100.0
Asset-based lending	0.1		—		—		1.4		98.5		100.0
Tax exempt	—		—		—		—		100.0		100.0
Leases	—		—		—		—		100.0		100.0
Other	—		—		—		—		100.0		100.0
PCI - commercial ⁽¹⁾	—		10.0		—		8.0		82.0		100.0
Total commercial	0.3		—		0.1		0.8		98.8		100.0
Commercial real-estate
Residential construction	—		—		1.9		0.1		98.0		100.0
Commercial construction	0.6		—		—		—		99.4		100.0
Land	2.2		—		2.5		3.2		92.1		100.0
Office	1.1		—		0.3		1.4		97.2		100.0
Industrial	1.0		—		0.2		0.4		98.4		100.0
Retail	1.4		—		—		0.5		98.1		100.0
Multi-family	0.2		—		—		0.7		99.1		100.0
Mixed use and other	0.5		—		0.5		0.8		98.2		100.0
PCI - commercial real-estate ⁽¹⁾	—		27.9		3.7		8.2		60.2		100.0
Total commercial real-estate	0.8		0.5		0.4		0.9		97.4		100.0
Home equity	1.0		—		0.2		0.7		98.1		100.0
Residential real-estate	3.4		—		0.2		1.2		95.2		100.0
PCI - residential real-estate ⁽¹⁾	—		46.0		—		8.1		45.9		100.0
Premium finance receivables
Commercial insurance loans	0.7		0.3		0.3		0.9		97.8		100.0
Life insurance loans	—		—		—		0.3		99.7		100.0
PCI - life insurance loans ⁽¹⁾	—		—		—		—		100.0		100.0
Consumer and other	0.7		—		0.1		0.3		98.9		100.0
PCI - consumer and other ⁽¹⁾	—		19.8		—		8.3		71.9		100.0
Total loans, net of unearned income, excluding covered loans	0.6	%	0.2	%	0.2	%	0.8	%	98.2	%	100.0	%
Covered loans	2.9		11.5		2.1		2.3		81.2		100.0
Total loans, net of unearned income	0.7	%	0.5	%	0.2	%	0.8	%	97.8	%	100.0	%


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

Table of Contents



As of December 31, 2013 (Dollars in thousands)	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Loan Balances:
Commercial
Commercial and industrial ⁽²⁾	$	10,143	$	—	$	4,938	$	7,404	$	1,813,721	$	1,836,206
Franchise	—		—		400		—		219,983		220,383
Mortgage warehouse lines of credit	—		—		—		—		67,470		67,470
Community Advantage—homeowners association	—		—		—		—		90,894		90,894
Aircraft	—		—		—		—		10,241		10,241
Asset-based lending ⁽²⁾	637		—		388		1,878		732,190		735,093
Tax exempt	—		—		—		—		161,239		161,239
Leases	—		—		—		788		109,043		109,831
Other	—		—		—		—		11,147		11,147
PCI - commercial ⁽¹⁾	—		274		156		1,685		9,068		11,183
Total commercial	10,780		274		5,882		11,755		3,224,996		3,253,687
Commercial real-estate
Residential construction	149		—		—		—		38,351		38,500
Commercial construction	6,969		—		—		505		129,232		136,706
Land	2,814		—		4,224		619		99,128		106,785
Office	10,087		—		2,265		3,862		626,027		642,241
Industrial	5,654		—		585		914		626,785		633,938
Retail	10,862		—		837		2,435		642,125		656,259
Multi-family	2,035		—		—		348		564,154		566,537
Mixed use and other ⁽²⁾	8,088		230		3,943		15,949		1,344,244		1,372,454
PCI - commercial real-estate ⁽¹⁾	—		18,582		3,540		5,238		49,255		76,615
Total commercial real-estate	46,658		18,812		15,394		29,870		4,119,301		4,230,035
Home equity	10,071		—		1,344		3,060		704,662		719,137
Residential real-estate	14,974		—		1,689		5,032		410,430		432,125
Purchased non-covered residential real-estate ⁽¹⁾	—		1,988		—		—		879		2,867
Premium finance receivables
Commercial insurance loans	10,537		8,842		6,912		24,094		2,117,180		2,167,565
Life insurance loans	—		—		2,524		1,808		1,495,460		1,499,792
PCI - life insurance loans ⁽¹⁾	—		—		—		—		423,906		423,906
Consumer and other	1,137		105		76		1,010		163,956		166,284
PCI - consumer and other ⁽¹⁾	—		181		—		—		1,023		1,204
Total loans, net of unearned income, excluding covered loans	$	94,157	$	30,202	$	33,821	$	76,629	$	12,661,793	$	12,896,602
Covered loans	9,425		56,282		5,877		7,937		266,910		346,431
Total loans, net of unearned income	$	103,582	$	86,484	$	39,698	$	84,566	$	12,928,703	$	13,243,033


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

Table of Contents



Aging as a % of Loan Balance: As of December 31, 2013	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Commercial
Commercial and industrial ⁽²⁾	0.6	%	—	%	0.3	%	0.4	%	98.7	%	100.0	%
Franchise	—		—		0.2		—		99.8		100.0
Mortgage warehouse lines of credit	—		—		—		—		100.0		100.0
Community Advantage—homeowners association	—		—		—		—		100.0		100.0
Aircraft	—		—		—		—		100.0		100.0
Asset-based lending ⁽²⁾	0.1		—		0.1		0.3		99.5		100.0
Tax exempt	—		—		—		—		100.0		100.0
Leases	—		—		—		0.7		99.3		100.0
Other	—		—		—		—		100.0		100.0
PCI - commercial ⁽¹⁾	—		2.5		1.4		15.1		81.0		100.0
Total commercial	0.3		—		0.2		0.4		99.1		100.0
Commercial real-estate
Residential construction	0.4		—		—		—		99.6		100.0
Commercial construction	5.1		—		—		0.4		94.5		100.0
Land	2.6		—		4.0		0.6		92.8		100.0
Office	1.6		—		0.4		0.6		97.4		100.0
Industrial	0.9		—		0.1		0.1		98.9		100.0
Retail	1.7		—		0.1		0.4		97.8		100.0
Multi-family	0.4		—		—		0.1		99.5		100.0
Mixed use and other ⁽²⁾	0.6		—		0.3		1.2		97.9		100.0
PCI - commercial real-estate ⁽¹⁾	—		24.3		4.6		6.8		64.3		100.0
Total commercial real-estate	1.1		0.4		0.4		0.7		97.4		100.0
Home equity	1.4		—		0.2		0.4		98.0		100.0
Residential real-estate	3.5		—		0.4		1.2		94.9		100.0
PCI - residential real-estate ⁽¹⁾	—		69.3		—		—		30.7		100.0
Premium finance receivables
Commercial insurance loans	0.5		0.4		0.3		1.1		97.7		100.0
Life insurance loans	—		—		0.2		0.1		99.7		100.0
PCI - life insurance loans ⁽¹⁾	—		—		—		—		100.0		100.0
Consumer and other	0.7		0.1		—		0.6		98.6		100.0
PCI - consumer and other ⁽¹⁾	—		15.0		—		—		85.0		100.0
Total loans, net of unearned income, excluding covered loans	0.7	%	0.2	%	0.3	%	0.6	%	98.2	%	100.0	%
Covered loans	2.7		16.2		1.7		2.3		77.1		100.0
Total loans, net of unearned income	0.8	%	0.7	%	0.3	%	0.6	%	97.6	%	100.0	%


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

As of March 31, 2014, only $26.4 million of all loans, excluding covered loans, or 0.2%, were 60 to 89 days past due and $102.3 million or 0.8%, were 30 to 59 days (or one payment) past due. As of December 31, 2013, $33.8 million of all loans, excluding covered loans, or 0.3%, were 60 to 89 days past due and $76.6 million, or 0.6%, were 30 to 59 days (or one payment) past due. The majority of the commercial and commercial real-estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. Commercial and commercial real estate loans with delinquencies from 30 to 89 days past-due increased $21.6 million since December 31, 2013.

Table of Contents

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at March 31, 2014 that are current with regard to the contractual terms of the loan agreement represent 98.1% of the total home equity portfolio. Residential real-estate loans, excluding PCI loans, at March 31, 2014 that are current with regards to the contractual terms of the loan agreements comprise 95.2% of total residential real-estate loans outstanding.

Nonperforming Loans Rollforward

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



	Three Months Ended
	March 31,			March 31,
(Dollars in thousands)	2014			2013
Balance at beginning of period	$	103,334		$	118,083
Additions, net	5,655			28,030
Return to performing status	(1,973		)	—
Payments received	(3,730		)	(4,121		)
Transfer to OREO and other repossessed assets	(10,013		)	(6,890		)
Charge-offs	(4,774		)	(9,148		)
Net change for niche loans ⁽¹⁾	1,625			2,679
Balance at end of period	$	90,124		$	128,633


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

PCI loans are excluded from non-performing loans as they continue to earn interest income from the related accretable yield, independent of performance with contractual terms of the loan. See Note 7 of the Consolidated Financial Statements presented under Item 1 of this report for further discussion of non-performing loans and the loan aging during the respective periods.

Allowance for Loan Losses

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

Management determined that the allowance for loan losses was appropriate at March 31, 2014, and that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. This process involves a high degree of management judgment, however the allowance for credit losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total nonperforming loans, portfolio mix, portfolio concentrations, current geographic risks and overall levels of net charge-offs. Historical trending of both the Company’s results and the industry peers is also reviewed to analyze comparative significance.

Table of Contents

Allowance for Credit Losses, excluding covered loans

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



	Three months ended March 31,
(Dollars in thousands)	2014			2013
Allowance for loan losses at beginning of period	$	96,922		$	107,351
Provision for credit losses	3,304			15,367
Other adjustments	(148		)	(229		)
Reclassification from (to) allowance for unfunded lending-related commitments	(18		)	(213		)
Charge-offs:
Commercial	648			4,540
Commercial real-estate	4,493			3,299
Home equity	2,267			2,397
Residential real-estate	226			1,728
Premium finance receivables—commercial	1,210			1,068
Premium finance receivables—life insurance	—			—
Consumer and other	173			129
Total charge-offs	9,017			13,161
Recoveries:
Commercial	317			295
Commercial real-estate	145			368
Home equity	257			162
Residential real-estate	131			5
Premium finance receivables—commercial	319			285
Premium finance receivables—life insurance	2			9
Consumer and other	61			109
Total recoveries	1,232			1,233
Net charge-offs	(7,785		)	(11,928		)
Allowance for loan losses at period end	$	92,275		$	110,348
Allowance for unfunded lending-related commitments at period end	737			15,287
Allowance for credit losses at period end	$	93,012		$	125,635
Annualized net charge-offs by category as a percentage of its own respective category’s average:
Commercial	0.04		%	0.61		%
Commercial real-estate	0.41			0.30
Home equity	1.14			1.17
Residential real-estate	0.06			0.93
Premium finance receivables—commercial	0.16			0.16
Premium finance receivables—life insurance	—			—
Consumer and other	0.26			0.04
Total loans, net of unearned income, excluding covered loans	0.24		%	0.39		%
Net charge-offs as a percentage of the provision for credit losses	235.65		%	77.62		%
Loans at period-end, excluding covered loans	$	13,133,160		$	11,900,312
Allowance for loan losses as a percentage of loans at period end	0.70		%	0.93		%
Allowance for credit losses as a percentage of loans at period end	0.71		%	1.06		%

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of an allowance for loan losses, which is determined with respect to loans that we have originated, and an allowance for lending-related commitments. Our allowance for lending-related commitments is determined with respect to funds that we have committed to lend but for which funds have not yet been disbursed and is computed using a methodology similar to that used to determine the allowance for loan losses. The allowance for unfunded lending-related commitments totaled $737,000 as of March 31, 2014 compared to $15.3 million as of March 31, 2013. The decrease since the prior period was primarily attributable to the funding of two letters of credit in the second and third quarters of 2013 and the expiration of one letter of credit in the fourth quarter of 2013.

Table of Contents

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

How We Determine the Allowance for Credit Losses

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

Specific Impairment Reserves:

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

At March 31, 2014, the Company had $143.0 million of impaired loans with $86.4 million of this balance requiring $8.2 million of specific impairment reserves. At December 31, 2013, the Company had $162.2 million of impaired loans with $92.2 million of this balance requiring $8.3 million of specific impairment reserves. The most significant fluctuations in impaired loans with specific impairment from December 31, 2013 to March 31, 2014 occurred within the retail portfolio. The recorded investment in the retail portfolio decreased $4.7 million, which was primarily the result of one credit relationship with a recorded investment of $4.6 million no longer requiring a specific impairment reserve at March 31, 2014. See Note 7 of the Consolidated Financial Statements presented under Item 1 of this report for further discussion of impaired loans and the related specific impairment reserve.

General Reserves:

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

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


•	historical 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;

Table of Contents


•	changes in the underlying collateral for collateral dependent loans;


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


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

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

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

•

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


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

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

Home Equity and Residential Real-Estate Loans:

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

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

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

Premium Finance Receivables:

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

Effects of Economic Recession and Real Estate Market:

The Company’s primary markets, which are mostly in suburban Chicago, have not experienced the same levels of credit deterioration in residential mortgage and home equity loans as certain other major metropolitan markets, however the Company’s markets have clearly been under stress. As of March 31, 2014, home equity loans and residential mortgages comprised 5% and 3%, respectively, of the Company’s total loan portfolio. At March 31, 2014, approximately 3.4% of all of the Company’s residential mortgage loans,

Table of Contents

excluding covered loans and PCI loans, and approximately 1.0% of all of the Company’s home equity loans, are on nonaccrual status or more than one payment past due. Current delinquency statistics of these two portfolios, demonstrate that although there is stress in the Chicago metropolitan and southeastern Wisconsin markets, our portfolios of residential mortgages and home equity loans are performing reasonably well as reflected in the aging of the Company’s loan portfolio table shown earlier in this section.

Methodology in Assessing Impairment and Charge-off Amounts

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

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

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

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

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

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

Having determined the net value based on the factors such as those noted above and compared that value to the book value of the loan, the Company arrives at a charge-off amount or a specific reserve included in the allowance for loan losses.

In summary, for collateral dependent loans, appraisals are used as the fair value starting point in the estimate of net value. Estimated costs to sell are deducted from the appraised value to arrive at the net appraised value. Although an external appraisal is the primary source of valuation utilized for charge-offs on collateral dependent loans, alternative sources of valuation may become available between appraisal dates. As a result, we may utilize values obtained through these alternating sources, which include purchase and sale agreements, legitimate indications of interest, negotiated short sales, realtor price opinions, sale of the note or support from guarantors, as the basis for charge-offs. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. In addition, if an appraisal is not deemed current, a discount

Table of Contents

to appraised value may be utilized. Any adjustments from appraised value to net value are detailed and justified in an impairment analysis, which is reviewed and approved by the Company’s Managed Assets Division.

TDRs

At March 31, 2014, the Company had $92.5 million in loans modified in TDRs. The $92.5 million in TDRs represents 143 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay. The balance decreased from $107.1 million representing 149 credits at December 31, 2013 and decreased from $116.3 million representing 167 credits at March 31, 2013.

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

Subsequent to its restructuring, any TDR with a below market rate concession that becomes nonaccrual will remain classified by the Company as a TDR for its duration and will be included in the Company’s nonperforming loans. Each TDR was reviewed for impairment at March 31, 2014 and approximately $4.0 million of impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses. Additionally, at March 31, 2014, the Company was committed to lend additional funds to borrowers totaling $2.0 million under the contractual terms of TDRs.

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



	March 31,			December 31,			March 31,
(Dollars in thousands)	2014			2013			2013
Accruing TDRs:
Commercial	$	5,844		$	6,045		$	9,073
Commercial real-estate	64,726			69,225			83,396
Residential real-estate and other	4,052			3,340			4,653
Total accruing TDRs	$	74,622		$	78,610		$	97,122
Non-accrual TDRs: ⁽¹⁾
Commercial	$	1,434		$	1,343		$	2,764
Commercial real-estate	14,774			24,310			14,907
Residential real-estate and other	1,687			2,840			1,552
Total non-accrual TDRs	$	17,895		$	28,493		$	19,223
Total TDRs:
Commercial	$	7,278		$	7,388		$	11,837
Commercial real-estate	79,500			93,535			98,303
Residential real-estate and other	5,739			6,180			6,205
Total TDRs	$	92,517		$	107,103		$	116,345
Weighted-average contractual interest rate of TDRs	4.02		%	4.12		%	4.14		%


(1)	Included in total non-performing loans.

Table of Contents

TDR Rollforward

The table below presents a summary of TDRs as of March 31, 2014 and 2013, and shows the changes in the balance during those periods:



Three Months Ended March 31, 2014 (Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	7,388		$	93,535		$	6,180		$	107,103
Additions during the period	88			5,157			—			5,245
Reductions:
Charge-offs	(6		)	(3,713		)	(406		)	(4,125		)
Transferred to OREO and other repossessed assets	—			(12,277		)	—			(12,277		)
Removal of TDR loan status ⁽¹⁾	—			—			—			—
Payments received	(192		)	(3,202		)	(35		)	(3,429		)
Balance at period end	$	7,278		$	79,500		$	5,739		$	92,517



Three Months Ended March 31, 2013 (Dollars in thousands)	Commercial			Commercial Real-estate			Residential Real-estate and Other			Total
Balance at beginning of period	$	17,995		$	102,415		$	6,063		$	126,473
Additions during the period	708			1,192			377			2,277
Reductions:
Charge-offs	(2,142		)	(1,372		)	(17		)	(3,531		)
Transferred to OREO and other repossessed assets	(3,800		)	(167		)	(103		)	(4,070		)
Removal of TDR loan status ⁽¹⁾	(609		)	—			—			(609		)
Payments received	(315		)	(3,765		)	(115		)	(4,195		)
Balance at period end	$	11,837		$	98,303		$	6,205		$	116,345


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

Other Real Estate Owned

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



	Three Months Ended
(Dollars in thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance at beginning of period	$	50,454		$	55,250		$	62,891
Disposal/resolved	(8,205		)	(6,891		)	(7,498		)
Transfers in at fair value, less costs to sell	14,570			1,816			2,128
Additions from acquisition	—			1,773			—
Fair value adjustments	(2,688		)	(1,494		)	(1,344		)
Balance at end of period	$	54,131		$	50,454		$	56,177



	Period End
(Dollars in thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Residential real-estate	$	6,452	$	5,452	$	7,312
Residential real-estate development	3,500		3,859		10,133
Commercial real-estate	44,179		41,143		38,732
Total	$	54,131	$	50,454	$	56,177

Table of Contents

LIQUIDITY

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

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

INFLATION

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

FORWARD-LOOKING STATEMENTS

This document contains, and the documents into which it may be incorporated by reference may contain, forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “point,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2013 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:


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


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


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


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


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


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


•	inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;


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


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

Table of Contents


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


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


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


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


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


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


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


•	adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;


•	increased costs as a result of protecting our customers from the impact of stolen debit card information;


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


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


•	environmental liability risk associated with lending activities;


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


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


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


•	the soundness of other financial institutions;


•	the expenses and delayed returns inherent in opening new branches and de novo banks;


•	examinations and challenges by tax authorities;


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


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


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


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


•	a lowering of our credit rating;


•	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;


•	the impact of heightened capital requirements;


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


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


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


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


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

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

Table of Contents

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

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

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

The Company’s exposure to interest rate risk is reviewed on a regular basis by management and the Risk Management Committees of the boards of directors of the banks and the Company. The objective of the review 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 March 31, 2014, December 31, 2013 and March 31, 2013 is as follows:



	+200 Basis Points		+100 Basis Points		-100 Basis Points		-200 Basis Points
Percentage change in net interest income due to a ramped 100 and 200 basis point shift in the yield curve:
March 31, 2014	5.8	%	3.1	%	(4.5	)%	(9.1	)%
December 31, 2013	5.0	%	2.4	%	(5.0	)%	(10.0	)%
March 31, 2013	4.3	%	2.1	%	(3.5	)%	(7.7	)%

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, including the Company, to manage interest rate risk is to enter into derivative financial instruments. Derivative financial instruments include 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 13 of the Consolidated Financial Statements presented under Item 1 of this report for further information on the Company’s derivative financial instruments.

Table of Contents

During the first quarter of 2014, the Company entered into covered call option transactions related to certain securities held by the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts, such as interest rate floors) to economically hedge positions and 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 March 31, 2014.

ITEM 4

CONTROLS AND PROCEDURES

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

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

Table of Contents

PART II —

Item 1: Legal Proceedings

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

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

On March 15, 2012, a former mortgage loan originator employed by Wintrust Mortgage Company, named Wintrust, Barrington Bank and its subsidiary, Wintrust Mortgage Company, as defendants in a Fair Labor Standards Act class action lawsuit filed in the U.S. District Court for the Northern District of Illinois (the “FLSA Litigation”). The suit asserts that Wintrust Mortgage Company violated the federal Fair Labor Standards Act and challenges the manner in which Wintrust Mortgage Company classified its loan originators and compensated them for their work. The suit also seeks to assert these claims as a class. On September 30, 2013, the Court entered an order conditionally certifying an “opt-in” class in this case. Notice to the potential class members was sent on or about October 22, 2013, primarily informing the putative class of the right to opt-into the class and setting a deadline for same. Approximately 15% of the notice recipients joined the class prior to the opt-in deadline of January 22, 2014. However, the Company anticipates that about half of these new class members will ultimately be excluded from the class. The Company has reserved an amount for the FLSA Litigation that is immaterial to its results of operations or financial condition. Such class action litigation necessarily involves substantial uncertainty and it is not possible at this time to predict the ultimate resolution or to estimate whether, or to what extent, any loss with respect to this litigation may exceed the amounts reserved by the Company.

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

Item 1A: Risk Factors

There were no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 31, 2013.

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

No purchases of the Company’s common shares were made by or on behalf of the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during the three months ended March 31, 2014. There is currently no authorization to repurchase shares of outstanding common stock.

Table of Contents

Item 6: Exhibits:


(a)	Exhibits



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

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

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

101.INS		XBRL Instance Document *

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

•

Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

Table of Contents

SIGNATURES

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



		WINTRUST FINANCIAL CORPORATION (Registrant)
Date:	May 8, 2014	/s/ DAVID L. STOEHR
		David L. Stoehr
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)