PrivateBancorp (PVTB) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ______________________________________________

FORM 10-Q

______________________________________________ 

(Mark One)

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

For the quarterly period ended September 30, 2013

OR

¨ 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 001-34066

______________________________________________ 

PRIVATEBANCORP, INC.

(Exact name of Registrant as specified in its charter)

______________________________________________ 

Delaware	36-3681151
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
120 South LaSalle Street, Chicago, Illinois	60603
(Address of principal executive offices)	(zip code)

(312) 564-2000

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 for 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  ý    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  ý    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.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	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  ý

As of October 31, 2013, there were 76,107,565 shares of the issuer’s voting common stock, without par value, outstanding and 1,584,879 nonvoting common shares, no par value, outstanding.

PRIVATEBANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

	Page
Part I.     FINANCIAL INFORMATION
Item 1.     Financial Statements (Unaudited)
Consolidated Statements of Financial Condition	3
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Changes in Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	111
Item 4.     Controls and Procedures	112
Part II.    OTHER INFORMATION
Item 1.     Legal Proceedings	112
Item 1A.  Risk Factors	113
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds	113
Item 3.     Defaults Upon Senior Securities	113
Item 4.     Mine Safety Disclosures	113
Item 5.     Other Information	113
Item 6.     Exhibits	114
Signatures	115

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands)

	September 30, 2013			December 31, 2012
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	247,460		$	234,308
Federal funds sold and interest-bearing deposits in banks	180,608			707,143
Loans held-for-sale	27,644			49,696
Securities available-for-sale, at fair value (pledged as collateral to creditors: $116.1 million - 2013; $43.9 million - 2012)	1,611,022			1,451,160
Securities held-to-maturity, at amortized cost (fair value: $917.0 million - 2013; $886.8 million - 2012) (pledged as collateral to creditors: $100.3 million - 2012)	931,342			863,727
Federal Home Loan Bank ("FHLB") stock	34,063			43,387
Loans – excluding covered assets, net of unearned fees	10,409,443			10,139,982
Allowance for loan losses	(145,513		)	(161,417		)
Loans, net of allowance for loan losses and unearned fees	10,263,930			9,978,565
Covered assets	140,083			194,216
Allowance for covered loan losses	(21,653		)	(24,011		)
Covered assets, net of allowance for covered loan losses	118,430			170,205
Other real estate owned, excluding covered assets	35,310			81,880
Premises, furniture, and equipment, net	36,445			39,508
Accrued interest receivable	35,758			34,832
Investment in bank owned life insurance	53,539			52,513
Goodwill	94,484			94,521
Other intangible assets	10,486			12,828
Derivative assets	57,771			99,261
Other assets	130,848			143,981
Total assets	$	13,869,140		$	14,057,515
Liabilities
Demand deposits:
Noninterest-bearing	$	3,106,986		$	3,690,340
Interest-bearing	1,183,471			1,057,390
Savings deposits and money market accounts	4,778,057			4,912,820
Brokered time deposits	1,303,596			993,455
Time deposits	1,460,446			1,519,629
Total deposits	11,832,556			12,173,634
Short-term and secured borrowings	131,400			5,000
Long-term debt	499,793			499,793
Accrued interest payable	6,042			7,141
Derivative liabilities	55,933			93,276
Other liabilities	69,728			71,505
Total liabilities	12,595,452			12,850,349
Equity
Common stock:
Voting	75,240			73,479
Nonvoting	1,585			3,536
Treasury stock	(7,303		)	(24,150		)
Additional paid-in capital	1,019,143			1,026,438
Retained earnings	166,700			79,799
Accumulated other comprehensive income, net of tax	18,323			48,064
Total equity	1,273,688			1,207,166
Total liabilities and equity	$	13,869,140		$	14,057,515

See accompanying notes to consolidated financial statements.

3

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION – (Continued)

(Amounts in thousands, except per share data)

	September 30, 2013					December 31, 2012
	Preferred	Common Stock				Preferred	Common Stock
	Stock	Voting		Nonvoting		Stock	Voting		Nonvoting
Per Share Data
Par value	None	None		None		None	None		None
Stated value	None	$	1.00	$	1.00	None	$	1.00	$	1.00
Share Balances
Shares authorized	1,000	174,000		5,000		1,000	174,000		5,000
Shares issued	—	76,408		1,585		—	74,526		3,536
Shares outstanding	—	76,095		1,585		—	73,579		3,536
Treasury shares	—	313		—		—	947		—

See accompanying notes to consolidated financial statements.

4

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited) 

	Quarters Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Interest Income
Loans, including fees	$	108,912	$	106,358		$	323,106	$	315,039
Federal funds sold and interest-bearing deposits in banks	111		248			431		513
Securities:
Taxable	12,931		13,907			38,272		43,888
Exempt from Federal income taxes	1,562		1,389			4,596		4,025
Other interest income	61		126			213		379
Total interest income	123,577		122,028			366,618		363,844
Interest Expense
Interest-bearing demand deposits	1,032		958			3,181		2,393
Savings deposits and money market accounts	3,895		4,206			12,181		13,073
Brokered and time deposits	5,014		5,860			15,099		16,271
Short-term and secured borrowings	161		101			689		366
Long-term debt	7,640		5,495			22,861		16,611
Total interest expense	17,742		16,620			54,011		48,714
Net interest income	105,835		105,408			312,607		315,130
Provision for loan and covered loan losses	8,120		13,509			27,320		58,248
Net interest income after provision for loan and covered loan losses	97,715		91,899			285,287		256,882
Non-interest Income
Trust and Investments	4,570		4,254			13,764		12,785
Mortgage banking	2,946		3,685			10,314		9,263
Capital markets products	3,921		5,832			15,008		19,214
Treasury management	6,214		5,490			18,347		15,904
Loan, letter of credit and commitment fees	4,384		4,779			12,743		13,502
Syndication fees	4,322		2,700			11,294		6,876
Deposit service charges and fees and other income	1,298		1,308			4,885		4,439
Net securities gains (losses)	118		(211		)	895		(396		)
Total non-interest income	27,773		27,837			87,250		81,587
Non-interest Expense
Salaries and employee benefits	41,360		44,820			124,354		129,695
Net occupancy expense	7,558		7,477			22,479		22,809
Technology and related costs	3,343		3,432			10,283		10,001
Marketing	2,986		2,645			8,998		7,863
Professional services	2,465		2,151			6,146		6,355
Outsourced servicing costs	1,607		1,802			5,205		5,605
Net foreclosed property expenses	4,396		8,596			16,594		28,725
Postage, telephone, and delivery	852		837			2,676		2,588
Insurance	2,590		3,352			7,933		11,896
Loan and collection expense	1,345		3,329			6,402		9,404
Other expenses	2,767		3,289			16,417		10,876
Total non-interest expense	71,269		81,730			227,487		245,817
Income before income taxes	54,219		38,006			145,050		92,652
Income tax provision	21,161		14,952			55,807		37,839
Net income	33,058		23,054			89,243		54,813
Preferred stock dividends and discount accretion	—		3,447			—		10,325
Net income available to common stockholders	$	33,058	$	19,607		$	89,243	$	44,488
Per Common Share Data
Basic earnings per share	$	0.42	$	0.27		$	1.15	$	0.62
Diluted earnings per share	$	0.42	$	0.27		$	1.14	$	0.61
Cash dividends declared	$	0.01	$	0.01		$	0.03	$	0.03
Weighted-average common shares outstanding	76,494		71,010			76,352		70,915
Weighted-average diluted common shares outstanding	76,819		71,274			76,537		71,110

See accompanying notes to consolidated financial statements.

5

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income	$	33,058		$	23,054		$	89,243		$	54,813
Other comprehensive income:
Available-for-sale securities:
Net unrealized gains (losses)	3,784			5,229			(37,596		)	7,493
Reclassification of net gains included in net income	(118		)	(58		)	(895		)	(124		)
Income tax (expense) benefit	(1,447		)	(2,091		)	14,976			(3,060		)
Net unrealized gains (losses) on available-for-sale securities	2,219			3,080			(23,515		)	4,309
Cash flow hedges:
Net unrealized gains (losses)	4,823			3,696			(6,118		)	10,075
Reclassification of net gains included in net income	(1,666		)	(795		)	(4,110		)	(2,112		)
Income tax (expense) benefit	(1,233		)	(1,150		)	4,002			(3,151		)
Net unrealized gains (losses) on cash flow hedges	1,924			1,751			(6,226		)	4,812
Other comprehensive income (loss)	4,143			4,831			(29,741		)	9,121
Comprehensive income	$	37,201		$	27,885		$	59,502		$	63,934

See accompanying notes to consolidated financial statements.

6

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except per share data)

(Unaudited)

	Common Shares Out- standing		Preferred Stock		Common Stock			Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumu- lated Other Compre- hensive Income			Total
Balance at January 1, 2012	71,745		$	240,403	$	71,483		$	(21,454	)	$	941,404		$	18,219		$	46,697		$	1,296,752
Comprehensive income (1)	—		—		—			—			—			54,813			9,121			63,934
Cash dividends declared:
Common stock ($0.03 per share)	—		—		—			—			—			(2,174		)	—			(2,174		)
Preferred stock	—		—		—			—			—			(9,143		)	—			(9,143		)
Common stock issued for:
Nonvested (restricted) stock grants	691		—		—			—			—			—			—			—
Exercise of stock options	45		—		45			—			161			—			—			206
Restricted stock activity	(11	)	—		304			—			(336		)	—			—			(32		)
Deferred compensation plan	17		—		17			—			173			—			—			190
Accretion of preferred stock discount	—		1,182		—			—			—			(1,182		)	—			—
Stock repurchased in connection with share-based compensation plans	(86	)	—		—			(1,282		)	—			—			—			(1,282		)
Share-based compensation expense	35		—		35			—			14,954			—			—			14,989
Balance at September 30, 2012	72,436		$	241,585	$	71,884		$	(22,736	)	$	956,356		$	60,533		$	55,818		$	1,363,440
Balance at January 1, 2013	77,115		$	—	$	77,015		$	(24,150	)	$	1,026,438		$	79,799		$	48,064		$	1,207,166
Comprehensive income (loss) (1)	—		—		—			—			—			89,243			(29,741		)	59,502
Cash dividends declared:
Common stock ($0.03 per share)	—		—		—			—			—			(2,342		)	—			(2,342		)
Common stock issued for:
Nonvested (restricted) stock grants	590		—		(590		)	15,001			(14,411		)	—			—			—
Exercise of stock options	164		—		5			3,755			(1,398		)	—			—			2,362
Restricted stock activity	(66	)	—		394			218			(783		)	—			—			(171		)
Deferred compensation plan	13		—		1			337			(63		)	—			—			275
Stock repurchased in connection with share-based compensation plans	(136	)	—		—			(2,464		)	—			—			—			(2,464		)
Share-based compensation expense	—		—		—			—			9,360			—			—			9,360
Balance at September 30, 2013	77,680		$	—	$	76,825		$	(7,303	)	$	1,019,143		$	166,700		$	18,323		$	1,273,688

⁽¹⁾  Net of taxes and reclassification adjustments.

See accompanying notes to consolidated financial statements.

7

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Operating Activities
Net income	$	89,243		$	54,813
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and covered loan losses	27,320			58,248
Depreciation of premises, furniture, and equipment	6,420			7,060
Net amortization of premium on securities	12,615			11,458
Net (gains) losses on sale of securities	(895		)	396
Valuation adjustments on other real estate owned	16,320			19,974
Net (gains) losses on sale of other real estate owned	(1,728		)	4,017
Net amortization of discount on covered assets	826			1,345
Bank owned life insurance income	(1,026		)	(1,168		)
Net decrease in deferred loan fees	(5,463		)	(542		)
Share-based compensation expense	9,360			14,989
Excess tax benefit from exercise of stock options and vesting of restricted shares	(622		)	(66		)
Provision for deferred income tax expense	13,171			5,782
Amortization of other intangibles	2,342			2,012
Originations and purchases of loans held-for-sale	(430,777		)	(402,789		)
Proceeds from sales of loans held-for-sale	462,720			393,632
Net gains from sales of loans held-for-sale	(9,745		)	(8,003		)
Fair value adjustments on derivatives	4,147			933
Net increase in accrued interest receivable	(926		)	(1,160		)
Net decrease in accrued interest payable	(1,099		)	(280		)
Net decrease (increase) in other assets	8,903			(8,331		)
Net increase (decrease) in other liabilities	4,617			(20,848		)
Net cash provided by operating activities	205,723			131,472
Investing Activities
Available-for-sale securities:
Proceeds from maturities, prepayments, and calls	258,636			321,402
Proceeds from sales	79,962			1,442
Purchases	(544,743		)	(91,449		)
Held-to-maturity securities:
Proceeds from maturities, prepayments, and calls	98,139			50,433
Purchases	(169,682		)	(347,631		)
Net redemption (purchase) of FHLB stock	9,324			(2,692		)
Net increase in loans	(317,124		)	(723,920		)
Net decrease in covered assets	49,883			92,075
Proceeds from sale of other real estate owned	42,646			30,636
Net purchases of premises, furniture, and equipment	(3,357		)	(7,349		)
Net cash used in investing activities	(496,316		)	(677,053		)
Financing Activities
Net (decrease) increase in deposit accounts	(341,078		)	966,586
Net increase (decrease) in FHLB advances	120,000			(156,000		)
Stock repurchased in connection with benefit plans	(2,464		)	(1,282		)
Cash dividends paid	(2,336		)	(11,337		)
Proceeds from exercise of stock options and issuance of common stock under benefit plans	2,466			364
Excess tax benefit from exercise of stock options and vesting of restricted shares	622			66
Net cash (used in) provided by financing activities	(222,790		)	798,397
Net (decrease) increase in cash and cash equivalents	(513,383		)	252,816
Cash and cash equivalents at beginning of year	941,451			361,741
Cash and cash equivalents at end of period	$	428,068		$	614,557
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	55,110		$	48,994
Cash paid for income taxes	25,613			39,999
Non-cash transfers of loans to other real estate	10,668			26,731

See accompanying notes to consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated interim financial statements of PrivateBancorp, Inc. ("PrivateBancorp" or the "Company"), a Delaware corporation, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include certain information and footnote disclosures required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete annual financial statements. Accordingly, these financial statements should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. GAAP and reflect all adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year or any other period.

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

In preparing the consolidated financial statements, we have considered the impact of events occurring subsequent to September 30, 2013 for potential recognition or disclosure.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Disclosures about Offsetting Assets and Liabilities – On January 1, 2013, we adopted new accounting guidance issued by the Financial Accounting Standards Board ("FASB") relating to disclosure requirements on offsetting financial assets and liabilities. The new disclosure requirements are limited to recognized derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset on the statement of financial position or subject to enforceable master netting arrangements or similar agreements. At a minimum, we are required to disclose the following information separately for financial assets and liabilities: (a) the gross amounts of recognized financial assets and liabilities, (b) the amounts offset under current U.S. GAAP, (c) the net amounts presented in the balance sheet, (d) the amounts subject to an enforceable master netting arrangement or similar agreement that were not included in (b), and (e) the difference between (c) and (d). As this guidance affected only our disclosures, the adoption of this guidance did not impact our financial position or consolidated results of operations. Refer to Note 14 for the required disclosures.

Subsequent Accounting for Indemnification Assets Recognized in a Government-Assisted Acquisition – On January 1, 2013, we adopted new accounting guidance issued by the FASB to clarify the subsequent accounting for an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution that included a loss sharing agreement. The guidance clarifies that subsequent changes in expected cash flows related to an indemnification asset should be amortized over the shorter of the life of the indemnification agreement or the life of the underlying covered assets. This guidance is applicable for new indemnification assets as well as existing indemnification assets, such as our indemnification receivable recorded in conjunction with the acquired loans and foreclosed loan collateral covered under our loss sharing agreement with the FDIC. As we previously accounted for our indemnification asset in accordance with this guidance, the adoption of this guidance did not impact our financial position or consolidated results of operations.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income – On January 1, 2013, we adopted new accounting guidance issued by the FASB that requires disclosure of the effect of reclassifications from accumulated other comprehensive income into net income for each affected net income line item. We have two items that are reclassified out of accumulated other comprehensive income and into net income to which this guidance is applicable, namely (1) net gains (losses) on available-for-sale securities, and (2) net gains (losses) on cash flow hedges. The guidance did not change existing requirements for reporting net income or other comprehensive income in the financial statements. As this guidance affected only our disclosures, the adoption of this guidance did not impact our financial position or consolidated results of operations. Refer to Note 11 for the required disclosures.

9

3. SECURITIES

Securities Portfolio

(Amounts in thousands)

	September 30, 2013									December 31, 2012
	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses							Gains		Losses
Securities Available-for-Sale
U.S. Treasury	$	157,573	$	107	$	(2,006	)	$	155,674	$	114,252	$	1,050	$	(40	)	$	115,262
U.S. Agencies	47,521		—		(1,575		)	45,946		—		—		—			—
Collateralized mortgage obligations	179,025		7,019		(8		)	186,036		229,895		11,155		(16		)	241,034
Residential mortgage-backed securities	924,782		28,112		(4,675		)	948,219		823,191		45,131		—			868,322
State and municipal securities	270,964		6,900		(3,217		)	274,647		214,174		11,990		(122		)	226,042
Foreign sovereign debt	500		—		—			500		500		—		—			500
Total	$	1,580,365	$	42,138	$	(11,481	)	$	1,611,022	$	1,382,012	$	69,326	$	(178	)	$	1,451,160
Securities Held-to-Maturity
Collateralized mortgage obligations	$	69,276	$	—	$	(3,057	)	$	66,219	$	74,164	$	480	$	—		$	74,644
Residential mortgage-backed securities	712,120		3,547		(8,946		)	706,721		703,419		22,058		(29		)	725,448
Commercial mortgage-backed securities	149,482		53		(5,931		)	143,604		85,680		670		(137		)	86,213
State and municipal securities	464		8		—			472		464		5		—			469
Total	$	931,342	$	3,608	$	(17,934	)	$	917,016	$	863,727	$	23,213	$	(166	)	$	886,774

The carrying value of securities pledged to secure public deposits, FHLB advances, trust deposits, Federal Reserve Bank ("FRB") discount window borrowing availability, derivative transactions, standby letters of credit with counterparty banks and for other purposes as permitted or required by law, totaled $425.4 million and $455.6 million at September 30, 2013 and December 31, 2012, respectively. Of total pledged securities, securities pledged to creditors under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties totaled $116.1 million and $144.2 million at September 30, 2013 and December 31, 2012, respectively.

Excluding securities issued or backed by the U.S. Government and its agencies and U.S. Government-sponsored enterprises, there were no investments in securities from one issuer that exceeded 10% of consolidated equity at September 30, 2013 or December 31, 2012.

10

The following table presents the fair values of securities with unrealized losses as of September 30, 2013 and December 31, 2012. The securities presented are grouped according to the time periods during which the securities have been in a continuous unrealized loss position.

Securities in Unrealized Loss Position

(Amounts in thousands)

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
As of September 30, 2013
Securities Available-for-Sale
U.S. Treasury	$	124,206	$	(2,006	)	$	—	$	—		$	124,206	$	(2,006	)
U.S. Agency	45,946		(1,575		)	—		—			45,946		(1,575		)
Collateralized mortgage obligations	1,222		(8		)	—		—			1,222		(8		)
Residential mortgage-backed securities	165,471		(4,675		)	—		—			165,471		(4,675		)
State and municipal securities	109,603		(3,158		)	2,682		(59		)	112,285		(3,217		)
Total	$	446,448	$	(11,422	)	$	2,682	$	(59	)	$	449,130	$	(11,481	)
Securities Held-to-Maturity
Residential mortgage-backed securities	$	369,179	$	(8,673	)	$	3,441	$	(273	)	$	372,620	$	(8,946	)
Commercial mortgage-backed securities	133,750		(5,931		)	—		—			133,750		(5,931		)
Collateralized mortgage obligations	66,219		(3,057		)	—		—			66,219		(3,057		)
Total	$	569,148	$	(17,661	)	$	3,441	$	(273	)	$	572,589	$	(17,934	)
As of December 31, 2012
Securities Available-for-Sale
U.S. Treasury	$	27,359	$	(40	)	$	—	$	—		$	27,359	$	(40	)
Collateralized mortgage obligations	6,181		(11		)	2,111		(5		)	8,292		(16		)
State and municipal securities	14,920		(100		)	1,160		(22		)	16,080		(122		)
Total	$	48,460	$	(151	)	$	3,271	$	(27	)	$	51,731	$	(178	)
Securities Held-to-Maturity
Residential mortgage-backed securities	$	3,912	$	(29	)	$	—	$	—		$	3,912	$	(29	)
Commercial mortgage-backed securities	35,437		(137		)	—		—			35,437		(137		)
Total	$	39,349	$	(166	)	$	—	$	—		$	39,349	$	(166	)

There were $6.1 million of securities with $332,000 in an unrealized loss position for greater than 12 months at September 30, 2013. At December 31, 2012, there were $3.3 million of securities with $27,000 in an unrealized loss position for greater than 12 months. These unrealized losses were caused primarily by changes in interest rates and spreads, and not credit quality. We do not intend to sell the securities and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Accordingly, no other-than-temporarily impairments were recorded on these securities during the nine months ended September 30, 2013 or during 2012.

11

The following table presents the remaining contractual maturity of securities as of September 30, 2013 by amortized cost and fair value.

Remaining Contractual Maturity of Securities

(Amounts in thousands)

	September 30, 2013
	Available-For-Sale Securities				Held-To-Maturity Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasury, U.S. Agencies, state and municipal and foreign sovereign debt securities:
One year or less	$	13,844	$	13,899	$	80	$	80
One year to five years	220,194		221,729		384		392
Five years to ten years	236,956		235,464		—		—
After ten years	5,564		5,675		—		—
All other securities:
Collateralized mortgage obligations	179,025		186,036		69,276		66,219
Residential mortgage-backed securities	924,782		948,219		712,120		706,721
Commercial mortgage-backed securities	—		—		149,482		143,604
Total	$	1,580,365	$	1,611,022	$	931,342	$	917,016

The following table presents gains (losses) on securities for the quarters and nine months ended September 30, 2013 and 2012.

Securities Gains (Losses)

(Amounts in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013		2012				2013			2012
Proceeds from sales	$	27,116	$	630			$	79,962		$	1,442
Gross realized gains	$	118	$	1			$	896		$	380
Gross realized losses	—		(212		)		(1		)	(776		)
Net realized gains (losses)	$	118	$	(211	)	(1)	$	895		$	(396	)	(1)
Income tax provision (benefit) on net realized gains (losses)	$	47	$	(84	)		$	353		$	(157	)

⁽¹⁾  Includes net losses of $269,000 and $520,000 for the quarter and nine months ended September 30, 2012 associated with certain investment funds that make qualifying investments for purposes of supporting our community reinvestment initiatives in accordance with the Community Reinvestment Act. These investments are classified in other assets in the Consolidated Statements of Financial Condition. Effective in fourth quarter 2012, net losses from these investments are recorded in other non-interest expense in the Consolidated Statements of Income.

Refer to Note 11 for additional details of the securities available-for-sale portfolio and the related impact of unrealized gains (losses) on other comprehensive income.

4. LOANS

The following loan portfolio and credit quality disclosures exclude covered loans. Covered loans represent loans acquired through a Federal Deposit Insurance Corporation ("FDIC")-assisted transaction that are subject to a loss share agreement and are presented separately in the Consolidated Statements of Financial Condition. Refer to Note 6 for a detailed discussion regarding covered loans.

12

Loan Portfolio

(Amounts in thousands)

	September 30, 2013		December 31, 2012
Commercial and industrial	$	5,384,222	$	4,901,210
Commercial – owner-occupied commercial real estate	1,604,470		1,595,574
Total commercial	6,988,692		6,496,784
Commercial real estate	1,914,725		2,132,063
Commercial real estate – multi-family	573,371		543,622
Total commercial real estate	2,488,096		2,675,685
Construction	237,440		190,496
Residential real estate	346,619		373,580
Home equity	148,058		167,760
Personal	200,538		235,677
Total loans	$	10,409,443	$	10,139,982
Deferred loan fees, net of costs, included as a reduction in total loans	$	34,193	$	39,656
Overdrawn demand deposits included in total loans	$	1,576	$	3,091

We primarily lend to businesses and consumers in the market areas in which we have physical locations. We seek to diversify our loan portfolio by loan type, industry, and borrower.

Carrying Value of Loans Pledged

(Amounts in thousands)

	September 30, 2013		December 31, 2012
Loans pledged to secure outstanding borrowings or availability:
FRB discount window borrowings (1)	$	761,816	$	808,243
FHLB advances	1,592,027		2,068,172
Total	$	2,353,843	$	2,876,415

⁽¹⁾  No borrowings were outstanding at September 30, 2013 or December 31, 2012.

13

Loan Portfolio Aging

Loan Portfolio Aging

(Amounts in thousands)

			Delinquent
	Current		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days Past Due and Accruing		Total Accruing Loans		Nonaccrual		Total Loans
As of September 30, 2013
Commercial	$	6,960,352	$	642	$	817	$	—	$	6,961,811	$	26,881	$	6,988,692
Commercial real estate	2,422,950		717		1,475		—		2,425,142		62,954		2,488,096
Construction	237,440		—		—		—		237,440		—		237,440
Residential real estate	335,173		—		209		—		335,382		11,237		346,619
Home equity	133,872		2,237		499		—		136,608		11,450		148,058
Personal	199,768		6		—		—		199,774		764		200,538
Total loans	$	10,289,555	$	3,602	$	3,000	$	—	$	10,296,157	$	113,286	$	10,409,443

As of December 31, 2012
Commercial	$	6,451,311	$	2,195	$	1,365	$	—	$	6,454,871	$	41,913	$	6,496,784
Commercial real estate	2,597,780		4,073		5,278		—		2,607,131		68,554		2,675,685
Construction	189,939		—		—		—		189,939		557		190,496
Residential real estate	359,096		3,260		—		—		362,356		11,224		373,580
Home equity	153,754		1,835		461		—		156,050		11,710		167,760
Personal	230,852		2		1		—		230,855		4,822		235,677
Total loans	$	9,982,732	$	11,365	$	7,105	$	—	$	10,001,202	$	138,780	$	10,139,982

Impaired Loans

Impaired loans consist of nonaccrual loans (which include nonaccrual troubled debt restructurings ("TDRs")) and loans classified as accruing TDRs. A loan is considered impaired when, based on current information and events, management believes that either it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement or it has been classified as a TDR. The following two tables present information on impaired loans outstanding by product segment, including our recorded investment in impaired loans, which represents the principal amount outstanding, net of unearned income, deferred loan fees and costs, and any direct principal charge-offs.

Impaired Loans

(Amounts in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve
As of September 30, 2013
Commercial	$	60,308	$	37,718	$	19,242	$	56,960	$	3,332
Commercial real estate	75,619		14,084		49,535		63,619		17,131
Construction	—		—		—		—		—
Residential real estate	11,800		1,975		9,262		11,237		3,911
Home equity	14,568		4,480		8,569		13,049		2,234
Personal	764		320		444		764		90
Total impaired loans	$	163,059	$	58,577	$	87,052	$	145,629	$	26,698

14

Impaired Loans (Continued)

(Amounts in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve
As of December 31, 2012
Commercial	$	100,573	$	46,243	$	39,937	$	86,180	$	13,259
Commercial real estate	93,651		26,653		56,659		83,312		20,450
Construction	1,184		—		557		557		117
Residential real estate	12,121		3,107		8,582		11,689		3,996
Home equity	14,888		2,034		11,166		13,200		2,797
Personal	5,244		—		4,822		4,822		2,771
Total impaired loans	$	227,661	$	78,037	$	121,723	$	199,760	$	43,390

Average Recorded Investment and Interest Income Recognized on Impaired Loans ⁽¹⁾ 

(Amounts in thousands)

	Quarters Ended September 30,
	2013				2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	78,010	$	636	$	130,408	$	972
Commercial real estate	52,914		34		124,583		213
Construction	—		—		556		—
Residential real estate	12,126		—		12,200		76
Home equity	14,841		24		14,051		23
Personal	1,449		—		5,858		—
Total	$	159,340	$	694	$	287,656	$	1,284

	Nine Months Ended September 30,
	2013				2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	79,363	$	1,889	$	127,462	$	3,797
Commercial real estate	66,306		364		160,463		1,200
Construction	—		—		2,589		—
Residential real estate	12,285		3		14,641		110
Home equity	14,761		84		12,862		69
Personal	3,409		—		16,296		119
Total	$	176,124	$	2,340	$	334,313	$	5,295

⁽¹⁾  Represents amounts while classified as impaired for the periods presented.

Credit Quality Indicators

We have adopted an internal risk rating policy in which each loan is rated for credit quality with a numerical rating of 1 through 8. Loans rated 5 and better (1-5 ratings, inclusive) are credits that exhibit acceptable financial performance, cash flow, and leverage.

15

We attempt to mitigate risk by loan structure, collateral, monitoring, and other credit risk management controls. Credits rated 6 are performing in accordance with contractual terms but are considered "special mention" as these credits demonstrate potential weakness that if left unresolved, may result in deterioration in the Company’s credit position and/or the repayment prospects for the credit. Borrowers rated special mention may exhibit adverse operating trends, high leverage, tight liquidity or other credit concerns. Loans rated 7 may be classified as either accruing ("potential problem") or nonaccrual ("nonperforming"). Potential problem loans, like special mention, are loans that are performing in accordance with contractual terms, but for which management has some level of concern (greater than that of special mention loans) about the ability of the borrowers to meet existing repayment terms in future periods. These loans continue to accrue interest but the ultimate collection of these loans in full is questionable due to the same conditions that characterize a 6-rated credit. These credits may also have somewhat increased risk profiles as a result of the current net worth and/or paying capacity of the obligor or guarantors or the value of the collateral pledged. These loans generally have a well-defined weakness that may jeopardize collection of the debt and are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not resolved. Although these loans are generally identified as potential problem loans and require additional attention by management, they may never become nonperforming. Nonperforming loans include nonaccrual loans risk rated 7 or 8 and have all the weaknesses inherent in a 7-rated potential problem loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently-existing facts, conditions and values, highly questionable and improbable. Special mention, potential problem and nonperforming loans are reviewed at a minimum on a quarterly basis, while all other rated credits over a certain dollar threshold, depending on loan type, are reviewed annually or more frequently as the situation warrants.

Credit Quality Indicators

(Dollars in thousands)

	Special Mention		% of Portfolio Loan Type	Potential Problem Loans		% of Portfolio Loan Type	Non- Performing Loans		% of Portfolio Loan Type	Total Loans
As of September 30, 2013
Commercial	$	58,829	0.8	$	81,704	1.2	$	26,881	0.4	$	6,988,692
Commercial real estate	518		*	9,198		0.4	62,954		2.5	2,488,096
Construction	—		—	—		—	—		—	237,440
Residential real estate	5,945		1.7	6,412		1.8	11,237		3.2	346,619
Home equity	1,790		1.2	3,951		2.7	11,450		7.7	148,058
Personal	436		0.2	59		*	764		0.4	200,538
Total	$	67,518	0.6	$	101,324	1.0	$	113,286	1.1	$	10,409,443
As of December 31, 2012
Commercial	$	72,651	1.1	$	40,495	0.6	$	41,913	0.6	$	6,496,784
Commercial real estate	21,209		0.8	48,897		1.8	68,554		2.6	2,675,685
Construction	—		—	—		—	557		0.3	190,496
Residential real estate	2,364		0.6	13,844		3.7	11,224		3.0	373,580
Home equity	562		0.3	4,351		2.6	11,710		7.0	167,760
Personal	8		*	289		0.1	4,822		2.0	235,677
Total	$	96,794	1.0	$	107,876	1.1	$	138,780	1.4	$	10,139,982

* Less than 0.1%

16

Troubled Debt Restructured Loans

Troubled Debt Restructured Loans Outstanding

(Amounts in thousands)

	September 30, 2013				December 31, 2012
	Accruing		Nonaccrual (1)		Accruing		Nonaccrual (1)
Commercial	$	30,079	$	13,342	$	44,267	$	25,200
Commercial real estate	665		13,540		14,758		29,426
Residential real estate	—		2,546		465		2,867
Home equity	1,599		3,780		1,490		3,000
Personal	—		731		—		4,299
Total	$	32,343	$	33,939	$	60,980	$	64,792

⁽¹⁾  Included in nonperforming loans.

At September 30, 2013 and December 31, 2012, credit commitments to lend additional funds to debtors whose loan terms have been modified in a TDR (both accruing and nonaccruing) totaled $11.9 million and $16.3 million, respectively.

Additions to Accruing Troubled Debt Restructurings During the Period

(Dollars in thousands)

	Quarters Ended September 30,
	2013					2012
	Number of Borrowers	Outstanding Recorded Investment (1)				Number of Borrowers	Outstanding Recorded Investment (1)
		Pre- Modification		Post- Modification			Pre- Modification		Post- Modification
Commercial
Extension of maturity date (2)	1	$	2,131	$	2,131	1	$	1,200	$	1,200
Commercial real estate
Extension of maturity date (2)	—	—		—		1	826		796
Total accruing	1	$	2,131	$	2,131	2	$	2,026	$	1,996
Change in recorded investment due to principal paydown at time of modification				$	—				$	30

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

17

Additions to Accruing Troubled Debt Restructurings During the Period (Continued)

(Dollars in thousands)

	Nine Months Ended September 30,
	2013					2012
		Outstanding Recorded Investment (1)					Outstanding Recorded Investment (1)
	Number of Borrowers	Pre- Modification		Post- Modification		Number of Borrowers	Pre- Modification		Post- Modification
Commercial
Extension of maturity date (2)	5	$	7,066	$	7,066	6	$	34,688	$	34,538
Multiple note structuring (3)	—	—		—		1	17,596		11,796
Total commercial	5	7,066		7,066		7	52,284		46,334
Commercial real estate
Extension of maturity date (2)	—	—		—		3	4,139		3,309
Residential real estate
Extension of maturity date (2)	1	150		150		3	2,182		2,182
Other concession (4)	—	—		—		1	200		200
Total residential real estate	1	150		150		4	2,382		2,382
Home equity
Extension of maturity date (2)	—	—		—		1	125		125
Total accruing	6	$	7,216	$	7,216	15	$	58,930	$	52,150
Change in recorded investment due to principal paydown at time of modification				$	—				$	980
Change in recorded investment due to charge-offs as part of the multiple note structuring				$	—				$	5,800

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

⁽³⁾  The multiple note structure typically bifurcates a troubled loan into two separate notes, where the first note is reasonably assured of repayment and performance according to the modified terms, and the portion of the troubled loan that is not reasonably assured of repayment is charged-off.

⁽⁴⁾  Other concessions primarily include interest rate reductions, loan increases or deferrals of principal.

18

Additions to Nonaccrual Troubled Debt Restructurings During the Period

(Dollars in thousands)

	Quarters Ended September 30,
	2013					2012
	Number of Borrowers	Outstanding Recorded Investment (1)				Number of Borrowers	Outstanding Recorded Investment (1)
		Pre- Modification		Post- Modification			Pre- Modification		Post- Modification
Commercial
Extension of maturity date (2)	1	$	200	$	200	1	$	3,750	$	3,250
Other concession (3)	1	70		70		—	—		—
Total commercial	2	270		270		1	3,750		3,250
Commercial real estate
Extension of maturity date (2)						1	230		220
Residential real estate
Extension of maturity date (2)	—	—		—		1	571		571
Home equity
Extension of maturity date (2)	2	348		348		1	200		200
Other concession (3)	3	550		550		1	353		353
Total home equity	5	898		898		2	553		553
Personal
Other concession (3)	2	478		478		—	—		—
Total nonaccrual	9	$	1,646	$	1,646	5	$	5,104	$	4,594
Change in recorded investment due to principal paydown at time of modification				$	—				$	510

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

⁽³⁾  Other concessions primarily include interest rate reductions, loan increases, or deferrals of principal.

19

Additions to Nonaccrual Troubled Debt Restructurings During the Period (Continued)

(Dollars in thousands)

	Nine Months Ended September 30,
	2013					2012
		Outstanding Recorded Investment (1)					Outstanding Recorded Investment (1)
	Number of Borrowers	Pre- Modification		Post- Modification		Number of Borrowers	Pre- Modification		Post- Modification
Commercial
Extension of maturity date (2)	2	$	334	$	334	2	$	5,765	$	5,265
Other concession (3)	4	1,740		1,740		2	17,512		17,512
Total commercial	6	2,074		2,074		4	23,277		22,777
Commercial real estate
Extension of maturity date (2)	1	297		297		5	1,053		1,043
Other concession (3)	—	—		—		1	16,186		16,090
Total commercial real estate	1	297		297		6	17,239		17,133
Residential real estate
Extension of maturity date (2)	—	—		—		2	794		794
Home equity
Extension of maturity date (2)	5	824		824		1	200		200
Other concession (3)	7	1,572		1,565		2	841		841
Total home equity	12	2,396		2,389		3	1,041		1,041
Personal
Other concession (3)	2	478		478		—	—		—
Total nonaccrual	21	$	5,245	$	5,238	15	$	42,351	$	41,745
Change in recorded investment due to principal paydown at time of modification				$	7				$	605

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

⁽³⁾  Other concessions primarily include interest rate reductions, loan increases or deferrals of principal.

At the time an accruing loan becomes modified and meets the definition of a TDR, it is considered impaired and no longer included as part of the general loan loss reserve calculation. However, our general reserve methodology considers the amount and product type of the TDRs removed as one of many credit or portfolio considerations in establishing final reserve requirements.

As impaired loans, TDRs (both accruing and nonaccruing) are evaluated for impairment at the end of each quarter with a specific valuation reserve created, or adjusted (either individually or as part of a pool), if necessary, as a component of the allowance for loan losses. Refer to the "Impaired Loan" and "Allowance for Loan Loss" sections of Note 1, "Summary of Significant Accounting Policies" to the Notes to Consolidated Financial Statements of our 2012 Annual Report on Form 10-K regarding our policy for assessing potential impairment on such loans. Our allowance for loan losses included $7.8 million and $23.3 million in specific reserves for nonaccrual TDRs at September 30, 2013 and December 31, 2012, respectively. For accruing TDRs, there were specific reserves of $38,000 and $40,000 at September 30, 2013 and December 31, 2012, respectively, with the specific reserve representing the difference between the present value of cash flows for the restructured loan as compared to the original loan.

20

The following table presents the recorded investment and number of loans modified as an accruing TDR during the previous 12 months which subsequently became nonperforming during the quarters and nine months ended September 30, 2013 and 2012. A loan becomes nonperforming and placed on nonaccrual status typically when the principal or interest payments are 90 days past due based on contractual terms or when an individual analysis of a borrower’s creditworthiness indicates a loan should be placed on nonaccrual status earlier than when the loan becomes 90 days past due.

Accruing Troubled Debt Restructurings

Reclassified as Nonperforming Within 12 Months of Restructuring

(Dollars in thousands)

	2013			2012
	Number of Borrowers	Recorded Investment (1)		Number of Borrowers	Recorded Investment (1)
Quarters Ended September 30,
Commercial	—	$	—	1	$	99
Residential real estate	—	—		1	197
Home equity	—	—		1	125
Total	—	$	—	3	$	421
Nine Months Ended September 30,
Commercial	—	$	—	2	$	16,599
Commercial real estate	2	5,258		1	97
Residential real estate	—	—		1	197
Home equity	—	—		1	125
Total	2	$	5,258	5	$	17,018

⁽¹⁾  Represents amounts as of the balance sheet date from the quarter the default was first reported.

21

5. ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED COMMITMENTS

The following allowance and credit quality disclosures exclude covered loans. Refer to Note 6 for a detailed discussion regarding covered loans.

Allowance for Loan Losses and Recorded Investment in Loans

(Amounts in thousands)

	Quarter Ended September 30, 2013
	Commercial			Commercial Real Estate			Construction		Residential Real Estate			Home Equity			Personal			Total
Allowance for Loan Losses:
Balance at beginning of period	$	80,674		$	46,489		$	2,626	$	9,046		$	6,040		$	3,308		$	148,183
Loans charged-off	(7,285		)	(1,706		)	—		(395		)	(2,146		)	(893		)	(12,425		)
Recoveries on loans previously charged-off	1,301			366			7		7			135			142			1,958
Net (charge-offs) recoveries	(5,984		)	(1,340		)	7		(388		)	(2,011		)	(751		)	(10,467		)
Provision (release) for loan losses	3,376			2,825			681		(493		)	1,157			251			7,797
Balance at end of period	$	78,066		$	47,974		$	3,314	$	8,165		$	5,186		$	2,808		$	145,513
Ending balance, loans individually evaluated for impairment (1)	$	3,332		$	17,131		$	—	$	3,911		$	2,234		$	90		$	26,698
Ending balance, loans collectively evaluated for impairment	$	74,734		$	30,843		$	3,314	$	4,254		$	2,952		$	2,718		$	118,815
Recorded Investment in Loans:
Ending balance, loans individually evaluated for impairment (1)	$	56,960		$	63,619		$	—	$	11,237		$	13,049		$	764		$	145,629
Ending balance, loans collectively evaluated for impairment	6,931,732			2,424,477			237,440		335,382			135,009			199,774			10,263,814
Total recorded investment in loans	$	6,988,692		$	2,488,096		$	237,440	$	346,619		$	148,058		$	200,538		$	10,409,443

⁽¹⁾  Refer to Note 4 for additional information regarding impaired loans.

22

Allowance for Loan Losses and Recorded Investment in Loans (Continued) (Amounts in thousands)
	Quarter Ended September 30, 2012
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Home Equity			Personal			Total
Allowance for Loan Losses:
Balance at beginning of period	$	65,185		$	84,486		$	2,781		$	6,829		$	7,064		$	7,957		$	174,302
Loans charged-off	(4,062		)	(16,790		)	64			(299		)	(1,001		)	(1,006		)	(23,094		)
Recoveries on loans previously charged-off	919			544			594			7			117			229			2,410
Net (charge-offs) recoveries	(3,143		)	(16,246		)	658			(292		)	(884		)	(777		)	(20,684		)
Provision (release) for loan losses	2,395			8,489			(1,110		)	2,899			2,043			(1,475		)	13,241
Balance at end of period	$	64,437		$	76,729		$	2,329		$	9,436		$	8,223		$	5,705		$	166,859
Ending balance, loans individually evaluated for impairment (1)	$	15,322		$	22,229		$	129		$	4,336		$	4,243		$	2,905		$	49,164
Ending balance, loans collectively evaluated for impairment	$	49,115		$	54,500		$	2,200		$	5,100		$	3,980		$	2,800		$	117,695
Recorded Investment in Loans:
Ending balance, loans individually evaluated for impairment (1)	$	105,503		$	100,003		$	557		$	13,172		$	13,902		$	5,189		$	238,326
Ending balance, loans collectively evaluated for impairment	5,998,807			2,514,195			162,167			346,922			156,166			208,838			9,387,095
Total recorded investment in loans	$	6,104,310		$	2,614,198		$	162,724		$	360,094		$	170,068		$	214,027		$	9,625,421

⁽¹⁾  Refer to Note 4 for additional information regarding impaired loans.

23

Allowance for Loan Losses (Continued)

(Amounts in thousands)

	Nine Months Ended September 30,
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Home Equity			Personal			Total
2013
Balance at beginning of year	$	63,709		$	73,150		$	2,434		$	9,696		$	6,797		$	5,631		$	161,417
Loans charged-off	(20,803		)	(17,997		)	70			(1,614		)	(2,854		)	(3,674		)	(46,872		)
Recoveries on loans previously charged-off	2,156			1,871			41			11			395			240			4,714
Net charge-offs	(18,647		)	(16,126		)	111			(1,603		)	(2,459		)	(3,434		)	(42,158		)
Provision (release) for loan losses	33,004			(9,050		)	769			72			848			611			26,254
Balance at end of period	$	78,066		$	47,974		$	3,314		$	8,165		$	5,186		$	2,808		$	145,513
2012
Balance at beginning of year	$	60,663		$	94,905		$	12,852		$	6,376		$	4,022		$	12,776		$	191,594
Loans charged-off	(21,380		)	(59,994		)	(2,009		)	(2,389		)	(1,488		)	(9,432		)	(96,692		)
Recoveries on loans previously charged-off	3,232			6,576			2,299			20			457			1,094			13,678
Net charge-offs	(18,148		)	(53,418		)	290			(2,369		)	(1,031		)	(8,338		)	(83,014		)
Provision (release) for loan losses	21,922			35,242			(10,813		)	5,429			5,232			1,267			58,279
Balance at end of period	$	64,437		$	76,729		$	2,329		$	9,436		$	8,223		$	5,705		$	166,859

Reserve for Unfunded Commitments ⁽¹⁾ 

(Amounts in thousands)

	Quarters Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
Balance at beginning of period	$	9,533		$	8,210	$	7,343	$	7,277
(Release) provision for unfunded commitments	(1,346		)	—		844		933
Balance at end of period	$	8,187		$	8,210	$	8,187	$	8,210
Unfunded commitments, excluding covered assets, at period end (1)	$	4,805,141		$	4,610,071

⁽¹⁾  Unfunded commitments include commitments to extend credit, standby letters of credit and commercial letters of credit. Covered assets are excluded as they are covered under a loss sharing agreement with the FDIC.

Refer to Note 15 for additional details of commitments to extend credit, standby letters of credit and commercial letters of credit.

6. COVERED ASSETS

Covered assets represent acquired loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC and include an indemnification receivable representing the present value of the expected reimbursement from the FDIC related to expected losses on the acquired loans and foreclosed real estate under such agreement.

24

The carrying amount of covered assets is presented in the following table.

Covered Assets

(Amounts in thousands)

	September 30, 2013											December 31, 2012
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total			Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total
Commercial loans	$	4,727		$	10,630		$	—	$	15,357		$	6,044		$	15,002		$	—	$	21,046
Commercial real estate loans	6,473			50,212			—		56,685			15,864			66,956			—		82,820
Residential mortgage loans	348			37,619			—		37,967			305			42,224			—		42,529
Consumer installment and other	87			3,619			287		3,993			87			4,320			299		4,706
Foreclosed real estate	—			—			16,104		16,104			—			—			24,395		24,395
Asset in lieu	—			—			11		11			—			—			11		11
Estimated loss reimbursement by the FDIC	—			—			9,966		9,966			—			—			18,709		18,709
Total covered assets	11,635			102,080			26,368		140,083			22,300			128,502			43,414		194,216
Allowance for covered loan losses	(6,543		)	(15,110		)	—		(21,653		)	(10,510		)	(13,501		)	—		(24,011		)
Net covered assets	$	5,092		$	86,970		$	26,368	$	118,430		$	11,790		$	115,001		$	43,414	$	170,205
Nonperforming covered loans (1)				$	17,622										$	18,242

⁽¹⁾  Excludes purchased impaired loans which are accounted for on a pool basis based on common risk characteristics as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Because we are recognizing interest income on each pool of loans, all purchased impaired loans are considered to be performing.

At the date of purchase, all purchased loans and the related indemnification asset were recorded at fair value. On an ongoing basis, the accounting for purchased loans and the related indemnification asset follows applicable authoritative accounting guidance for purchased nonimpaired loans and purchased impaired loans. The amounts we ultimately realize on these loans and the related indemnification asset could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods compared to what is assumed in our current assessment of estimated cash flows. Our losses on loans and foreclosed real estate may be mitigated to the extent covered under the specific terms and provisions of our loss share agreement with the FDIC. The loss share agreement expires on September 30, 2014 for non-residential mortgage loans and September 30, 2019 for residential mortgage loans.

The allowance for covered loan losses is determined in a manner consistent with our policy for the originated loan portfolio.

25

The following table presents changes in the allowance for covered loan losses for the periods presented.

Allowance for Covered Loan Losses

(Amounts in thousands)

	2013									2012
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Total			Purchased Impaired Loans			Purchased Nonimpaired Loans			Total
Quarters Ended September 30,
Balance at beginning of period	$	10,003		$	14,992		$	24,995		$	8,522		$	13,211		$	21,733
Loans charged-off	(790		)	(85		)	(875		)	(265		)	(84		)	(349		)
Recoveries on loans previously charged-off	48			51			99			157			16			173
Net charge-offs	(742		)	(34		)	(776		)	(108		)	(68		)	(176		)
(Release) provision for covered loan losses (1)	(2,718		)	152			(2,566		)	(159		)	102			(57		)
Balance at end of period	$	6,543		$	15,110		$	21,653		$	8,255		$	13,245		$	21,500
Nine Months Ended September 30,
Balance at beginning of period	$	10,510		$	13,501		$	24,011		$	14,727		$	11,212		$	25,939
Loans charged-off	(988		)	(151		)	(1,139		)	(845		)	(108		)	(953		)
Recoveries on loans previously charged-off	213			118			331			396			78			474
Net charge-offs	(775		)	(33		)	(808		)	(449		)	(30		)	(479		)
(Release) provision for covered loan losses (2)	(3,192		)	1,642			(1,550		)	(6,023		)	2,063			(3,960		)
Balance at end of period	$	6,543		$	15,110		$	21,653		$	8,255		$	13,245		$	21,500

⁽¹⁾  Includes a provision for credit losses of $323,000 and $268,000 recorded in the Consolidated Statements of Income for the quarters ended September 30, 2013 and 2012, respectively, representing our 20% non-reimbursable portion of losses under the loss share agreement.

⁽²⁾  Includes a provision (release) for credit losses of $1.1 million and $(31,000) recorded in the Consolidated Statements of Income for the nine months ended September 30, 2013 and 2012, respectively, representing our 20% non-reimbursable portion of losses under the loss share agreement.

26

Changes in the carrying amount and accretable yield for purchased impaired loans that evidenced deterioration at the acquisition date are set forth in the following table.

Change in Purchased Impaired Loans Accretable Yield and Carrying Amount

(Amounts in thousands)

	2013						2012
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Quarters Ended September 30,
Balance at beginning of period	$	1,592		$	18,035		$	2,683		$	32,718
Payments received	—			(4,416		)	—			(9,123		)
Charge-offs/disposals (1)	—			(2,254		)	(146		)	(378		)
Reclassifications from nonaccretable difference, net	(59		)	—			(429		)	—
Accretion	(270		)	270			(145		)	145
Balance at end of period	$	1,263		$	11,635		$	1,963		$	23,362
Nine Months Ended September 30,
Balance at beginning of period	$	1,752		$	22,300		$	5,595		$	49,495
Payments received	—			(6,743		)	—			(15,551		)
Charge-offs/disposals (1)	—			(4,377		)	(2,372		)	(11,537		)
Reclassifications from nonaccretable difference, net	(34		)	—			(305		)	—
Accretion	(455		)	455			(955		)	955
Balance at end of period	$	1,263		$	11,635		$	1,963		$	23,362
Contractual amount outstanding at period end				$	19,522					$	32,848

⁽¹⁾  Includes transfers to covered foreclosed real estate.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Carrying Amount of Goodwill by Operating Segment

(Amounts in thousands)

	September 30, 2013		December 31, 2012
Banking	$	81,755	$	81,755
Trust and Investments	12,729		12,766
Total goodwill	$	94,484	$	94,521

Goodwill is not amortized but, instead, is subject to impairment tests at least on an annual basis or more often if events or circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is below its carrying value. Our annual goodwill test was performed as of October 31, 2012, and it was determined that no impairment existed as of that date nor are we aware of any events or circumstances subsequent to October 31, 2012 that would indicate impairment of goodwill at September 30, 2013. There were no impairment charges for goodwill recorded in 2012. Our annual goodwill test will be completed during the fourth quarter 2013.

Goodwill decreased by $37,000 during the first nine months of 2013 due to an adjustment for tax benefits associated with the goodwill attributable to Lodestar Investment Counsel, LLC ("Lodestar"), an investment management firm and wholly-owned subsidiary of the Company.

We have other intangible assets capitalized on the Consolidated Statements of Financial Condition in the form of core deposit premiums and client relationships. These intangible assets are being amortized over their estimated useful lives, which range from 8 to 15 years.

27

We review intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. During third quarter 2013, there were no events or circumstances to indicate there may be impairment of intangible assets, and no impairment charges for other intangible assets were recorded for the nine months ended September 30, 2013.

Other Intangible Assets

(Amounts in thousands)

	Nine Months Ended September 30, 2013		Year Ended December 31, 2012
Core deposit intangibles:
Gross carrying amount	$	18,093	$	18,093
Accumulated amortization	9,395		7,362
Net carrying amount	$	8,698	$	10,731
Amortization during the period	$	2,033	$	2,282
Weighted average remaining life (in years)	4		4
Client relationships:
Gross carrying amount	$	5,059	$	5,059
Accumulated amortization	3,271		2,962
Net carrying amount	$	1,788	$	2,097
Amortization during the period	$	309	$	402
Weighted average remaining life (in years)	6		7

Scheduled Amortization of Other Intangible Assets

(Amounts in thousands)

	Total
Year ending December 31,
2013 - remaining three months	$	779
2014	3,211
2015	2,659
2016	2,365
2017	1,329
2018 and thereafter	143
Total	$	10,486

28

8. SHORT-TERM AND SECURED BORROWINGS

Summary of Short-Term Borrowings

(Dollars in thousands)

	September 30, 2013				December 31, 2012
	Amount		Rate		Amount		Rate
Outstanding:
FHLB advances	$	125,000	0.13	%	$	5,000	4.96	%
Other Information:
Weighted average remaining maturity of FHLB advances at period end	1 day				6 months
Unused FHLB advances availability	$	694,046			$	999,722
Unused overnight federal funds availability (1)	$	525,000			$	385,000
Borrowing capacity through the FRB discount window primary credit program (2)	$	649,347			$	688,608

⁽¹⁾  Our total availability of overnight fed fund borrowings is not a committed line of credit and is dependent upon lender availability.

⁽²⁾  Our borrowing capacity changes each quarter subject to available collateral and FRB discount factors.

As a member of the FHLB Chicago, we have access to a borrowing capacity of $819.4 million at September 30, 2013, of which $694.0 million is available subject to the availability of acceptable collateral to pledge. Qualifying residential, multi-family and commercial real estate loans, home equity lines of credit, and residential mortgage-backed securities are held as collateral towards current outstanding advances and additional borrowing availability. FHLB advances reported as short-term borrowings represent advances with a remaining maturity of one year or less and at September 30, 2013.

Also included in short-term and secured borrowings on the Consolidated Statements of Financial Condition are amounts related to certain loan participation agreements on loans we originated that were classified as secured borrowings as they did not qualify for sale accounting treatment. As of September 30, 2013, these loan participation agreements totaled $6.4 million. A corresponding amount was recorded within loans on the Consolidated Statements of Financial Condition.

In September 2013, the Company entered into a 364-day Revolving Line of Credit (the "Facility") with a group of commercial banks allowing borrowing of up to $60.0 million, converting to an amortized term loan on or before the maturity date of September 27, 2015. The interest rate applied on the Facility will be at the Company's discretion either a 30-Day or 90-Day LIBOR plus 1.95% or Prime minus 0.50% at the time the advance is made. At September 30, 2013, no amounts have been drawn on the Facility.

29

9. LONG-TERM DEBT

Long-Term Debt

(Dollars in thousands)

				September 30, 2013			December 31, 2012
Parent Company:
2.90% junior subordinated debentures due 2034		(1)(a)		$	8,248		$	8,248
1.96% junior subordinated debentures due 2035		(2)(a)		51,547			51,547
1.75% junior subordinated debentures due 2035		(3)(a)		41,238			41,238
10.00% junior subordinated debentures due 2068			(a)	143,760			143,760
7.125% subordinated debentures due 2042	(b)			125,000			125,000
Subtotal				369,793			369,793
Subsidiaries:
FHLB advances				10,000			10,000
3.75% subordinated debt facility due 2015	(4)(c)			120,000			120,000
Subtotal				130,000			130,000
Total long-term debt				$	499,793		$	499,793
Weighted average interest rate of FHLB long-term advances at period end				4.15		%	4.15		%
Weighted average remaining maturity of FHLB long-term advances at period end (in years)				3.7			4.4

⁽¹⁾  Variable rate in effect at September 30, 2013 based on three-month LIBOR +2.65%.

⁽²⁾  Variable rate in effect at September 30, 2013, based on three-month LIBOR +1.71%.

⁽³⁾  Variable rate in effect at September 30, 2013, based on three-month LIBOR +1.50%.

⁽⁴⁾  Variable rate in effect at September 30, 2013, based on three-month LIBOR +3.50%.

^(a)  Qualifies as Tier 1 capital for regulatory capital purposes under current guidelines. Under the final regulatory capital rules issued in July 2013, these instruments are grandfathered for inclusion as a component of Tier 1 capital, although the Tier 1 capital treatment for these instruments will be subject to phase-out if an organization exceeds $15 billion in total consolidated assets due to acquisitions.

^(b)  Qualifies as Tier 2 capital for regulatory capital purposes.

^(c)  For regulatory capital purposes, beginning in the third quarter 2010, 20% of the original balance outstanding is excluded each year from Tier 2 capital until maturity. As of September 30, 2013 and December 31, 2012, 20% and 40%, respectively, of the outstanding balance qualified as Tier 2 capital.

The $244.8 million in junior subordinated debentures reflected in the table above were issued to four separate wholly-owned trusts for the purpose of issuing Company-obligated mandatorily redeemable trust preferred securities. Refer to Note 10 for further information on the nature and terms of these and previously issued debentures.

FHLB long-term advances have fixed interest rates and were secured by residential mortgage-backed securities.

The subordinated debt facility of the Company’s wholly-owned bank subsidiary, The PrivateBank and Trust Company (the "Bank"), was repaid in full prior to maturity and without penalty on October 24, 2013.

We reclassify long-term debt to short-term borrowings when the remaining maturity becomes less than one year.

30

Scheduled Maturities of Long-Term Debt

(Amounts in thousands)

	Total
Year ending December 31,
2014	$	2,000
2015	123,000
2016	—
2017	—
2018 and thereafter	374,793
Total	$	499,793

10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES HELD BY TRUSTS THAT ISSUED GUARANTEED CAPITAL DEBT SECURITIES

As of September 30, 2013, we sponsored and wholly owned 100% of the common equity of four trusts that were formed for the purpose of issuing Company obligated mandatorily redeemable trust preferred securities ("Trust Preferred Securities") to third-party investors and investing the proceeds from the sale of the Trust Preferred Securities solely in a series of junior subordinated debentures of the Company ("Debentures"). The Debentures held by the trusts, which in aggregate total $244.8 million, are the sole assets of each respective trust. Our obligations under the Debentures and related documents, including the indentures, the declarations of trust and related Company guarantees, taken together, constitute a full and unconditional guarantee by the Company on a subordinated basis of distributions, and redemption payments and liquidation payments on the Trust Preferred Securities. We currently have the right to redeem, in whole or in part, subject to any required regulatory approval, all or any series of the Debentures, in each case, at a redemption price of 100% of the principal amount of the Debentures being redeemed plus any accrued but unpaid interest to the redemption date. The repayment, redemption or repurchase of any of the Debentures would be subject to the terms of the applicable indenture and would result in a corresponding repayment, redemption or repurchase of an equivalent amount of the related series of Trust Preferred Securities. Any redemption of the Debentures held by PrivateBancorp Statutory Trust IV (the "Series IV Debentures"), would be subject to the terms of the replacement capital covenant described below and any required regulatory approval.

In connection with the issuance in 2008 of the Series IV Debentures, which rank junior to the other Debentures, we entered into a replacement capital covenant that relates to redemption of the Series IV Debentures and the related Trust Preferred Securities. Under the replacement capital covenant, as amended in October 2012, we committed, for the benefit of certain debt holders, that we would not repay, redeem or repurchase the Series IV Debentures or the related Trust Preferred Securities prior to June 2048 unless we have (1) obtained any required regulatory approval, and (2) raised certain amounts of qualifying equity or equity-like replacement capital at any time after October 10, 2012. The replacement capital covenant benefits holders of our "covered debt" as specified under the terms of the replacement capital covenant. Currently, under the replacement capital covenant, the "covered debt" is the Debentures held by PrivateBancorp Statutory Trust II. In the event that the Company's 7.125% subordinated debentures due 2042 are designated as or become the covered debt under the replacement capital covenant, the terms of such debentures provide that the Company is authorized to terminate the replacement capital covenant without any further action or payment. We may amend or terminate the replacement capital covenant in certain circumstances without the consent of the holders of the covered debt.

Under current accounting rules, the trusts qualify as variable interest entities for which we are not the primary beneficiary and therefore are ineligible for consolidation in our financial statements. The Debentures issued by us to the trusts are included in our Consolidated Statements of Financial Condition as "long-term debt" with the corresponding interest distributions recorded as interest expense. The common shares issued by the trusts are included in other assets in our Consolidated Statements of Financial Condition with the related dividend distributions recorded in other non-interest income.

31

Common Securities, Preferred Securities, and Related Debentures

(Dollars in thousands)

		Common Securities Issued		Trust Preferred Securities Issued (1)				Earliest Redemption Date (on or after) (3)		Principal Amount of Debentures (3)
	Issuance Date					Coupon Rate (2)			Maturity	September 30, 2013		December 31, 2012
Bloomfield Hills Statutory Trust I	May 2004	$	248	$	8,000	2.90	%	Jun 17, 2009	Jun. 2034	$	8,248	$	8,248
PrivateBancorp Statutory Trust II	Jun. 2005	1,547		50,000		1.96	%	Sep 15, 2010	Sep. 2035	51,547		51,547
PrivateBancorp Statutory Trust III	Dec. 2005	1,238		40,000		1.75	%	Dec 15, 2010	Dec. 2035	41,238		41,238
PrivateBancorp Statutory Trust IV	May 2008	10		143,750		10.00	%	Jun 15, 2013	Jun. 2068	143,760		143,760
Total		$	3,043	$	241,750					$	244,793	$	244,793

⁽¹⁾  The trust preferred securities accrue distributions at a rate equal to the interest rate on and have a maturity identical to that of the related Debentures. The trust preferred securities will be redeemed upon maturity or earlier redemption of the related Debentures.

⁽²⁾  Reflects the coupon rate in effect at September 30, 2013. The coupon rate for the Bloomfield Hills Statutory Trust I is a variable rate and is based on three-month LIBOR plus 2.65%. The coupon rates for the PrivateBancorp Statutory Trusts II and III are at a variable rate based on three-month LIBOR plus 1.71% for Trust II and three-month LIBOR plus 1.50% for Trust III. The coupon rate for the PrivateBancorp Statutory Trust IV is fixed. Distributions for all of the Trusts are payable quarterly. We have the right to defer payment of interest on the Debentures at any time or from time to time for a period not exceeding ten years in the case of the Debentures held by Trust IV, and five years in the case of all other Debentures, without causing an event of default under the related indenture, provided no extension period may extend beyond the stated maturity of the Debentures. During such extension period, distributions on the trust preferred securities would also be deferred, and our ability to pay dividends on our common stock would generally be prohibited. The Federal Reserve has the ability to prevent interest payments on the Debentures.

⁽³⁾  The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the Debentures at maturity or upon their earlier redemption in whole or in part. The Debentures are redeemable in whole or in part prior to maturity at any time after the dates shown in the table and only after we have obtained Federal Reserve approval, if then required under applicable guidelines or regulations.

32

11. EQUITY

Comprehensive Income

Change in Accumulated Other Comprehensive Income ("AOCI") by Component

(Amounts in thousands)

	Nine Months Ended September 30,
	2013									2012
	Unrealized Gain on Available-for-Sale Securities			Accumulated Gain on Effective Cash Flow Hedges			Total			Unrealized Gain on Available-for-Sale  Securities			Accumulated Gain on Effective Cash Flow Hedges			Total
Balance at beginning of period	$	42,219		$	5,845		$	48,064		$	45,140		$	1,557		$	46,697
Increase in unrealized (losses) gains on securities	(37,596		)	—			(37,596		)	7,493			—			7,493
Increase in unrealized (losses) gains on cash flow hedges	—			(6,118		)	(6,118		)	—			10,075			10,075
Deferred tax liability (asset) on increase in unrealized (losses) gains	14,623			2,381			17,004			(3,109		)	(3,987		)	(7,096		)
Other comprehensive (loss) income before reclassifications	(22,973		)	(3,737		)	(26,710		)	4,384			6,088			10,472
Reclassification adjustment of net gains included in net income	(895		)	(4,110		)	(5,005		)	(124		)	(2,112		)	(2,236		)
Reclassification adjustment for tax expense on realized net gains	353			1,621			1,974			49			836			885
Amounts reclassified from AOCI	(542		)	(2,489		)	(3,031		)	(75		)	(1,276		)	(1,351		)
Net current period other comprehensive (loss) income	(23,515		)	(6,226		)	(29,741		)	4,309			4,812			9,121
Balance at end of period	$	18,704		$	(381	)	$	18,323		$	49,449		$	6,369		$	55,818

Reclassifications Out of AOCI

For the Nine Months Ended September 30,2013

(Amounts in thousands)

AOCI Component	Amounts Reclassified from AOCI			Income Statement Line Item Impacted
Unrealized gain on available-for-sale securities	$	895		Net securities gains (losses)
	(353		)	Income tax provision
	$	542
Accumulated gain on effective cash flow hedges	$	4,110		Loan interest income
	(1,621		)	Income tax provision
	$	2,489
Total reclassifications for the period, net of tax	$	3,031

33

12. EARNINGS PER COMMON SHARE

Basic and Diluted Earnings per Common Share

(Amounts in thousands, except per share data)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Basic earnings per common share
Net income	$	33,058		$	23,054		$	89,243		$	54,813
Preferred stock dividends and discount accretion	��			(3,447		)	—			(10,325		)
Net income available to common stockholders	33,058			19,607			89,243			44,488
Earnings allocated to participating stockholders (1)	(655		)	(362		)	(1,772		)	(785		)
Earnings allocated to common stockholders	$	32,403		$	19,245		$	87,471		$	43,703
Weighted-average common shares outstanding	76,494			71,010			76,352			70,915
Basic earnings per common share	$	0.42		$	0.27		$	1.15		$	0.62
Diluted earnings per common share
Earnings allocated to common stockholders (2)	$	32,406		$	19,246		$	87,475		$	43,703
Weighted-average diluted common shares outstanding:
Weighted-average common shares outstanding	76,494			71,010			76,352			70,915
Dilutive effect of stock awards (3)	325			264			185			195
Weighted-average diluted common shares outstanding	76,819			71,274			76,537			71,110
Diluted earnings per common share	$	0.42		$	0.27		$	1.14		$	0.61

⁽¹⁾  Participating stockholders are those that hold unvested shares or units that contain nonforfeitable rights to dividends or dividend equivalents. Such shares or units are considered participating securities (i.e., the Company’s deferred stock units and nonvested restricted stock awards and restricted stock units).

⁽²⁾  Earnings allocated to common stockholders for basic and diluted earnings per share may differ under the two-class method as a result of adding common stock equivalents for options to dilutive shares outstanding, which alters the ratio used to allocate earnings to common stockholders and participating securities for the purposes of calculating diluted earnings per share.

⁽³⁾  The following table presents the weighted-average outstanding non-participating securities that were not included in the computation of diluted earnings per common share because their inclusion would have been antidilutive for the periods presented.

	Quarters Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Stock options	2,940	3,691	3,116	3,807
Unvested stock/unit awards	—	—	1	78
Warrant related to the U.S. Treasury	—	645	—	645
Total antidilutive shares	2,940	4,336	3,117	4,530

34

13. INCOME TAXES

Income Tax Provision Analysis

(Dollars in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Income before income taxes	$	54,219		$	38,006		$	145,050		$	92,652
Income tax provision:
Current income tax provision	$	21,297		$	15,531		$	42,636		$	32,057
Deferred income tax provision	(136		)	(579		)	13,171			5,782
Total income tax provision	$	21,161		$	14,952		$	55,807		$	37,839
Effective tax rate	39.0		%	39.3		%	38.5		%	40.8		%

Deferred Tax Assets

Net deferred tax assets totaled $94.6 million at September 30, 2013 and $89.3 million at December 31, 2012. Net deferred tax assets are included in other assets in the accompanying Consolidated Statements of Financial Condition.

At September 30, 2013, we have concluded that it is more likely than not that the deferred tax assets will be realized and no valuation allowance was recorded. This conclusion was based in part on the fact that we have cumulative book income for financial statement purposes at September 30, 2013, measured on a trailing three-year basis. In addition, we considered our recent earnings history, on both a book and tax basis, and our outlook for earnings and taxable income in future periods.

As of September 30, 2013 and December 31, 2012, we had unrecognized tax benefits related to uncertain tax positions that, if recognized, would favorably impact the effective tax rate by $366,000 and $130,000 respectively.

14. DERIVATIVE INSTRUMENTS

We utilize an overall risk management strategy that incorporates the use of derivative instruments to reduce interest rate risk, as it relates to mortgage loan commitments and planned sales of loans, and foreign currency volatility as it relates to certain loans denominated in currencies other than the U.S. dollar. We also use these instruments to accommodate our clients as we provide them with risk management solutions. None of the above-mentioned end-user and client-related derivatives were designated as hedging instruments at September 30, 2013 and December 31, 2012.

We also use interest rate derivatives to hedge variability in forecasted interest cash flows in our loan portfolio which is comprised primarily of floating rate loans. These derivatives are designated as cash flow hedges.

Derivatives expose us to counterparty credit risk. Credit risk is managed through our standard underwriting process. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. Additionally, credit risk is managed through the use of collateral and netting agreements.

35

Composition of Derivative Instruments and Fair Value

(Amounts in thousands)

	Asset Derivatives										Liability Derivatives
	September 30, 2013					December 31, 2012					September 30, 2013					December 31, 2012
	Notional (1)		Fair Value			Notional (1)		Fair Value			Notional (1)		Fair Value			Notional (1)		Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts	$	375,000	$	5,278		$	350,000	$	8,883		$	250,000	$	6,598		$	50,000	$	163
Derivatives not designated as hedging instruments:
Client-related derivatives:
Interest rate contracts	$	3,926,997	$	63,363		$	3,666,560	$	93,449		$	3,926,997	$	64,773		$	3,666,560	$	96,519
Foreign exchange contracts	154,846		3,541			120,073		2,910			154,846		3,046			120,073		2,454
Credit contracts (1)	109,592		34			99,770		32			125,059		87			124,980		42
Total client-related derivatives			$	66,938				$	96,391				$	67,906				$	99,015
Other end-user derivatives:
Foreign exchange contracts	$	2,620	$	1		$	560	$	5		$	14,922	$	469		$	16,290	$	119
Mortgage banking derivatives			191					131					336					128
Total other end-user derivatives			$	192				$	136				$	805				$	247
Total derivatives not designated as hedging instruments			$	67,130				$	96,527				$	68,711				$	99,262
Netting adjustments (2)			(14,637		)			(6,149		)			(19,376		)			(6,149		)
Total derivatives			$	57,771				$	99,261				$	55,933				$	93,276

⁽¹⁾  The remaining average notional amounts are shown for credit contracts.

⁽²⁾  Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provides for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract.

Master Netting Agreements

Certain of the Company's end-user and client-related derivative contracts are subject to enforceable master netting agreements with derivative counterparties. For those derivative contracts subject to enforceable master netting agreements, derivative assets and liabilities, and related cash collateral, with the same counterparty are reported on a net basis within derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition.

Derivative contracts may require the Company to provide or receive cash or financial instrument collateral. Collateral associated with derivative assets and liabilities subject to enforceable master netting agreements with the same counterparty is posted on a net basis. All of the Company's derivative assets and liabilities subject to collateral posting requirements are in a net liability position as of September 30, 2013, and the Company has pledged cash or financial collateral in accordance with each counterparty's

36

collateral posting requirements. Certain collateral posting requirements are subject to posting thresholds and minimum transfer amounts, such that the Company is only required to post collateral once the posting threshold is met, and any adjustments to the amount of collateral posted must meet minimum transfer amounts.

As of September 30, 2013, $4.7 million of cash collateral pledged was netted with the related derivative liabilities and no cash collateral received was netted with the related derivative assets on the Consolidated Statements of Financial Condition. To the extent not netted against derivative fair values under a master netting agreement, the receivable for cash pledged is included in other short-term investments. There was no receivable for cash pledged at September 30, 2013. Any securities pledged to counterparties as financial instrument collateral remain on the Consolidated Statements of Financial Condition as long as the Company does not default.

The following table presents information about the Company's derivative assets and liabilities and the related collateral by derivative type (e.g., interest rate contracts). As the Company posts collateral with counterparties on the basis of its net position in all derivative contracts with a given counterparty, the information presented below aggregates end-user and client-related derivative contracts entered into with the same counterparty.

Offsetting of Derivative Assets and Liabilities

(Amounts in thousands)

								Gross Amounts Not Offset (3)
	Gross Amounts of Recognized Assets / Liabilities (1)		Gross Amounts Offset (2)			Net Amount		Financial Instruments (4)			Cash Collateral		Net Amount
As of September 30, 2013
Derivative assets
Interest rate contracts	$	68,641	$	(13,144	)	$	55,497	$	—		$	—	$	55,497
Foreign exchange contracts	2,142		(1,480		)	662		—			—		662
Credit contracts	34		(13		)	21		—			—		21
Total derivatives subject to a master netting agreement	70,817		(14,637		)	56,180		—			—		56,180
Total derivatives not subject to a master netting agreement	1,591		—			1,591		—			—		1,591
Total derivatives	$	72,408	$	(14,637	)	$	57,771	$	—		$	—	$	57,771
Derivative liabilities
Interest rate contracts	$	71,371	$	(17,883	)	$	53,488	$	(48,659	)	$	—	$	4,829
Foreign exchange contracts	2,437		(1,480		)	957		(871		)	—		86
Credit contracts	87		(13		)	74		(67		)	—		7
Total derivatives subject to a master netting agreement	73,895		(19,376		)	54,519		(49,597		)	—		4,922
Total derivatives not subject to a master netting agreement	1,414		—			1,414		—			—		1,414
Total derivatives	$	75,309	$	(19,376	)	$	55,933	$	(49,597	)	$	—	$	6,336

⁽¹⁾  All derivative contracts are over-the-counter contracts.

⁽²⁾  Represents end-user, client-related and cash flow hedging derivative contracts and related cash collateral entered into with the same counterparty and subject to a master netting agreement.

⁽³⁾  Collateralization is determined at the counterparty level. If overcollateralization exists, the amount shown is limited to the fair value of the derivative.

⁽⁴⁾  Financial collateral is disclosed at fair value. Financial instrument collateral is allocated pro-rata amongst the derivative liabilities to which it relates.

37

Offsetting of Derivative Assets and Liabilities (Continued) (Amounts in thousands)
	Gross Amounts of Recognized Assets / Liabilities (1)		Gross Amounts Offset (2)			Net Amount		Gross Amounts Not Offset - Financial Instruments (3)			Net Amount
As of December 31, 2012
Derivative assets
Interest rate contracts	$	102,332	$	(14,212	)	$	88,120	$	—		$	88,120
Foreign exchange contracts	1,222		(662		)	560		—			560
Credit contracts	32		—			32		—			32
Total derivatives subject to a master netting agreement	103,586		(14,874		)	88,712		—			88,712
Total derivatives not subject to a master netting agreement	1,824		—			1,824		—			1,824
Total derivatives	$	105,410	$	(14,874	)	$	90,536	$	—		$	90,536
Derivative liabilities
Interest rate contracts	$	96,682	$	(14,212	)	$	82,470	$	(81,531	)	$	939
Foreign exchange contracts	1,791		(662		)	1,129		(1,116		)	13
Credit contracts	42		—			42		(42		)	—
Total derivatives subject to a master netting agreement	98,515		(14,874		)	83,641		(82,689		)	952
Total derivatives not subject to a master netting agreement	910		—			910		—			910
Total derivatives	$	99,425	$	(14,874	)	$	84,551	$	(82,689	)	$	1,862

⁽¹⁾  All derivative contracts are over-the-counter contracts.

⁽²⁾  Represents end-user, client-related and cash flow hedging derivative contracts entered into with the same counterparty and subject to a master netting agreement.

⁽³⁾  Financial collateral is disclosed at fair value. Collateralization is determined at the counterparty level. If overcollateralization exists, the amount shown is limited to the fair value of the derivative. Financial instrument collateral is allocated pro-rata amongst the derivative liabilities to which it relates.

Certain of our derivative contracts contain embedded credit risk contingent features that if triggered either allow the derivative counterparty to terminate the derivative or require additional collateral. These contingent features are triggered if we do not meet specified financial performance indicators such as minimum capital ratios under the federal banking agencies’ guidelines. All requirements were met at September 30, 2013 and December 31, 2012. Details on these derivative contracts are set forth in the following table.

Derivatives Subject to Credit Risk Contingency Features

(Amounts in thousands)

	September 30, 2013		December 31, 2012
Fair value of derivatives with credit contingency features in a net liability position	$	32,648	$	54,622
Collateral posted for those transactions in a net liability position	$	33,810	$	58,210
If credit risk contingency features were triggered:
Additional collateral required to be posted to derivative counterparties	$	—	$	669
Outstanding derivative instruments that would be immediately settled	$	32,648	$	50,687

38

Derivatives Designated in Hedge Relationships

The objective of our hedging program is to use interest rate derivatives to manage our exposure to interest rate movements.

Cash Flow Hedges – Our cash flow hedging program enters into receive fixed/pay variable interest rate swaps to convert certain floating-rate commercial loans to fixed rate to reduce the variability in forecasted interest cash flows due to market interest rate changes. We use regression analysis to assess the effectiveness of cash flow hedges at both the inception of the hedge relationship and on an ongoing basis. Ineffectiveness is generally measured as the amount by which the cumulative change in fair value of the hedging instrument exceeds the present value of the cumulative change in the expected cash flows of the hedged item. Measured ineffectiveness is recognized directly in other non-interest income in the Consolidated Statements of Income. During the nine months ended September 30, 2013, there were no gains or losses from cash flow hedge derivatives related to ineffectiveness that were reclassified to current earnings. The effective portion of the gains or losses on cash flow hedges are recorded, net of tax, in accumulated other comprehensive income ("AOCI") and are subsequently reclassified to interest income on loans in the period that the hedged interest cash flows affect earnings. As of September 30, 2013, the maximum length of time over which forecasted interest cash flows are hedged is 7 years. There are no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to our cash flow hedge strategy.

Change in Accumulated Other Comprehensive Income

Related to Interest Rate Swaps Designated as Cash Flow Hedge

(Amounts in thousands)

	Quarters Ended September 30,												Nine Months Ended September 30,
	2013						2012						2013						2012
	Pre-tax			After-tax			Pre-tax			After-tax			Pre-Tax			After-tax			Pre-Tax			After-tax
Accumulated unrealized (loss) gain at beginning of period	$	(3,782	)	$	(2,305	)	$	7,648		$	4,618		$	9,603		$	5,845		$	2,586		$	1,557
Amount of gain (loss) recognized in AOCI (effective portion)	4,823			2,933			3,696			2,231			(6,118		)	(3,737		)	10,075			6,088
Amount reclassified from AOCI to interest income on loans	(1,666		)	(1,009		)	(795		)	(480		)	(4,110		)	(2,489		)	(2,112		)	(1,276		)
Accumulated unrealized (loss) gain at end of period	$	(625	)	$	(381	)	$	10,549		$	6,369		$	(625	)	$	(381	)	$	10,549		$	6,369

As of September 30, 2013, $4.3 million in net deferred gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2013. During the nine months ended September 30, 2013, there were no gains or losses from cash flow hedge derivatives reclassified to current earnings because it became probable that the original forecasted transaction would not occur.

Derivatives Not Designated in Hedge Relationships

Other End-User Derivatives – We enter into derivatives that include commitments to fund residential mortgage loans to be sold into the secondary market and commitments for the future delivery of residential mortgage loans. It is our practice to enter into commitments for the future delivery of residential mortgage loans on a best efforts basis when we enter into customer interest rate lock commitments. This practice allows us to economically hedge the effect of changes in interest rates on our commitments to fund the loans as well as on our portfolio of mortgage loans held-for-sale. At September 30, 2013, the par value of our mortgage loans held-for-sale totaled $11.7 million, the notional value of our interest rate lock commitments totaled $40.3 million, and the notional value of our best efforts commitments for the future delivery of residential mortgage loans totaled $52.0 million.

We are also exposed at times to foreign exchange risk as a result of issuing loans in which the principal and interest are settled in a currency other than U.S. dollars. As of September 30, 2013, our exposure was to the Euro, Canadian dollar, and British pound sterling on $12.2 million of loans. We manage this risk by using currency forward derivatives.

Client-Related Derivatives – We offer, through our capital markets group, over-the-counter interest rate and foreign exchange derivatives to our clients, including but not limited to, interest rate swaps, options on interest rate swaps, interest rate options (also

39

referred to as caps, floors, collars, etc.), foreign exchange forwards, and options as well as cash products such as foreign exchange spot transactions. When our clients enter into an interest rate or foreign exchange derivative transaction with us, we mitigate our exposure to market risk through the execution of off-setting positions with inter-bank dealer counterparties. Although the off-setting nature of transactions originated by our capital markets group limits our market risk exposure, they do expose us to other risks including counterparty credit, settlement, and operational risk.

To accommodate our loan clients, we occasionally enter into risk participation agreements ("RPA") with counterparty banks to either accept or transfer a portion of the credit risk related to their interest rate derivatives or transfer a portion of the credit risk related to our interest rate derivatives. This allows clients to execute an interest rate derivative with one bank while allowing for distribution of the credit risk among participating members. We have entered into written RPAs in which we accept a portion of the credit risk associated with an interest rate derivative of another bank's loan client in exchange for a fee. We manage this credit risk through our loan underwriting process, and when appropriate, the RPA is backed by collateral provided by our clients under their loan agreement.

The current payment/performance risk of written RPAs is assessed using internal risk ratings which range from 1 to 8 with the latter representing the highest credit risk. The risk rating is based on several factors including the financial condition of the RPA’s underlying derivative counterparty, present economic conditions, performance trends, leverage, and liquidity.

The maximum potential amount of future undiscounted payments that we could be required to make under our written RPAs assumes that the underlying derivative counterparty defaults and that the floating interest rate index of the underlying derivative remains at zero percent. In the event that we would have to pay out any amounts under our RPAs, we will seek to maximize the recovery of these amounts from assets that our clients pledged as collateral for the derivative and the related loan.

Risk Participation Agreements

(Dollars in thousands)

	September 30, 2013			December 31, 2012
Fair value of written RPAs	$	(87	)	$	(42	)
Range of remaining terms to maturity (in years)	Less than 1 to 4			Less than 1 to 4
Range of assigned internal risk ratings	2 to 7			2 to 4
Maximum potential amount of future undiscounted payments	$	3,605		$	4,219
Percent of maximum potential amount of future undiscounted payments covered by proceeds from liquidation of pledged collateral	18		%	64		%

Gain (Loss) Recognized on Derivative Instruments

Not Designated in Hedging Relationship

(Amounts in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012
Gain on client-related derivatives recognized in capital markets products income:
Interest rate contracts	$	2,427		$	4,598		$	10,500	$	14,477
Foreign exchange contracts	1,531			1,213			4,501		4,415
Credit contracts	(37		)	21			7		322
Total client-related derivatives	3,921			5,832			15,008		19,214
(Loss) gain on end-user derivatives recognized in other income:
Foreign exchange derivatives	(634		)	(71		)	302		(243		)
Mortgage banking derivatives	—			(37		)	—		80
Total end-user derivatives	(634		)	(108		)	302		(163		)
Total derivatives not designated in hedging relationship	$	3,287		$	5,724		$	15,310	$	19,051

40

15. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Extension Commitments and Guarantees

In the normal course of business, we enter into a variety of financial instruments with off-balance sheet risk to meet the financing needs of our clients and to conduct lending activities. These instruments principally include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit and liquidity risk in excess of the amounts reflected in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments ⁽¹⁾ 

(Amounts in thousands)

	September 30, 2013		December 31, 2012
Commitments to extend credit:
Home equity lines	$	146,144	$	152,726
Residential 1-4 family construction	37,565		22,682
Commercial real estate, other construction, and land development	643,770		573,252
Commercial and industrial	3,478,827		3,450,491
All other commitments	180,614		199,338
Total commitments to extend credit	$	4,486,920	$	4,398,489
Letters of credit:
Financial standby	$	307,423	$	304,413
Performance standby	25,436		23,754
Commercial letters of credit	5,416		3,751
Total letters of credit	$	338,275	$	331,918

⁽¹⁾  Includes covered asset commitments of $20.1 million and $23.0 million as of September 30, 2013 and December 31, 2012, respectively.

Commitments to extend credit are agreements to lend funds to a client as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and variable interest rates tied to the prime rate or LIBOR and may require payment of a fee for the unused portion of the commitment or for the amounts issued but not drawn on letters of credit. All or a portion of commitments with an initial term extending beyond one year require regulatory capital support, while commitments of less than one year currently do not, although under newly issued regulatory capital rules, unfunded commitments of less than one year will require regulatory capital unless unconditionally cancellable. Since many of our commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements of the borrowers. As of September 30, 2013, we had a reserve for unfunded commitments of $8.2 million, which reflects our estimate of inherent losses associated with these commitment obligations. The balance of this reserve changes based on a number of factors including: the balance of outstanding commitments and our assessment of the likelihood of borrowers to utilize these commitments. The reserve is recorded in other liabilities in the Consolidated Statements of Financial Condition.

Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. Standby letters of credit include performance and financial guarantees for clients in connection with contracts between our clients and third parties. Standby letters of credit are agreements where we are obligated to make payment to a third party on behalf of a client in the event the client fails to meet their contractual obligations. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the client and the third party. In most cases, the Company receives a fee for the amount of a letter of credit issued but not drawn upon.

In the event of a client’s nonperformance, our credit loss exposure is equal to the contractual amount of those commitments. We manage this credit risk in a similar manner to evaluating credit risk in extending loans to clients under our credit policies. We use the same credit policies in making credit commitments as for on-balance sheet instruments, mitigating exposure to credit loss through various collateral requirements, if deemed necessary. In the event of nonperformance by the clients, we have rights to the

41

underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

The maximum potential future payments guaranteed by us under standby letters of credit arrangements are equal to the contractual amount of the commitment. The unamortized fees associated with standby letters of credit, which are included in other liabilities in the Consolidated Statements of Financial Condition, totaled $2.1 million as of September 30, 2013. We amortize these amounts into income over the commitment period. As of September 30, 2013, standby letters of credit had a remaining weighted-average term of approximately 13 months, with remaining actual lives ranging from less than 1 year to 7 years.

Other Commitments

The Company has unfunded commitments to CRA investments as well as commitments to provide contributions to other investment partnerships totaling $14.2 million at September 30, 2013. Of these commitments, $1.2 million related to legally-binding unfunded commitments for tax-credit investments and was included within other assets and other liabilities on the Consolidated Statements of Financial Condition.

Credit Card Settlement Guarantees

Our third-party corporate credit card vendor issues corporate purchase credit cards on behalf of our commercial clients. The corporate purchase credit cards are issued to employees of certain of our commercial clients at the client’s direction and used for payment of business-related expenses. In most circumstances, these cards will be underwritten by our third-party vendor. However, in certain circumstances, we may enter into a recourse agreement, which transfers the credit risk from the third-party vendor to us in the event that the client fails to meet its financial payment obligation. In these circumstances, a total maximum exposure amount is established for our corporate client. In addition to the obligations presented in the prior table, the maximum potential future payments guaranteed by us under this third-party settlement guarantee were $3.5 million at September 30, 2013.

We believe that the estimated amounts of maximum potential future payments are not representative of our actual potential loss given our insignificant historical losses from this third-party settlement guarantee program. As of September 30, 2013, we have not recorded any contingent liability in the consolidated financial statements for this settlement guarantee program, and management believes that the probability of any loss under this arrangement is remote.

Mortgage Loans Sold with Recourse

Certain mortgage loans sold have limited recourse provisions. The losses for the quarters and nine months ended September 30, 2013 and 2012 arising from limited recourse provisions were not material. Based on this experience, the Company has not established any liability for potential future losses relating to mortgage loans sold in prior periods.

Legal Proceedings

In June 2013, we were served with a complaint naming the Bank as an additional defendant in a lawsuit pending in the Circuit Court of the 21st Judicial Circuit, Kankakee County, Illinois known as Maas vs. Marek et. al. There have been no material developments during the third quarter 2013 in this lawsuit. For more information, please see Item 1. Legal Proceedings of Part II of the Company's Form 10-Q for the quarter ended June 30, 2013. Although this litigation is in the early stages and we are not able to predict the likelihood of an adverse outcome, we currently anticipate that ultimate resolution of this matter will not have a material adverse impact on our financial condition or results of operations.

As of September 30, 2013, there were various other legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. Management does not believe that the outcome of these proceedings will have, individually or in the aggregate, a material adverse effect on the Company’s results of operations, financial condition or cash flows.

16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

We measure, monitor, and disclose certain of our assets and liabilities on a fair value basis. Fair value is used on a recurring basis to account for securities available-for-sale, mortgage loans held-for-sale, derivative assets, derivative liabilities, and certain other assets and other liabilities. In addition, fair value is used on a non-recurring basis to apply lower-of-cost-or-market accounting to foreclosed real estate and certain other loans held-for-sale, evaluate assets or liabilities for impairment, including collateral-dependent impaired loans, and for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, we use various valuation techniques and input assumptions when estimating fair value.

42

U.S. GAAP requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements. The three levels of the fair value hierarchy are defined as follows:

• Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets.

• Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Valuation Methodology

We believe our valuation methods are appropriate and consistent with other market participants. However, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. Additionally, the methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

The following describes the valuation methodologies we use for assets and liabilities measured at fair value, including the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Securities Available-for-Sale – Securities available-for-sale include U.S. Treasury, collateralized mortgage obligations, residential mortgage-backed securities, state and municipal securities, and foreign sovereign debt. Substantially all available-for-sale securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. U.S. Treasury securities have been classified in level 1 of the valuation hierarchy. All other remaining securities are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from external pricing services, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While we may challenge valuation inputs used in determining prices obtained from external pricing services based on our validation procedures, we have not altered the fair values ultimately provided by the external pricing services.

Mortgage Loans Held-for-Sale – Mortgage loans held-for-sale represent residential mortgage loan originations intended to be sold in the secondary market. We have elected the fair value option for residential mortgage loans originated with the intention of selling to a third party. The election of the fair value option aligns the accounting for these loans with the related mortgage banking derivatives used to economically hedge them. These mortgage loans are measured at fair value as of each reporting date, with changes in fair value recognized through mortgage banking non-interest income. The fair value of mortgage loans held-for-sale is determined based on prices obtained for loans with similar characteristics from third party sources. On a quarterly basis, the Company validates the overall reasonableness of the fair values obtained from third party sources by comparing prices obtained to prices received from various other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. Mortgage loans held-for-sale are classified in level 2 of the valuation hierarchy.

Collateral-Dependent Impaired Loans – We do not record loans held for investment at fair value on a recurring basis. However, periodically, we record nonrecurring adjustments to reduce the carrying value of certain impaired loans based on fair value measurement. This population of impaired loans includes those for which repayment of the loan is expected to be provided solely by the underlying collateral. We measure the fair value of collateral-dependent impaired loans based on the fair value of the collateral securing these loans less estimated selling costs. A majority of collateral-dependent impaired loans are secured by real estate with the fair value generally determined based upon appraisals performed by a certified or licensed appraiser using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. We also consider other factors or recent developments that could result in adjustments to the collateral value estimates indicated in the appraisals. Accordingly, fair value estimates for collateral-dependent

43

impaired loans are classified in level 3 of the valuation hierarchy. The carrying value of all impaired loans and the related specific reserves are disclosed in Note 4.

At the time a collateral-dependent loan is initially determined to be impaired, we review the existing collateral appraisal. If the most recent appraisal is greater than one year old, a new appraisal is obtained on the underlying collateral. The Company generally obtains "as is" appraisal values for use in the evaluation of collateral-dependent impaired loans. Appraisals for loans in excess of $500,000 are updated with new independent appraisals at least annually and are formally reviewed by our internal appraisal department. Additional diligence is also performed at the six-month interval between annual appraisals. If during the course of the six-month review period there is evidence supporting a meaningful decline in the value of the collateral, the appraised value is either internally adjusted downward or a new appraisal is required to support the value of the impaired loan. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. The Company’s internal appraisal review process validates the reasonableness of appraisals in conjunction with analyzing sales and market data from an array of market sources.

Covered Asset OREO and OREO – Covered asset OREO and OREO generated from our originated book of business are valued on a nonrecurring basis using third-party appraisals of each property and our judgment of other relevant market conditions and are classified in level 3 of the valuation hierarchy. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. Updated appraisals on both OREO portfolios are typically obtained every twelve months and evaluated internally at least every six months. In addition, both property-specific and market-specific factors as well as collateral type factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rate and comparables. Any appraisal with a value in excess of $250,000 is subject to a compliance review. Appraisals received with a value in excess of $1.0 million are subject to a technical review. Appraisals are either reviewed internally by our appraisal department or sent to an outside technical firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the OREO. To validate the reasonableness of the appraisals obtained, the Company compares the appraised value to the actual sales price of properties sold and analyzes the reasons why a property may be sold for less than its appraised value.

Derivative Assets and Derivative Liabilities – Derivative instruments with positive fair values are reported as an asset and derivative instruments with negative fair value are reported as liabilities, in both cases after taking into account the effects of master netting agreements. For derivative counterparties with which we have a master netting agreement, we elect to measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value of derivative assets and liabilities is determined based on prices obtained from third party advisors using standardized industry models. Many factors affect derivative values, including the level of interest rates, the market’s perception of our nonperformance risk as reflected in our credit spread, and our assessment of counterparty nonperformance risk. The nonperformance risk assessment is based on our evaluation of credit risk, or if available, on observable external assessments of credit risk. Values of derivative assets and liabilities are primarily based on observable inputs and are classified in level 2 of the valuation hierarchy, with the exception of certain client-related derivatives and risk participation agreements, as discussed below. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company's knowledge of market liquidity and other market-related conditions. While we may challenge valuation inputs used in determining prices obtained from third party advisors based on our validation procedures, we have not altered the fair values ultimately provided by the third party advisors.

Level 3 derivatives include risk participation agreements and derivatives associated with clients whose loans are risk rated 6 or higher ("watch list derivative"). Refer to "Credit Quality Indicators" in Note 4 for further discussion on risk ratings. For these level 3 derivatives, the Company obtains prices from third party advisors, consistent with the valuation processes employed for the Company’s derivatives classified in level 2 of the fair value hierarchy, and then applies loss factors to adjust the prices obtained from third party advisors. The significant unobservable inputs that are employed in the valuation process for the risk participation agreements and watch list derivatives that cause these derivatives to be classified in level 3 of the fair value hierarchy are the historic loss factors specific to the particular industry segment and risk rating category. The loss factors are updated quarterly and are derived and aligned with the loss factors utilized in the calculation of the Company’s general reserve component of the allowance for loan losses. Changes in the fair value measurement of risk participation agreements and watch list derivatives are largely due to changes in the fair value of the derivative, risk rating adjustments and fluctuations in the pertinent historic average loss rate.

44

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the hierarchy level and fair value for each major category of assets and liabilities measured at fair value at September 30, 2013 and December 31, 2012 on a recurring basis.

Fair Value Measurements on a Recurring Basis

(Amounts in thousands)

	September 30, 2013										December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
Assets:
Securities available-for-sale:
U.S. Treasury	$	155,674	$	—		$	—	$	155,674		$	115,262	$	—		$	—	$	115,262
U.S. Agencies	—		45,946			—		45,946			—		—			—		—
Collateralized mortgage obligations	—		186,036			—		186,036			—		241,034			—		241,034
Residential mortgage-backed securities	—		948,219			—		948,219			—		868,322			—		868,322
State and municipal securities	—		274,647			—		274,647			—		226,042			—		226,042
Foreign sovereign debt	—		500			—		500			—		500			—		500
Total securities available-for-sale	155,674		1,455,348			—		1,611,022			115,262		1,335,898			—		1,451,160
Mortgage loans held-for-sale	—		11,838			—		11,838			—		39,229			—		39,229
Derivative assets:
Interest rate contract derivatives designated as hedging instruments	—		5,278			—		5,278			—		8,883			—		8,883
Client-related derivatives	—		66,471			467		66,938			—		95,368			1,023		96,391
Other end-user derivatives	—		192			—		192			—		136			—		136
Netting adjustments	—		(14,637		)	—		(14,637		)	—		(6,149		)	—		(6,149		)
Total derivative assets	—		57,304			467		57,771			—		98,238			1,023		99,261
Total assets	$	155,674	$	1,524,490		$	467	$	1,680,631		$	115,262	$	1,473,365		$	1,023	$	1,589,650
Liabilities:
Derivative liabilities:
Interest rate contract derivatives designated as hedging instruments	$	—	$	6,598		$	—	$	6,598		$	—	$	163		$	—	$	163
Client-related derivatives	—		67,793			113		67,906			—		98,955			60		99,015
Other end-user derivatives	—		805			—		805			—		247			—		247
Netting adjustments	—		(19,376		)	—		(19,376		)	—		(6,149		)	—		(6,149		)
Total derivative liabilities	$	—	$	55,820		$	113	$	55,933		$	—	$	93,216		$	60	$	93,276

45

If a change in valuation techniques or input assumptions for an asset or liability occurred between periods, we would consider whether this would result in a transfer between the three levels of the fair value hierarchy. There have been no transfers of assets or liabilities between level 1 and level 2 of the valuation hierarchy between December 31, 2012 and September 30, 2013.

There have been no changes in the valuation techniques we used for assets and liabilities measured at fair value on a recurring basis from December 31, 2012 to September 30, 2013.

Reconciliation of Beginning and Ending Fair Value for Those

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

(Amounts in thousands)

	Quarters Ended September 30,
	2013						2012
	Derivative Assets			Derivative (Liabilities)			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	627		$	(87	)	$	1,127		$	(44	)
Total gains (losses):
Included in earnings (1)	56			6			135			1
Purchases, issuances, sales and settlements:
Issuances	—			(32		)	—			—
Sales	—			—			—			—
Settlements	(249		)	—			(291		)	—
Transfers into Level 3 (out of Level 2) (2)	33			—			545			—
Transfers out of Level 3 (into Level 2) (2)	—			—			—			—
Balance at end of period	$	467		$	(113	)	$	1,516		$	(43	)
Change in unrealized gains (losses) in earnings relating to assets and liabilities still held at end of period	$	56		$	6		$	133		$	(1	)
	Nine Months Ended September 30,
	2013						2012
	Derivative Assets			Derivative (Liabilities)			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	1,023		$	(60	)	$	827		$	(32	)
Total gains (losses):
Included in earnings (1)	92			(2		)	211			300
Purchases, issuances, sales and settlements:
Issuances	—			(51		)	—			—
Sales	—			—			—			—
Settlements	(688		)	—			(813		)	(311		)
Transfers into Level 3 (out of Level 2) (2)	475			—			1,432			—
Transfers out of Level 3 (into Level 2) (2)	(435		)	—			(141		)	—
Balance at end of period	$	467		$	(113	)	$	1,516		$	(43	)
Change in unrealized gains (losses) in earnings relating to assets and liabilities still held at end of period	$	17		$	(3	)	$	244		$	298

⁽¹⁾  Amounts disclosed in this line are included in the Consolidated Statements of Income as capital markets products income for derivatives.

⁽²⁾  Transfers in and transfers out are recognized at the end of each quarterly reporting period. In general, derivative assets and liabilities are transferred into Level 3 from Level 2 due to a lack of observable market data, as there was deterioration in the credit risk of the derivative counterparty. Conversely, derivative assets and liabilities are transferred out of Level 3 into Level 2 due to an improvement in the credit risk of the derivative counterparty.

46

Financial Instruments Recorded Using the Fair Value Option

Difference Between Aggregate Fair Value and Aggregate Remaining Principal Balance

for Mortgage Loans Held-For-Sale Elected to be Carried at Fair Value ⁽¹⁾ 

(Amounts in thousands)

	September 30, 2013			December 31, 2012
Aggregate fair value	$	11,838		$	39,229
Difference (1)	(144		)	2
Aggregate unpaid principal balance	$	11,694		$	39,231

⁽¹⁾  The change in fair value is reflected in mortgage banking non-interest income.

As of September 30, 2013, none of the mortgage loans held-for-sale were on nonaccrual or 90 days or more past due and still accruing interest. Changes in fair value due to instrument-specific credit risk for the nine months ended September 30, 2013 were not material.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

From time to time, we may be required to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets when there is evidence of impairment.

The following table provides the fair value of those assets that were subject to fair value adjustments during the first nine months of 2013 and 2012, and still held at September 30, 2013 and 2012, respectively. All fair value measurements on a nonrecurring basis were measured using level 3 of the valuation hierarchy.

Fair Value Measurements on a Nonrecurring Basis

(Amounts in thousands)

	Fair Value				Net Losses
	September 30,				For the Nine Months Ended September 30,
Financial Assets:	2013		2012		2013		2012
Collateral-dependent impaired loans (1)	$	59,114	$	74,917	$	6,824	$	26,261
Covered assets - OREO (2) (3)	4,324		9,714		429		710
OREO (2)	25,549		58,986		12,328		18,285
Total	$	88,987	$	143,617	$	19,581	$	45,256

⁽¹⁾  Represents the fair value of loans adjusted to the appraised value of the collateral with a write-down in fair value or change in specific reserves during the respective period. These fair value adjustments are recognized as part of the provision for loan losses charged to earnings.

⁽²⁾  Represents the fair value of foreclosed properties that were adjusted subsequent to their initial classification as foreclosed assets. Write-downs are recognized as a component of net foreclosed real estate expense in the Consolidated Statements of Income.

⁽³⁾  The 20% portion of any covered asset OREO write-down not reimbursed by the FDIC is recorded as net foreclosed real estate expense.

There have been no changes in the valuation techniques we used for assets and liabilities measured at fair value on a nonrecurring basis from December 31, 2012 to September 30, 2013.

47

Additional Information Regarding Level 3 Fair Value Measurements

The following table presents information regarding the unobservable inputs developed by the Company for its level 3 fair value measurements.

Quantitative Information Regarding Level 3 Fair Value Measurements

(Dollars in thousands)

Financial Instrument:	Fair Value of Assets / (Liabilities) at September 30, 2013				Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Watch list derivatives	$	433			Discounted cash flow	Loss factors	14.1 to 21.6%	16.9	%
Risk participation agreements	(53		)	(1)	Discounted cash flow	Loss factors	0.0 to 16.6%	10.9	%
Collateral-dependent impaired loans	59,114				Sales comparison, income capitalization and/or cost approach	Property specific adjustment	-7.6 to -11.4%	-9.3	%	(2)
OREO	$	25,549			Sales comparison, income capitalization and/or cost approach	Property specific adjustment	-2.2 to -48.9%	-22.3	%	(2)

⁽¹⁾  Represents fair value of underlying swap.

⁽²⁾  Weighted average is calculated based on assets with a property specific adjustment.

The significant unobservable inputs used in the fair value measurement of the risk participation agreements and watch list derivatives are the historic loss factors. A significant increase (decrease) in the pertinent loss factor would result in a significantly lower (higher) fair value measurement.

Estimated Fair Value of Certain Financial Instruments

U.S. GAAP requires disclosure of the estimated fair values of certain financial instruments, both assets and liabilities, on and off-balance sheet, for which it is practical to estimate the fair value. Because the disclosure of estimated fair values provided herein excludes the fair value of certain other financial instruments and all non-financial instruments, any aggregation of the estimated fair value amounts presented would not represent total underlying value. Examples of non-financial instruments having value not disclosed herein include the future earnings potential of significant customer relationships and the value of Trust and Investments’ operations and other fee-generating businesses. In addition, other significant assets including property, plant, and equipment and goodwill are not considered financial instruments and, therefore, have not been included in the disclosure.

Various methodologies and assumptions have been utilized in management’s determination of the estimated fair value of our financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based on relevant market information. Because no market exists for a significant portion of these financial instruments, fair value estimates are based on judgments regarding future expected economic conditions, loss experience, and risk characteristics of the financial instruments. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In addition to the valuation methodology explained above for financial instruments recorded at fair value, the following methods and assumptions were used in estimating the fair value of financial instruments that are carried at cost in the Consolidated Statements of Financial Condition and includes the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Short-term financial assets and liabilities – For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments include cash and due from banks, federal funds sold and interest-bearing deposits in banks (including the receivable for cash collateral pledged), accrued interest receivable, and accrued interest payable. Accrued interest receivable and accrued interest payable are classified consistent with the hierarchy of their corresponding assets and liabilities.

48

Securities held-to-maturity – Securities held-to-maturity include collateralized mortgage obligations, residential mortgage-backed securities, agency commercial mortgage-backed securities and state and municipal securities. Substantially all held-to-maturity securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets.

FHLB stock – The carrying value of FHLB stock approximates fair value as the stock is non-marketable, but can only be sold to the FHLB or another member institution at par.

Loans – The fair value of loans is calculated by discounting estimated cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Cash flows are estimated by applying contractual payment terms to assumed interest rates. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each loan classification. The estimation is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Covered assets – Covered assets include acquired loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC (including the fair value of expected reimbursements from the FDIC). The fair value of covered assets is calculated by discounting contractual cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the asset. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each asset classification. The estimate is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Investment in BOLI – The cash surrender value of our investment in bank owned life insurance approximates the fair value.

Deposit liabilities – The fair values disclosed for noninterest-bearing deposits, savings deposits, interest-bearing demand deposits, and money market deposits are approximately equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for certificate of deposits and brokered time deposits were estimated using present value techniques by discounting the future cash flows at rates based on internal models and broker quotes.

Short-term and other borrowings – The fair value of FHLB advances with remaining maturities of one year or less is estimated by discounting the obligations using the rates currently offered for borrowings of similar remaining maturities. The fair value of secured borrowings is equal to the value of the loans they are collateralizing. See "Loans" above for further information. The carrying amount of the obligation for cash collateral held is considered to be its fair value because of its short-term nature.

Long-term debt – The fair value of the Company's fixed-rate long-term debt was estimated using the unadjusted publicly-available market price as of period end. The fair value of the Bank's subordinated debt facility, FHLB advances with remaining maturities greater than one year, and the Company's variable-rate junior subordinated debentures is estimated by discounting future cash flows. For the FHLB advances with remaining maturities greater than one year, the Company discounts cash flows using quoted interest rates for similar financial instruments. For the Bank's subordinated debt and the Company's variable-rate junior subordinated debentures, we interpolate a discount rate we believe is appropriate based on quoted interest rates and entity specific adjustments.

Commitments – Given the limited interest rate risk posed by the commitments outstanding at period end due to their variable rate structure, termination clauses provided in the agreements, and the market rate of fees charged, we have deemed the fair value of commitments outstanding to be immaterial.

49

Financial Instruments

(Amounts in thousands)

	As of September 30, 2013
	Carrying Amount				Fair Value Measurements Using
			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	247,460	$	247,460	$	247,460	$	—	$	—
Federal funds sold and interest-bearing deposits in banks	180,608		180,608		—		180,608		—
Loans held-for-sale	27,644		27,644		—		27,644		—
Securities available-for-sale	1,611,022		1,611,022		155,674		1,455,348		—
Securities held-to-maturity	931,342		917,016		—		917,016		—
FHLB stock	34,063		34,063		—		34,063		—
Loans, net of allowance for loan losses and unearned fees	10,263,930		10,164,503		—		—		10,164,503
Covered assets, net of allowance for covered loan losses	118,430		139,781		—		—		139,781
Accrued interest receivable	35,758		35,758		—		—		35,758
Investment in BOLI	53,539		53,539		—		—		53,539
Derivative assets	57,771		57,771		—		57,304		467
Financial Liabilities:
Deposits	$	11,832,556	$	11,843,217	$	—	$	9,068,513	$	2,774,704
Short-term and other borrowings	131,400		131,418		—		125,000		6,418
Long-term debt	499,793		471,006		269,723		10,981		190,302
Accrued interest payable	6,042		6,042		—		—		6,042
Derivative liabilities	55,933		55,933		—		55,820		113

50

Financial Instruments (Continued) (Amounts in thousands)
	As of December 31, 2012
	Carrying Amount				Fair Value Measurements Using
			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	234,308	$	234,308	$	234,308	$	—	$	—
Federal funds sold and interest-bearing deposits in banks	707,143		707,143		—		707,143		—
Loans held-for-sale	49,696		49,696		—		49,696		—
Securities available-for-sale	1,451,160		1,451,160		115,262		1,335,898		—
Securities held-to-maturity	863,727		886,774		—		886,774		—
FHLB stock	43,387		43,387		—		43,387		—
Loans, net of allowance for loan losses and unearned fees	9,978,565		9,935,830		—		—		9,935,830
Covered assets, net of allowance for covered loan losses	170,205		194,339		—		—		194,339
Accrued interest receivable	34,832		34,832		—		—		34,832
Investment in BOLI	52,513		52,513		—		—		52,513
Derivative assets	99,261		99,261		—		98,238		1,023
Financial Liabilities:
Deposits	$	12,173,634	$	12,188,739	$	—	$	9,660,550	$	2,528,189
Short-term borrowings	5,000		5,107		—		5,107		—
Long-term debt	499,793		505,460		274,023		11,495		219,942
Accrued interest payable	7,141		7,141		—		—		7,141
Derivative liabilities	93,276		93,276		—		93,216		60

17. OPERATING SEGMENTS

We have three primary operating segments: Banking, Trust and Investments, and the Holding Company. With respect to the Banking and Trust and Investments' segments, each is delineated by the products and services that each segment offers. The Banking operating segment is comprised of commercial and personal banking services, including mortgage originations. Commercial banking services are primarily provided to corporations and other business clients and include a wide array of lending and cash management products. Personal banking services offered to individuals, professionals, and entrepreneurs include direct lending and depository services. The Trust and Investments segment includes certain activities of our PrivateWealth group, including investment management, personal trust and estate administration, custodial and escrow, retirement account administration and brokerage services. The activities of the third operating segment, the Holding Company, include the direct and indirect ownership of our banking subsidiary, the issuance of debt and intersegment eliminations.

51

The accounting policies of the individual operating segments are the same as those of the Company as described in Note 1, "Summary of Significant Accounting Policies," to the Notes to Consolidated Financial Statements of our 2012 Annual Report on Form 10-K. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated from consolidated results of operations. Financial results for each segment are presented below. For segment reporting purposes, the statement of financial condition of Trust and Investments is included with the Banking segment.

Operating Segments Performance

(Amounts in thousands)

	Quarters Ended September 30,
	Banking				Trust and Investments				Holding Company and Other Adjustments						Consolidated
	2013		2012		2013		2012		2013			2012			2013		2012
Net interest income (loss)	$	112,197	$	109,581	$	819	$	812	$	(7,181	)	$	(4,985	)	$	105,835	$	105,408
Provision for loan and covered loan losses	8,120		13,509		—		—		—			—			8,120		13,509
Non-interest income	23,187		23,565		4,570		4,255		16			17			27,773		27,837
Non-interest expense	63,784		71,538		4,300		4,185		3,185			6,007			71,269		81,730
Income (loss) before taxes	63,480		48,099		1,089		882		(10,350		)	(10,975		)	54,219		38,006
Income tax provision (benefit)	24,556		18,501		430		349		(3,825		)	(3,898		)	21,161		14,952
Net income (loss)	$	38,924	$	29,598	$	659	$	533	$	(6,525	)	$	(7,077	)	$	33,058	$	23,054
	Nine Months Ended September 30,
	Banking				Trust and Investments				Holding Company and Other Adjustments						Consolidated
	2013		2012		2013		2012		2013			2012			2013		2012
Net interest income (loss)	$	331,687	$	327,661	$	2,423	$	2,185	$	(21,503	)	$	(14,716	)	$	312,607	$	315,130
Provision for loan and covered loan losses	27,320		58,248		—		—		—			—			27,320		58,248
Non-interest income	73,243		68,737		13,764		12,786		243			64			87,250		81,587
Non-interest expense	204,124		214,222		13,340		13,289		10,023			18,306			227,487		245,817
Income (loss) before taxes	173,486		123,928		2,847		1,682		(31,283		)	(32,958		)	145,050		92,652
Income tax provision (benefit)	66,787		47,576		1,123		666		(12,103		)	(10,403		)	55,807		37,839
Net income (loss)	$	106,699	$	76,352	$	1,724	$	1,016	$	(19,180	)	$	(22,555	)	$	89,243	$	54,813

	Banking				Holding Company and Other Adjustments(1)						Consolidated
Selected Balances	9/30/2013		12/31/2012		9/30/2013			12/31/2012			9/30/2013		12/31/2012
Assets	$	12,282,693	$	12,552,897	$	1,586,447		$	1,504,618		$	13,869,140	$	14,057,515
Total loans	10,409,443		10,139,982		—			—			10,409,443		10,139,982
Deposits	11,893,962		12,251,614		(61,406		)	(77,980		)	11,832,556		12,173,634

⁽¹⁾  Deposit amounts represent the elimination of Holding Company cash accounts included in total deposits of the Banking segment.

52

18. VARIABLE INTEREST ENTITIES

At September 30, 2013 and December 31, 2012, the Company had no variable interest entity ("VIE") consolidated in its financial statements.

Nonconsolidated VIEs

(Amounts in thousands)

	September 30, 2013				December 31, 2012
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Trust preferred capital securities issuances	$	244,793	$	—	$	244,793	$	—
Community reinvestment investments	2,212		2,462		2,483		2,733
TDRs to commercial clients (1):
Outstanding loan balance	57,016		68,953		113,031		131,724
Related derivative asset	—		—		37		37
Total	$	304,021	$	71,415	$	360,344	$	134,494

⁽¹⁾  Excludes personal loans and loans to non-for-profit entities.

Trust preferred capital securities issuances – As discussed in Note 10, we sponsor and wholly own 100% of the common equity of four trusts that were formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of the Trust Preferred Securities solely in Debentures issued by the Company. The trusts’ only assets were the principal balance of the Debentures and the related interest receivable, which are included within long-term debt in our Consolidated Statements of Financial Condition. The Company is not the primary beneficiary of the trusts and accordingly, the trusts are not consolidated in our financial statements.

Community reinvestment investments – We hold certain investments in funds that make investments to further our community reinvestment initiatives. Such investments are included within other assets in our Consolidated Statements of Financial Condition. Certain of these investments meet the definition of a VIE, but the Company is not the primary beneficiary as we are a limited investor in those investment funds and do not have the power to direct their investment activities. Accordingly, we will continue to account for our interests in these investments on an unconsolidated basis. Our maximum exposure to loss is limited to the carrying amount plus additional required future capital contributions.

Troubled debt restructured loans – For certain troubled commercial loans, we restructure the terms of the borrower’s debt in an effort to increase the probability of collecting amounts contractually due. Following a TDR, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered and economic events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As we do not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, we are not considered the primary beneficiary even in situations where, based on the size of the financing provided, we are exposed to potentially significant benefits and losses of the borrowing entity. We have no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt. Our interests in the troubled commercial borrowers include outstanding loans and related derivative assets. Our maximum exposure to loss is limited to these interests plus any additional future funding commitments.

53

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

PrivateBancorp, Inc. ("PrivateBancorp," we or the "Company"), is a Delaware corporation and bank holding company headquartered in Chicago, Illinois. The PrivateBank and Trust Company (the "Bank" or the "PrivateBank"), the bank subsidiary of PrivateBancorp, provides customized business and personal financial services to middle market companies and business owners, executives, entrepreneurs and families in all the markets and communities it serves. As of September 30, 2013, we had 36 offices located in ten states, primarily in the Midwest, with a majority of our business conducted in the greater Chicago market.

We deliver a full spectrum of commercial and personal banking products and services to our clients through our commercial banking, community banking and private wealth businesses. We offer clients a full range of lending, treasury management, capital markets and other banking products to meet their commercial needs, and residential mortgage banking, private banking, trust and investment services to meet their personal needs.

The following discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes presented elsewhere in this report, as well as our audited consolidated financial statements and accompanying notes included in our 2012 Annual Report on Form 10-K. Results of operations for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013. Unless otherwise stated, all earnings per share data included in this section and through the remainder of this discussion are presented on a diluted basis.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this report that are not historical facts may constitute forward-looking statements within the meaning of federal securities laws. Forward-looking statements represent management's beliefs and expectations regarding future events, such as our anticipated future financial results, credit quality, revenues, expenses, or other financial items, and the impact of business plans and strategies or legislative or regulatory actions. Forward-looking statements are typically identified by words such as "may," "might," "will," "should," "could," "would," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "project," "potential," or "continue" or other similar words.

Our ability to predict results or the actual effects of future plans, strategies or events is inherently uncertain. Factors which could cause actual results to differ from those reflected in forward-looking statements include:

• continued uncertainty regarding U.S. and global economic outlook that may impact market conditions and credit quality or prolong weakness in demand for loans or other banking products and services;

• unanticipated developments in pending or prospective loan transactions or greater than expected paydowns or payoffs of existing loans;

• unanticipated changes in interest rates;

• competitive trends in our markets;

• unforeseen credit quality problems that could result in charge-offs greater than we have anticipated in our allowance for loan losses;

• slower than anticipated dispositions of other real estate owned or declines in real estate values which may negatively impact foreclosed property expense;

• lack of sufficient or cost-effective sources of liquidity or funding as and when needed;

• loss of key personnel or an inability to recruit and retain appropriate talent;

• potential impact of recently adopted capital rules;

• greater than anticipated impact on costs, revenues and offered products and services associated with the implementation of other regulatory changes;

• uncertainty regarding the impact of the recent U.S. Government shutdown;

• changes in monetary or fiscal policies of the U.S. Government and the potential impact from current debates related to the federal debt ceiling; or

• failures or disruptions to our data processing or other information or operational systems, including the potential impact of disruptions or breaches at our third party service providers.

54

These factors should be considered in evaluating forward-looking statements and undue reliance should not be placed on our forward-looking statements. Readers should also consider the risks, assumptions and uncertainties set forth in the "Risk Factors" section of our Form 10-K for the year ended December 31, 2012, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this Form 10-Q as well as those set forth in our subsequent periodic reports filed with the SEC. Forward-looking statements speak only as of the date they are made and we assume no obligation to update any of these statements in light of new information, future events or otherwise unless required under the federal securities laws.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), and our accounting policies are consistent with predominant practices in the financial services industry. Critical accounting policies are those policies that require management to make the most significant estimates, assumptions, and judgments based on information available at the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

Our most significant accounting policies are presented in Note 1, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in our 2012 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other consolidated financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that our accounting policies with respect to the allowance for loan losses, goodwill and intangible assets, income taxes and fair value measurements are the accounting areas requiring subjective or complex judgments that are most important to our financial position and results of operations, and, as such, are considered to be critical accounting policies, as discussed below.

Allowance for Loan Losses

We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in our loan portfolio. The allowance for loan losses is assessed quarterly and represents an accounting estimate of probable losses in the portfolio at each balance sheet date based on a review of available and relevant information at that time. The allowance consists of reserves for probable losses that have been identified relating to specific borrowing relationships that are individually evaluated for impairment ("the specific component"), as well as probable losses inherent in our loan portfolio that are not specifically identified ("the general allocated component"), which is determined using a methodology that is a function of quantitative and qualitative factors applied to segments of our loan portfolio as well as management’s judgment.

The specific component relates to impaired loans. Impaired loans consist of nonaccrual loans (which include nonaccrual troubled debt restructurings ("TDRs")) and loans classified as accruing TDRs. A loan is considered impaired when, based on current information and events, management believes that either it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement or it has been classified as a TDR. Once a loan is determined to be impaired, the amount of impairment is measured based on the loan’s observable fair value; fair value of the underlying collateral less estimated selling costs, if the loan is collateral-dependent; or the present value of expected future cash flows discounted at the loan’s effective interest rate.

If the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating a specific valuation reserve as a component of the allowance for loan losses. Impaired loans exceeding $500,000 are evaluated individually, while loans less than $500,000 are evaluated as pools using historical loss experience, as well as management’s loss expectations, for the respective asset class and product type. Of total impaired loans of $145.6 million at September 30, 2013, 86% had balances in excess of $500,000.

All impaired loans and their related reserves are reviewed and updated each quarter. Any impaired loan for which a determination has been made that the economic value is permanently reduced is charged-off against the allowance for loan losses to reflect its current economic value in the period in which the determination is made.

At the time a collateral-dependent loan is initially determined to be impaired, we review the existing collateral appraisal. If the most recent appraisal is greater than one year old, a new appraisal is obtained on the underlying collateral. The Company generally obtains "as is" appraisal values for use in the evaluation of collateral-dependent impaired loans. Appraisals for collateral-dependent impaired loans in excess of $500,000 are updated with new independent appraisals at least annually and are formally reviewed

55

by our internal appraisal department. Additional diligence is also performed at the six-month interval between annual appraisals. If during the course of the six-month review process there is evidence supporting a meaningful decline in the value of collateral, the appraised value is either internally adjusted downward or a new appraisal is required to support the value of the impaired loan. With an immaterial number of exceptions, all appraisals and internal reviews are current under this methodology at September 30, 2013.

To determine the general allocated component of the allowance for loan losses, we segregate loans by vintage ("transformational" and "legacy") and product type (e.g., commercial, commercial real estate) because of observable similarities in the historical performance experience of loans underwritten by these business units. In general, loans originated by the business units that existed prior to the strategic changes of the Company in 2007 are considered "legacy" loans. Loans originated by a business unit that was established in connection with or following the strategic business transformation plan are considered "transformational" loans. Renewals or restructurings of legacy loans may continue to be evaluated as legacy loans depending on the structure or defining characteristics of the new transaction. The Company has implemented a line of business model that has reorganized the legacy business units so that after 2009, all new loan originations are considered transformational.

The methodology produces an estimated range of potential loss exposure for the product types within each vintage. We consider the appropriate balance of the general allocated component of the reserve in relation to a variety of internal and external quantitative and qualitative factors to reflect data or timeframes not captured by the basic allowance framework as well as market and economic data and management judgment. In certain instances, these additional factors and judgments may lead management to conclude that the appropriate level of the reserve is outside the range determined through the basic allowance framework.

Determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans; estimated losses on pools of homogeneous loans based on historical loss experience, risk ratings, product type, and vintage; and consideration of current economic trends and portfolio attributes, all of which may be susceptible to significant change. For instance, loss rates in our allowance methodology typically reflect the Company’s more recent loss experience, by product, on a trailing twelve or eighteen month basis. These loss rates consider both cumulative charge-offs and other real estate owned ("OREO") valuation adjustments over the period in the individual product categories that constitute our allowance. Default estimates use a multi-year originating vintage and rating approach. In addition, we compare current model-derived and historically-established reserve levels to recent charge-off trends and history in considering the appropriate final level of reserve at each product level.

Credit exposures deemed to be uncollectible are charged-off against the allowance, while recoveries of amounts previously charged-off are credited to the allowance. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio as of the balance sheet date.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired using the acquisition method of accounting. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability.

Goodwill is allocated to reporting units at acquisition. The Company has two reporting units with allocated goodwill: Banking and Trust and Investments. Subsequent to initial recognition, goodwill is not amortized but, instead, is tested for impairment at the reporting unit level at least annually or more often if an event occurs or circumstances change that would indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In the event that we conclude that all or a portion of our goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded in earnings. Such a charge would have no impact on tangible or regulatory capital.

The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. In "step one," the fair value of each reporting unit is compared to the recorded book value. Our step one calculation of each reporting unit’s fair value is based upon a simple average of two metrics: (1) a primary market approach, which measures fair value based upon trading multiples of independent publicly traded financial institutions of comparable size and character to the reporting units, and (2) an income approach, which estimates fair value based upon discounted cash flows ("DCF") and terminal value (using the perpetuity growth method). If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and "step two" is not considered necessary. If the carrying value of a reporting unit exceeds its fair value, the impairment test continues ("step two") by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value of goodwill is determined using the residual approach, where the fair value of a reporting unit is allocated to all of the

56

assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit, calculated in step one, is the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment charge is recognized to the extent the carrying value of goodwill exceeds the implied fair value of goodwill.

The Company has the option at the time of its annual impairment testing to perform a qualitative assessment for each reporting unit to determine of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value before applying the existing two-step goodwill impairment test. If the Company concludes that this is the case, the Company would proceed with the existing two-step test, as described above. Otherwise, the Company would be able to bypass the two-step test and conclude that goodwill is not impaired from a qualitative perspective.

In conjunction with our annual goodwill impairment test performed as of October 31, 2012, we did not elect to perform a qualitative assessment and chose to proceed with the quantitative two-step test. As a result of our step one analysis, the Company determined that the fair value of both the Banking and Trust and Investments reporting units exceeded their respective carrying amounts. As such, both of the Company's reporting units with allocated goodwill "passed" step one of the goodwill impairment test, and no further analysis was required to support the conclusion that goodwill was not impaired as of October 31, 2012. The Banking reporting unit's fair value exceeded its carrying amount by 15%, while the Trust and Investments reporting unit's fair value exceeded its carrying amount by approximately 135%. Based on known events and circumstances subsequent to October 31, 2012, management concluded there was no impairment of goodwill as of September 30, 2013.

Goodwill impairment testing is considered a "critical accounting estimate" as estimates and assumptions are made about future performance and cash flows, as well as other prevailing market factors. For our annual impairment testing, we engage an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit. In connection with obtaining an independent third-party valuation, management provides certain information and assumptions that are utilized in the calculations. Assumptions critical to the process include: forecasted earnings, which are developed for each segment by considering several key business drivers such as historical performance, forward interest rates (using forward interest rate curves to forecast future expected interest rates), anticipated loan and deposit growth, and industry and economic trends; discount rates; and credit quality assessments, among other considerations. We provide the best information available at the time to be used in these estimates and calculations. Changes in these assumptions due to macroeconomic, industry-wide, or Company-specific developments subsequent to the date of our annual goodwill impairment test could affect the results of our goodwill impairment analysis.

Identified intangible assets that have a finite useful life are amortized over that life in a manner that reflects the estimated decline in the economic value of the identified intangible asset and are subject to impairment testing whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company's intangible assets include core deposit premiums, client relationship, and assembled workforce intangibles. All of these intangible assets have finite lives and are amortized over varying periods not exceeding 15 years.

Income Taxes

The determination of income tax expense or benefit, and the amounts of current and deferred income tax assets and liabilities are based on complex analyses of many factors, including interpretations of federal and state income tax laws, current financial accounting standards, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), assessments of the likelihood that the reversals of deferred deductible temporary differences will yield tax benefits, and estimates of reserves required for tax uncertainties. In addition, for interim reporting purposes, management generally determines its income tax provision, before consideration of any discrete items, based on its current best estimate of pre-tax income, permanent differences and the resulting effective tax rate expected for the full year.

We are subject to the federal income tax laws of the United States and the tax laws of the states and other jurisdictions where we conduct business. We periodically undergo examination by various governmental taxing authorities. Such authorities may require that changes in the amount of tax expense be recognized when their interpretations of tax law differ from those of management, based on their judgments about information available to them at the time of their examinations. There can be no assurance that future events, such as court decisions, new interpretations of existing law or positions by federal or state taxing authorities, will not result in tax liability amounts that differ from our current assessment of such amounts, the impact of which could be significant to future results.

Temporary differences may give rise to deferred tax assets or liabilities, which are recorded on our Consolidated Statements of Financial Condition. We assess the likelihood that deferred tax assets will be realized in future periods based on weighing both positive and negative evidence and establish a valuation allowance for those deferred tax assets for which recovery is unlikely, based on a standard of "more likely than not." In making this assessment, we must make judgments and estimates regarding the

57

ability to realize these assets through: (a) the future reversal of existing taxable temporary differences, (b) future taxable income, (c) the possible application of future tax planning strategies, and (d) carryback to taxable income in prior years. We have not established a valuation allowance relating to our deferred tax assets at September 30, 2013. However, there is no guarantee that the tax benefits associated with these deferred tax assets will be fully realized. We have concluded, as of September 30, 2013, that it is more likely than not that such tax benefits will be realized.

In the preparation of income tax returns, tax positions are taken based on interpretations of federal and state income tax laws for which the outcome of such positions may not be certain. We periodically review and evaluate the status of uncertain tax positions and may establish tax reserves for tax benefits that may not be realized. The amount of any such reserves are based on the standards for determining such reserves as set forth in current accounting guidance and our estimates of amounts that may ultimately be due or owed (including interest). These estimates may change from time to time based on our evaluation of developments subsequent to the filing of the income tax return, such as tax authority audits, court decisions or other tax law interpretations. There can be no assurance that any tax reserves will be sufficient to cover tax liabilities that may ultimately be determined to be owed. At September 30, 2013, we had $366,000 of tax reserves established relating to uncertain tax positions that would favorably affect the Company's effective tax rate if recognized in future periods.

For additional discussion of income taxes, see "Management's Discussion and Analysis of Financial Condition and Results of Operations – Income Taxes," Note 13 of "Notes to Consolidated Financial Statements" in Item 1 of this Form 10-Q, and Notes 1 and 15 of "Notes to Consolidated Financial Statements" in our 2012 Annual Report on Form 10-K.

Fair Value Measurements

Certain of the Company’s assets and liabilities are measured at fair value at each reporting date, including securities available-for-sale, derivatives, and certain loans held-for-sale. Additionally, other assets are measured at fair value on a nonrecurring basis, including impaired loans and other real estate owned ("OREO"), which are subject to fair value adjustments under certain circumstances.

The Company measures fair value in accordance with U.S. GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

U.S. GAAP establishes a fair value hierarchy that categorizes fair value measurements based on the observability of the valuation inputs used in determining fair value. Level 1 valuations are based on unadjusted quoted prices for identical instruments traded in active markets. Level 2 valuations are based on quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 valuations use at least one significant unobservable input that is supported by little or no market activity.

Judgment is required to determine whether certain assets measured at fair value are included in Level 2 or Level 3. When making this judgment, we consider the information available to us, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. Classification of Level 2 or Level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3 inputs to the instrument's fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.

Judgment is also required when determining the fair value of an asset or liability when either relevant observable inputs do not exist or available observable inputs are in a market that is not active. When relevant observable inputs are not available, the Company must use its own assumptions about future cash flows and appropriately risk-adjusted discount rates. Conversely, in some cases observable inputs may require significant adjustments. For example, in cases where the volume and level of trading activity in an asset or liability is very limited, actual transaction prices vary significantly over time or among market participants, or the prices are not current, the observable inputs may not be relevant and could require adjustment.

The Company uses a variety of methods to measure the fair value of financial instruments on a recurring basis and to validate the overall reasonableness of the fair values obtained from external sources on at least a quarterly basis, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The inability to precisely measure the fair value of certain assets, such as OREO, may lead to changes in the fair value of those assets over time as unobservable inputs change, which can result in volatility in the amount of income or loss recorded for a particular position from quarter to quarter.

58

Additional information regarding fair value measurements is included in Note 16 of "Notes to Consolidated Financial Statements" in Item 1 of this Form 10-Q.

USE OF NON-U.S. GAAP FINANCIAL MEASURES

This report contains both U.S. GAAP and non-U.S. GAAP financial measures. These non-U.S. GAAP financial measures include net interest income, net interest margin, net revenue, operating profit, and efficiency ratio all on a fully taxable-equivalent basis, return on average tangible common equity, Tier 1 common equity to risk-weighted assets, tangible equity to tangible assets, tangible equity to risk-weighted assets, tangible common equity to tangible assets, and tangible book value. We believe that presenting these non-U.S. GAAP financial measures will provide information useful to investors in understanding our underlying operational performance, our business, and performance trends and facilitates comparisons with the performance of others in the banking industry. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found in Table 32. These disclosures should not be viewed as a substitute for operating results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-U.S. GAAP performance measures that may be presented by other companies.

THIRD QUARTER OVERVIEW

For the quarter ended September 30, 2013, we reported net income available to common stockholders of $33.1 million, a $13.5 million increase, or 69%, compared to the third quarter of the previous year, and an increase of $4.1 million, or 14%, compared to the previous quarter. Diluted earnings per share was $0.42, an increase of 56% compared to $0.27 per share in the third quarter 2012, and an increase of 14% compared to $0.37 in the previous quarter. As a result of strong third quarter 2013 financial results, our annualized return on average assets grew to 0.96%, our annualized return on average common equity grew to 10.43%, and our efficiency ratio improved to 53.0%, all significant improvements from the year ago quarter when these performance ratios were 0.70%, 7.00% and 61.0%, respectively.

Net income available to common stockholders for the nine months ended September 30, 2013 was $89.2 million, more than double compared to $44.5 million for the same period last year. Diluted earnings per share was $1.14, an 87% increase compared to $0.61 per diluted share in the same period last year. For the nine months ended September 30, 2013, the annualized return on average assets was 0.88%, the annualized return on average common equity was 9.60%, and the efficiency ratio was 56.6%.

Compared to the third quarter of last year, the increase in earnings was driven primarily by a reduction in credit related costs, including lower provision for loan losses and net foreclosed property expenses. Non-interest expenses declined from the prior year quarter, reflecting effective expense management as well as a significant decline in net foreclosed property expenses and lower share based compensation costs. A decline in net interest margin resulted in relatively flat net interest income, despite growth in average loans. Non-interest income was comparable to the third quarter 2012, as fee revenue from trust and investments, treasury management, and syndications grew, while mortgage banking revenue and capital markets revenue declined. Operating profit increased $10.9 million, or 21%, in third quarter 2013 compared to the prior year period benefiting from the 13% decline in non-interest expense compared to the prior year period.

Compared to the same period last year, quarterly average loan balances increased by approximately $750 million. Net interest margin for the third quarter 2013 declined to 3.18% compared to 3.35% a year ago, largely reflecting competitive pressure on loan pricing with loan yields declining 19 basis points from the third quarter 2012. Our cost of interest-bearing funds declined four basis points for the third quarter 2013 as compared to the same period last year, primarily due to a decline in the interest rate paid on interest-bearing deposits.

Credit quality metrics continued to improve over the past year with nonperforming assets declining 46% from September 30, 2012, which was primarily due to sales of both nonperforming loans and OREO. At September 30, 2013, OREO was $35.3 million, a reduction of $62.5 million from September 30, 2012. Nonperforming assets to total assets were 1.07% at September 30, 2013, compared to 2.09% at September 30, 2012. Our allowance for loan losses as a percentage of total loans declined to 1.40% at September 30, 2013, compared to 1.73% at September 30, 2012, reflecting the reduced requirement for specific reserves on a smaller population of nonperforming loans, as well as lower charge-offs. Net charge-offs and the provision for loan losses declined for the ninth consecutive quarter, with net charge-offs totaling $10.5 million in third quarter 2013 as compared to $20.7 million for the same period last year and the provision for loan losses totaled $7.8 million compared to $13.2 million to the third quarter 2012.

Total loans grew 3% from year end 2012 to September 30, 2013, with the majority of the growth in commercial and industrial loans.

59

Total deposits at September 30, 2013decreased by $341.1 million to $11.8 billion from year end 2012 primarily driven by reductions in noninterest-bearing deposits as clients utilized cash in the normal course of business, as well as expected outflows related to the expiration of unlimited deposit insurance guarantee. Noninterest-bearing demand deposits, which typically have been higher in the second half of the year, comprised 26% of total deposits at September 30, 2013. Given the commercial focus of our core business strategy, a majority of our deposit base is comprised of corporate accounts, which are typically larger than retail accounts, and are heavily influenced by the cash positions of our commercial middle market clients, which will fluctuate based on their business needs.

Please refer to the remaining sections of "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for greater discussion of the various components of our 2013 performance, statement of financial condition and liquidity.

60

The following table presents selected quarterly financial data highlighting operating performance trends over the past year.

Table 1

Consolidated Financial Highlights

(Dollars in thousands, except per share data)

	As of and for the Quarters Ended
	2013									2012
	September 30			June 30			March 31			December 31			September 30
Selected Operating Statistics
Net income	$	33,058		$	28,915		$	27,270		$	23,083		$	23,054
Net income available to common stockholders	$	33,058		$	28,915		$	27,270		$	20,040		$	19,607
Effective tax rate	39.0		%	38.0		%	38.3		%	42.0		%	39.3		%
Net interest income	$	105,835		$	103,732		$	103,040		$	104,803		$	105,408
Fee revenue (1)	27,655			28,873			29,827			29,263			28,048
Net revenue (2)	134,426			133,546			134,292			135,022			133,974
Operating profit (2)	63,157			56,291			55,329			53,707			52,244
Provision for loan losses (3)	7,797			8,309			10,148			12,597			13,241
Per Share Data
Basic earnings per share	$	0.42		$	0.37		$	0.35		$	0.26		$	0.27
Diluted earnings per share	0.42			0.37			0.35			0.26			0.27
Tangible book value at period end (2)(4)	$	15.05		$	14.52		$	14.49		$	14.26		$	14.00
Dividend payout ratio	2.38		%	2.70		%	2.86		%	3.85		%	3.70		%
Performance Ratios
Return on average common equity	10.43		%	9.28		%	9.01		%	6.64		%	7.00		%
Return on average assets	0.96		%	0.86		%	0.81		%	0.67		%	0.70		%
Return on average tangible common equity (2)	11.55		%	10.30		%	10.04		%	7.45		%	7.91		%
Net interest margin (2)	3.18		%	3.22		%	3.19		%	3.16		%	3.35		%
Efficiency ratio (2)(5)	53.02		%	57.85		%	58.80		%	60.22		%	61.00		%
Credit Quality (3)
Total nonperforming loans to total loans	1.09		%	1.20		%	1.28		%	1.37		%	1.87		%
Total nonperforming assets to total assets	1.07		%	1.33		%	1.51		%	1.57		%	2.09		%
Allowance for loan losses to total loans	1.40		%	1.47		%	1.53		%	1.59		%	1.73		%
Balance Sheet Highlights
Total assets	$	13,869,140		$	13,476,493		$	13,372,230		$	14,057,515		$	13,278,554
Average earning assets	13,154,557			12,858,942			13,026,571			13,115,687			12,420,769
Loans (3)	10,409,443			10,094,636			10,033,803			10,139,982			9,625,421
Allowance for loan losses (3)	(145,513		)	(148,183		)	(153,992		)	(161,417		)	(166,859		)
Deposits	11,832,556			11,308,332			11,392,303			12,173,634			11,359,440
Noninterest-bearing deposits	3,106,986			2,736,868			2,756,879			3,690,340			3,295,568
Brokered time deposits	$	1,303,596		$	1,190,796		$	983,625		$	993,455		$	1,290,796
Deposits to loans (3)	113.67		%	112.02		%	113.54		%	120.06		%	118.01		%

61

	As of
	2013						2012
	September 30		June 30		March 31		December 31		September 30
Capital Ratios
Total risk-based capital	13.48	%	13.70	%	13.58	%	13.17	%	13.90	%
Tier 1 risk-based capital	11.05	%	11.04	%	10.90	%	10.51	%	12.24	%
Tier 1 leverage ratio	10.30	%	10.21	%	9.81	%	9.50	%	11.15	%
Tier 1 common equity to risk-weighted assets (2)(6)	9.11	%	9.05	%	8.89	%	8.52	%	8.12	%
Tangible common equity to tangible assets (2)(7)	8.49	%	8.43	%	8.48	%	7.88	%	7.70	%

⁽¹⁾  Computed as total non-interest income less net securities gains (losses).

⁽²⁾  This is a non-U.S. GAAP financial measure. Refer to Table 32 for a reconciliation from non-U.S. GAAP to U.S. GAAP.

⁽³⁾  Excludes covered assets.

⁽⁴⁾  Computed as total equity less preferred stock, goodwill and other intangibles divided by outstanding shares of common stock at end of period.

⁽⁵⁾  Computed as non-interest expense divided by the sum of net interest income on a tax equivalent basis (assuming a federal income tax rate of 35%) and non-interest income.

⁽⁶⁾  Does not give effect to the final Basel III capital rules adopted and issued by the Federal Reserve Board in July 2013.

⁽⁷⁾  Computed as tangible common equity divided by tangible assets, where tangible common equity equals total equity less preferred stock, goodwill and other intangible assets and tangible assets equals total assets less goodwill and other intangible assets.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the primary source of the Company's revenue. Net interest income is the difference between interest income and fees earned on interest-earning assets, such as loans and investments, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is affected by the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities; the volume and value of noninterest-bearing sources of funds, such as noninterest-bearing deposits and equity; the use of derivative instruments to manage interest rate risk; the sensitivity of the balance sheet to fluctuations in interest rates, including characteristics such as fixed or variable nature of the financial instruments, contractual maturities, repricing frequencies, and loan repayment behavior; and asset quality.

Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and equity, also support interest-earning assets.

The accounting policies underlying the recognition of interest income on loans, securities, and other interest-earning assets are included in Note 1 of "Notes to Consolidated Financial Statements" contained in our 2012 Annual Report on Form 10-K.

For purposes of this discussion, net interest income and any ratios or metrics that include net interest income as a component, such as net interest margin, have been adjusted to a fully tax-equivalent basis to more appropriately compare the returns on certain tax-exempt securities to those on taxable securities, assuming a federal income tax rate of 35%. The effect of the tax-equivalent adjustment is presented at the bottom of the following table.

Table 2 summarizes the changes in our average interest-earning assets and interest-bearing liabilities as well as the average interest rates earned and paid on these assets and liabilities, respectively, for the quarters ended September 30, 2013 and 2012. The table also presents the trend in net interest margin on a quarterly basis for 2013 and 2012, including the tax-equivalent yields on interest-earning assets and rates paid on interest-bearing liabilities. In addition, Table 2 details variances in income and expense for each of the major categories of interest-earning assets and interest-bearing liabilities and indicates the extent to which such variances are attributable to volume and rate changes.

62

Quarter ended September 30, 2013 compared to quarter ended September 30, 2012

Table 2

Net Interest Income and Margin Analysis

(Dollars in thousands)

	Quarters Ended September 30,														Attribution of Change in Net Interest Income (1)
	2013							2012
	Average Balance			Interest (2)		Yield/ Rate (%)		Average Balance			Interest (2)		Yield/ Rate (%)		Volume			Yield/ Rate			Total
Assets:
Federal funds sold and interest-bearing deposits in banks	$	178,213		$	111	0.24	%	$	376,212		$	248	0.26	%	$	(124	)	$	(13	)	$	(137	)
Securities:
Taxable	2,264,991			12,931		2.28	%	2,076,464			13,907		2.68	%	1,192			(2,168		)	(976		)
Tax-exempt (3)	254,662			2,380		3.74	%	188,627			2,118		4.49	%	657			(395		)	262
Total securities	2,519,653			15,311		2.43	%	2,265,091			16,025		2.83	%	1,849			(2,563		)	(714		)
FHLB stock	34,063			61		0.71	%	43,426			126		1.14	%	(23		)	(42		)	(65		)
Loans, excluding covered assets:
Commercial	6,834,597			75,429		4.32	%	5,951,785			68,711		4.52	%	9,846			(3,128		)	6,718
Commercial real estate	2,503,758			23,467		3.67	%	2,645,713			26,924		3.98	%	(1,399		)	(2,058		)	(3,457		)
Construction	224,671			2,304		4.01	%	174,044			1,659		3.73	%	512			133			645
Residential	362,708			3,473		3.83	%	369,694			3,739		4.05	%	(70		)	(196		)	(266		)
Personal and home equity	362,293			2,938		3.22	%	397,174			3,484		3.49	%	(294		)	(252		)	(546		)
Total loans, excluding covered assets(4)	10,288,027			107,611		4.10	%	9,538,410			104,517		4.29	%	8,595			(5,501		)	3,094
Covered assets (5)	134,601			1,301		3.80	%	197,630			1,841		3.66	%	(607		)	67			(540		)
Total interest-earning assets (3)	13,154,557			$	124,395	3.71	%	12,420,769			$	122,757	3.88	%	$	9,690		$	(8,052	)	$	1,638
Cash and due from banks	149,953							144,442
Allowance for loan and covered loan losses	(177,274		)					(201,136		)
Other assets	525,426							696,676
Total assets	$	13,652,662						$	13,060,751
Liabilities and Equity:
Interest-bearing demand deposits	$	1,360,664		$	1,032	0.30	%	$	895,825		$	958	0.43	%	$	405		$	(331	)	$	74
Savings deposits	251,299			148		0.23	%	226,355			163		0.29	%	17			(32		)	(15		)
Money market accounts	4,369,938			3,747		0.34	%	4,014,467			4,043		0.40	%	338			(634		)	(296		)
Time deposits	1,491,652			3,814		1.01	%	1,450,904			4,108		1.13	%	113			(407		)	(294		)
Brokered time deposits	1,255,850			1,200		0.38	%	1,406,748			1,752		0.50	%	(174		)	(378		)	(552		)
Total interest-bearing deposits	8,729,403			9,941		0.45	%	7,994,299			11,024		0.55	%	699			(1,782		)	(1,083		)
Short-term and secured borrowings	118,995			161		0.53	%	36,967			101		1.06	%	132			(72		)	60
Long-term debt	499,793			7,640		6.08	%	374,793			5,495		5.82	%	1,902			243			2,145
Total interest-bearing liabilities	9,348,191			17,742		0.75	%	8,406,059			16,620		0.79	%	2,733			(1,611		)	1,122
Noninterest-bearing demand deposits	2,899,125							3,124,473
Other liabilities	147,805							173,975
Equity	1,257,541							1,356,244
Total liabilities and equity	$	13,652,662						$	13,060,751
Net interest spread (3)						2.96	%						3.09	%
Contribution of noninterest-bearing sources of funds						0.22	%						0.26	%
Net interest income/margin (3)				106,653		3.18	%				106,137		3.35	%	$	6,957		$	(6,441	)	$	516
Less: tax equivalent adjustment				818							729
Net interest income, as reported				$	105,835						$	105,408

(footnotes on following page)

63

Table 2 Net Interest Income and Margin Analysis (Continued) (Dollars in thousands)
	Quarterly Net Interest Margin Trend
	2013						2012
	Third		Second		First		Fourth		Third		Second		First
Yield on interest-earning assets (3)	3.71	%	3.77	%	3.75	%	3.71	%	3.88	%	3.99	%	4.07	%
Cost of interest-bearing liabilities	0.75	%	0.78	%	0.80	%	0.83	%	0.79	%	0.78	%	0.81	%
Net interest spread (3)	2.96	%	2.99	%	2.95	%	2.88	%	3.09	%	3.21	%	3.26	%
Contribution of noninterest-bearing sources of funds	0.22	%	0.23	%	0.24	%	0.28	%	0.26	%	0.25	%	0.27	%
Net interest margin (3)	3.18	%	3.22	%	3.19	%	3.16	%	3.35	%	3.46	%	3.53	%

⁽¹⁾  For purposes of this table, changes which are not due solely to volume changes or rate changes are allocated to such categories in proportion to the absolute amounts of the change in each.

⁽²⁾  Interest income included $5.9 million and $6.5 million in loan fees for the quarters ended September 30, 2013 and 2012, respectively.

⁽³⁾  Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%.

⁽⁴⁾  Average loans on a nonaccrual basis for the recognition of interest income totaled $118.8 million and $201.6 million for the quarters ended September 30, 2013 and 2012, respectively, and are included in loans for purposes of this analysis. Interest foregone on impaired loans was estimated to be approximately $1.2 million and $2.1 million for the quarters ended September 30, 2013 and 2012, respectively, and was based on the average loan portfolio yield for the respective period.

⁽⁵⁾  Covered interest-earning assets consist of loans acquired through a Federal Deposit Insurance Corporation ("FDIC") assisted transaction that are subject to a loss share agreement and the related indemnification asset. Refer to the section entitled "Covered Assets" for a detailed discussion.

Net interest income on a tax-equivalent basis was comparable to the third quarter of the previous year. Interest income for the third quarter 2013increased$1.6 million compared to the same period a year ago primarily due to $3.1 million in higher interest income on loans as average loan balances increased $749.6 million and was offset by $1.3 million in declining interest income from securities and covered assets. The increase in interest income was offset by a $1.1 million increase in interest expense resulting primarily from $2.2 million in new interest expense on $125.0 million of subordinated debt issued in October 2012 in connection with our repayment of TARP and a $1.1 million decline in interest-bearing deposits costs.

As shown in the table above, average interest-earning assets grew $733.8 million largely driven by an $882.8 million increase in average commercial loan balances from the prior year period. The mix of our loan portfolio continued to shift toward commercial loans, which generally provide higher yields than our current commercial real estate lending. In comparison, average commercial real estate loans declined by $142.0 million from third quarter 2012. Average interest-bearing deposits grew $735.1 million from the prior year period reflecting growth in client deposits. Average short-term debt was $82.0 million greater than the prior year period as short-term FHLB advances increased, and average long-term debt increased $125.0 million due to the subordinated debt issuance mentioned above.

Net interest margin was 3.18% for the third quarter 2013, down 17 basis points from 3.35% for the third quarter 2012. Lower yields on loans, driven by competitive pricing pressures and the low interest rate environment, and on securities reduced net interest margin as compared to the prior year quarter. Our cost of interest-bearing funds declined $1.1 million, or 10 basis points, compared to the third quarter 2012. While lower interest rates were paid on interest-bearing deposits, interest rates on long-term borrowings increased as compared to the prior year period primarily due to the subordinated debt issuance. Average noninterest-bearing deposits and average equity, our principal sources of noninterest-bearing funds, declined in total by $324.1 million from third quarter 2012. As shown in the table above, the effect of noninterest-bearing funds on net interest margin was four basis points lower than in the year ago period.

On a sequential quarter basis, net interest margin for third quarter 2013 of 3.18%decreasedfour basis points from 3.22% for second quarter 2013. The decline in net interest margin was impacted by an 8 basis point reduction in loan yields, primarily driven by competitive pricing pressures on commercial loans renewing during the quarter. Also contributing to the decline was a 6 basis point reduction in yields on investment securities with the rate of decline at its lowest level since first quarter 2012 due to slowing premium amortization and higher reinvestment yields. Net interest margin for the third quarter 2013 benefited from a 3 basis point overall reduction in the cost of interest-bearing liabilities, due to declines in the costs of short-term FHLB advances and secured borrowings, as well as a 1 basis point decline in interest-bearing deposit costs compared to the prior quarter.

64

Variably priced loans comprise approximately 95% of our total loan portfolio, with 64% indexed to one-month LIBOR, which fell from 19.5 basis points to 17.9 basis points during the quarter. We expect our net interest margin to benefit when short-term interest rates rise.

In the continued low rate environment, competition remains strong which has influenced pricing. In recent quarters, this has led to net interest margin compression. Our strategy is to maintain a selective and disciplined approach to negotiating new credit opportunities, while focusing on long-term client relationships. Given the current environment, we anticipate continuing loan yield compression and uneven loan growth throughout the year. We do not anticipate significant benefit to net interest margin in the near term from downward repricing of deposits.

65

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Table 3

Net Interest Income and Margin Analysis

(Dollars in thousands)

	Nine Months Ended September 30,														Attribution of Change in
	2013							2012							Net Interest Income (1)
	Average Balance			Interest (2)		Yield/ Rate (%)		Average Balance			Interest (2)		Yield/ Rate (%)		Volume			Yield/ Rate			Total
Assets:
Federal funds sold and interest-bearing deposits in banks	$	231,406		$	431	0.25	%	$	266,506		$	513	0.25	%	$	(66	)	$	(16	)	$	(82	)
Securities:
Taxable	2,174,168			38,272		2.35	%	2,072,080			43,888		2.82	%	2,080			(7,696		)	(5,616		)
Tax-exempt (3)	238,470			7,003		3.92	%	170,887			6,134		4.79	%	2,124			(1,255		)	869
Total securities	2,412,638			45,275		2.50	%	2,242,967			50,022		2.97	%	4,204			(8,951		)	(4,747		)
FHLB stock	35,472			213		0.79	%	42,525			379		1.17	%	(56		)	(110		)	(166		)
Loans, excluding covered assets:
Commercial	6,667,420			220,836		4.37	%	5,700,937			198,156		4.57	%	32,356			(9,676		)	22,680
Commercial real estate	2,551,924			72,779		3.76	%	2,674,118			83,225		4.09	%	(3,691		)	(6,755		)	(10,446		)
Construction	202,782			6,308		4.10	%	208,777			5,806		3.65	%	(171		)	673			502
Residential	387,924			10,868		3.74	%	347,036			10,988		4.22	%	1,220			(1,340		)	(120		)
Personal and home equity	376,130			9,175		3.26	%	407,455			10,881		3.57	%	(803		)	(903		)	(1,706		)
Total loans, excluding covered assets (4)	10,186,180			319,966		4.15	%	9,338,323			309,056		4.35	%	28,911			(18,001		)	10,910
Covered assets (5)	148,129			3,140		2.81	%	233,213			5,983		3.39	%	(1,926		)	(917		)	(2,843		)
Total interest-earning assets (3)	13,013,825			$	369,025	3.75	%	12,123,534			$	365,953	3.98	%	$	31,067		$	(27,995	)	$	3,072
Cash and due from banks	145,633							144,614
Allowance for loan and covered loan losses	(182,425		)					(214,619		)
Other assets	583,003							702,724
Total assets	$	13,560,036						$	12,756,253
Liabilities and Equity:
Interest-bearing demand deposits	$	1,292,254		$	3,181	0.33	%	$	782,565		$	2,393	0.41	%	$	1,325		$	(537	)	$	788
Savings deposits	257,428			439		0.23	%	223,290			480		0.29	%	67			(108		)	(41		)
Money market accounts	4,439,484			11,742		0.35	%	4,044,872			12,593		0.42	%	1,156			(2,007		)	(851		)
Time deposits	1,503,862			11,523		1.02	%	1,381,779			11,903		1.15	%	1,000			(1,380		)	(380		)
Brokered deposits	1,137,301			3,576		0.42	%	1,200,763			4,368		0.49	%	(222		)	(570		)	(792		)
Total interest-bearing deposits	8,630,329			30,461		0.47	%	7,633,269			31,737		0.56	%	3,326			(4,602		)	(1,276		)
Short-term borrowings	128,426			689		0.71	%	183,778			366		0.26	%	(138		)	461			323
Long-term debt	499,793			22,861		6.06	%	378,005			16,611		5.79	%	5,546			704			6,250
Total interest-bearing liabilities	9,258,548			54,011		0.78	%	8,195,052			48,714		0.79	%	8,734			(3,437		)	5,297
Noninterest-bearing deposits	2,906,584							3,058,559
Other liabilities	149,690							167,972
Equity	1,245,214							1,334,670
Total liabilities and equity	$	13,560,036						$	12,756,253
Net interest spread (3)						2.97	%						3.19	%
Contribution of noninterest-bearing sources of funds						0.22	%						0.25	%
Net interest income/margin (3)				$	315,014	3.19	%				$	317,239	3.44	%	$	22,333		$	(24,558	)	$	(2,225	)
Less: tax equivalent adjustment				2,407							2,109
Net interest income, as reported				$	312,607						$	315,130

(footnotes on following page)

66

⁽¹⁾  For purposes of this table, changes which are not due solely to volume changes or rate changes are allocated to such categories in proportion to the absolute amounts of the change in each.

⁽²⁾  Interest income included $17.3 million and $20.0 million in loan fees for the nine months ended September 30, 2013 and 2012, respectively.

⁽³⁾  Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%.

⁽⁴⁾  Average loans on a nonaccrual basis totaled $127.4 million and $228.0 million for the nine months ended September 30, 2013 and 2012, respectively, and are included in loans for purposes of this analysis. Interest foregone on nonperforming loans was estimated to be approximately $3.8 million and $7.2 million for the nine months ended September 30, 2013 and 2012, respectively, based on the average loan portfolio yield for the respective period.

⁽⁵⁾  Covered interest-earning assets consist of loans acquired through a FDIC-assisted transaction that are subject to a loss share agreement and the related indemnification asset. Refer to the section entitled "Covered Assets" for a detailed discussion.

As shown in Table 3 net interest margin was 3.19% for the nine months ended September 30, 2013 and 3.44% for the nine months ended September 30, 2012. Tax-equivalent net interest income declined$2.2 million to $315.0 million for the nine months ended September 30, 2013 from $317.2 million for the prior year period. The year-over-year decline in net interest income was primarily attributable to the $6.5 million change in subordinated debt attributable to the issuance in October 2012. The benefit provided by the $1.0 billion in growth in average securities and loans was offset by lower yields on securities and loans combined with less interest income earned on the covered asset portfolio primarily due to reduced loan balances.

Provision for loan losses

The provision for loan losses, excluding the provision for covered loans, totaled $7.8 million for the quarter ended September 30, 2013, down from $13.2 million for the same period in 2012. For the nine months ended September 30, 2013, the provision for loan losses declined by 55%, totaling $26.3 million compared to $58.3 million for the same period in 2012. The provision for loan losses is a function of our allowance for loan loss methodology used to determine the allowance deemed adequate to cover inherent loan losses after net charge-offs have been deducted. The current period provision benefited from continuing improvement in overall credit metrics and the reduced requirement for specific reserves on a smaller population of impaired loans. Impaired loans were $145.6 million at September 30, 2013, down 39% from $238.3 million at September 30, 2012. In addition, the current period provision benefited from lower charge-offs. Net charge-offs totaled $10.5 million in the third quarter 2013, down 49% compared to $20.7 million for the same period in 2012. For the nine months ended September 30, 2013 net charge-offs declined nearly 50%, totaling $42.2 million compared to $83.0 million for the same period in 2012. For further analysis and information on how we determine the appropriate level for the allowance for loan losses and analysis of credit quality, see "Critical Accounting Policies" and "Credit Quality Management and Allowance for Loan Losses."

Provision for covered loan losses

For the quarter ended September 30, 2013, the provision for covered loan losses related to the loans purchased under the FDIC-assisted transaction loss share agreement totaled $323,000, compared to $268,000 for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the provision for covered loan losses was $1.1 million, compared to a release of $31,000 of our allowance for covered loan losses for the prior year period. The provision for covered loan losses represents the 20% portion of expected losses on covered loans that would not be subject to reimbursement by the FDIC. For further information regarding the FDIC-assisted transaction, see "Covered Assets."

67

Non-interest Income

Non-interest income is derived from a number of sources related to our banking activities, including mortgage banking income, fees from our Trust and Investments business, the sale of derivative products to clients through our capital markets group, treasury management fees, loan and credit-related fees and syndication fees. The following table presents a break-out of these multiple sources of revenue.

Table 4

Non-interest Income Analysis

(Dollars in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013		2012			% Change	2013		2012			% Change
Trust and investments	$	4,570	$	4,254		7	$	13,764	$	12,785		8
Mortgage banking	2,946		3,685			-20	10,314		9,263			11
Capital markets products	3,921		5,832			-33	15,008		19,214			-22
Treasury management	6,214		5,490			13	18,347		15,904			15
Loan, letter of credit and commitment fees	4,384		4,779			-8	12,743		13,502			-6
Syndication fees	4,322		2,700			60	11,294		6,876			64
Deposit service charges and fees and other income	1,298		1,308			-1	4,885		4,439			10
Subtotal fee revenue	27,655		28,048			-1	86,355		81,983			5
Net securities gains (losses)	118		(211		)	-156	895		(396		)	-326
Total non-interest income	$	27,773	$	27,837		*	$	87,250	$	81,587		7

* Less than 1%

Third quarter2013 compared to third quarter 2012

Non-interest income of $27.8 million and fee revenue of $27.7 million for third quarter2013 were comparable to third quarter 2012 levels with growth in trust and investments, treasury management, and syndications offset by declines in mortgage banking revenue, capital markets revenue, and loan related fees.

Trust and investment fee revenue increased by $316,000, or 7%, from third quarter 2012 due to higher levels of managed and core custody assets under management driven by new client relationships and market appreciation. The pricing on trust and investment accounts varies depending on the type of services provided. Fees earned on "qualified custodian" and escrow accounts are typically flat fees. They are significantly lower than fees recognized on standard custody and managed assets, which are generally based on a percentage of the market value of the assets on the last day of the prior quarter or month and are therefore subject to fluctuations with market changes. Assets under management and administration (“AUMA”) grew by 11% to $5.6 billion at September 30, 2013 compared to a year ago.

Revenue from our mortgage banking business, which includes gains on loans sold and certain mortgage related loan fees, declined to $2.9 million, compared to $3.7 million for third quarter 2012. The current quarter decline is due to tighter spreads on a lower volume of loan sales in the current quarter compared to the prior year comparative period. In addition, application volumes are down in the current quarter compared to a year ago comparative period as demand for refinancings have slowed consistent with the industry. We sold $137.8 million of mortgage loans in the secondary market, generating gains of $2.5 million, in third quarter 2013 compared to $140.7 million of mortgage loans sold, generating gains of $3.1 million, in the prior year period. Purchase activity continued to increase during third quarter 2013, while refinancing activity declined compared to the second quarter 2013. The rise in longer-term interest rates will likely negatively impact refinance activity and application volumes.

Capital markets products income was $3.9 million for third quarter 2013 and $5.8 million for third quarter2012 and included a negative$521,000 CVA in the current quarter compared to a positive CVA of $5,000 for the third quarter2012. The CVA represents the credit component of fair value with regard to both client-based derivatives and the related matched derivatives with interbank dealer counterparties. Exclusive of CVA, capital markets products income declined$1.4 million, or 24%, compared to third quarter2012. The current period decline was attributable to a change in the mix in the type of transactions and a lower level of loan origination-related swap activity compared to the prior year quarter. Our capital markets business opportunities are sensitive to our clients' outlook on short-term interest rates.

68

Treasury management income increased $724,000, or 13%, from third quarter2012. Revenue growth for these services is closely correlated with the acquisition of new middle market lending clients, though often subject to a three-to-six month implementation lag. The increase reflects the on-boarding of new clients as a result of ongoing cross-selling of treasury management services to new and existing commercial clients and, to a lesser extent, a decrease in our earnings credit rate (the rate applied to balances maintained in the client's deposit account to offset activity charges) in the latter part of 2012. Treasury management fees are also impacted by client choices regarding whether they pay the fees directly or through account analysis (i.e. earnings credit rate on the client's balances). During the first quarter 2013, certain clients changed their payment method, contributing to the increase.

Loan, letter of credit, and commitment fees declined$395,000, or 8%, from third quarter2012, due to lower levels of standby letter of credit and unused commitment fees. The majority of our unused commitment fees related to revolving facilities, which at September 30, 2013 totaled $7.3 billion, of which $3.9 billion were unused. In comparison, at September 30, 2012, commitments related to revolving facilities totaled $6.9 billion, of which $3.9 billion were unused.

Syndication fees increased$1.6 million or 60% from third quarter2012. During the third quarter2013, we participated in 16 syndicated loan transactions, 11 of which we led or co-led, representing $654.8 million in total commitments ($224 million of which we retained), resulting in $3.2 million of syndication fee revenue. Syndication fees tend to fluctuate period to period depending on market conditions, loan origination trends, and portfolio management decisions.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Non-interest income for the nine months ended September 30, 2013 totaled $87.3 million, increasing7% compared to $81.6 million in the nine months ended September 30, 2012, with growth in all major fee revenue categories excluding capital markets and loan, letter of credit and commitment fees. As compared to the nine months ended September 30, 2012, fee revenue increased$4.4 million, or 5%, to $86.4 million.

Trust and investment fee revenue increased8% for the nine months ended September 30, 2013 compared to the previous year like period due to growth in AUMA, improved market performance, new client relationships (which helped increase managed assets), and an increase to core custodial assets as compared to the prior year period, which offset the impact of the reduction in AUMA at the Bank's investment management subsidiary following the departure of two relationship managers in second quarter 2012.

Revenue from our mortgage banking business increased11% to $10.3 million in the current year to date period, compared to $9.3 million in the previous year like period. The current year increase resulted from the completion of a higher volume of loan sales related to the peak application period in late 2012, driven by the low interest rate environment compared to the first nine months in 2012. We sold $439.3 million of mortgage loans in the secondary market, generating gains of $8.7 million, in the nine months ended September 30, 2013 compared to $375.4 million of mortgage loans sold, generating gains of $8.1 million, for the prior year period.

Capital markets income declined$4.2 million in the current year to date period compared to the previous year like period and included a positive$1.6 million CVA in 2013 compared to a negative CVA of $806,000 for the like period in 2012. Exclusive of CVA adjustments, year-over-year capital markets income declined by $6.6 million, or 33%, to $13.4 million in the current period compared to $20.0 million in the nine months ended September 30, 2012. The current period decline was attributable to fewer transactions, a change in the mix of the type of transactions, and a lower level of loan origination-related swap activity as compared to the prior year period.

Treasury management income increased$2.4 million, or 15%, compared to the nine months ended September 30, 2012. The current year increase reflected the on-boarding of new clients as a result of ongoing success in cross-selling treasury management services to new commercial clients, and, to a lesser extent, a decrease in our earnings credit rate in the latter part of 2012.

Loan, letter of credit, and commitment fees declined$759,000, or 6%, from the nine months ended September 30, 2012, due to lower levels of standby letter of credit and unused commitment fees compared to the prior year period.

Syndication fees increased$4.4 million, or 64%, from the nine months ended September 30, 2012. The increase is attributable to a greater amount of fees recognized in the 2013 period on a higher volume of transactions and improved pricing from both planned and opportunistic transactions related to the high level of fourth quarter 2012 loan origination activity and deals in the first nine months of 2013.

Deposit service charges and fees and other income increased$446,000, or 10%, for the nine months ended September 30, 2013 compared to the prior year period, due to the recognition of a $1.1 million gain on loan disposition recognized in the first quarter

69

2013, offset by lower NSF fees, card-based interchange fees attributable to new fee limits provided for under the Dodd-Frank Act and BOLI income due to lower investment yields.

Non-interest Expense

Table 5

Non-interest Expense Analysis

(Dollars in thousands)

	Quarters Ended September 30,							Nine Months Ended September 30,
	2013			2012			% Change	2013			2012			% Change
Compensation expense:
Salaries and wages	$	23,639		$	24,373		-3	$	71,051		$	71,275		*
Share-based costs	3,261			5,181			-37	9,360			14,990			-38
Incentive compensation, retirement costs and other employee benefits	14,460			15,266			-5	43,943			43,430			1
Total compensation expense	41,360			44,820			-8	124,354			129,695			-4
Net occupancy expense	7,558			7,477			1	22,479			22,809			-1
Technology and related costs	3,343			3,432			-3	10,283			10,001			3
Marketing	2,986			2,645			13	8,998			7,863			14
Professional services	2,465			2,151			15	6,146			6,355			-3
Outsourced servicing costs	1,607			1,802			-11	5,205			5,605			-7
Net foreclosed property expense	4,396			8,596			-49	16,594			28,725			-42
Postage, telephone, and delivery	852			837			2	2,676			2,588			3
Insurance	2,590			3,352			-23	7,933			11,896			-33
Loan and collection	1,345			3,329			-60	6,402			9,404			-32
Other expenses	2,767			3,289			-16	16,417			10,876			51
Total non-interest expense	$	71,269		$	81,730		-13	$	227,487		$	245,817		-7
Full-time equivalent ("FTE") employees at period end	1,114			1,116			*
Operating efficiency ratios:
Non-interest expense to average assets	2.07		%	2.49		%		2.25		%	2.58		%
Net overhead ratio (1)	1.26		%	1.64		%		1.39		%	1.73		%
Efficiency ratio (2)	53.02		%	61.00		%		56.55		%	61.64		%

* Less than 1%

⁽¹⁾  Computed as non-interest expense, less non-interest income, annualized, divided by average total assets.

⁽²⁾  Computed as non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio is presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. See Table 32, "Non-U.S. GAAP Financial Measures," for a reconciliation of the effect of the tax-equivalent adjustment.

Third quarter2013 compared to third quarter 2012

Non-interest expense declined by $10.5 million, or 13%, for third quarter 2013 as compared to third quarter2012 and was driven by reductions in net foreclosed property expense, share-based costs, and loan and collection expense.

Compensation expense declined overall by $3.5 million, or 8%, from third quarter2012, due to a decline in share-based costs. Share-based costs declined by $1.9 million, or 37%, from third quarter2012 due primarily to certain share-based compensation awards made in 2007 and 2008 that were fully amortized in December 2012. The awards were made in connection with numerous new hires of key employees as part of our strategic transformation that we initiated in 2007. Expenses relating to such awards were $2.5 million in the third quarter 2012. The related reduction in share-based costs in the third quarter 2013 was partially offset by $1.1 million additional expense recognition relating to equity awards granted in February 2013 as part of the Company's 2012

70

annual incentive and 2013 long-term incentive programs. Additionally contributing to the decrease in compensation expense is a decrease in employee incentives of $1.1 million.

Marketing expenses increased$341,000, or 13%, compared to third quarter2012 as a result of our new advertising and branding campaign in 2013.

Professional services expense, which includes fees paid for legal, accounting, and consulting services, increased$314,000, or 15%, from third quarter2012, due to the increase in consulting and implementation of Dodd Frank related requirements.

Net foreclosed property expense, which includes write-downs on foreclosed properties, gains and losses on sales of foreclosed properties, and property ownership costs associated with the maintenance of OREO, declined$4.2 million, or 49%, compared to third quarter2012. The current quarter decrease was primarily due to a $2.7 million reduction in net losses on sales of OREO from the prior year quarter and a $511,000 reduction in OREO write-downs. Net gains on sale were $1.8 million on $17.1 million of OREO sold in third quarter 2013, as compared to net losses of $967,000 on $9.0 million of OREO sold in third quarter2012. In addition, property ownership costs, such as property management and real estate taxes, were down $1.2 million from the prior year quarter as the population of OREO had declined from $97.8 million at September 30, 2012 to $35.3 million at September 30, 2013. We anticipate that further liquidation of OREO will lead to further reductions in net foreclosed property expense. Refer to the "Foreclosed Real Estate" discussion in the "Loan Portfolio and Credit Quality" section below for more information regarding our OREO portfolio and valuation process.

Insurance expense declined$762,000, or 23%, from third quarter2012 primarily due to lower FDIC deposit insurance premiums reflecting improving credit quality metrics and an increase of deposits in our funding mix compared to levels at September 30, 2012, resulting in lower current quarter assessments.

Loan and collection expense, which consists of certain non-reimbursable costs associated with loan origination and servicing activities and loan remediation costs of problem loans, declined$2.0 million, or 60%, from third quarter2012. The decline was primarily due to $1.5 million in lower non-workout related loan costs from reduced volumes of mortgage activity coupled with heightened expense management of credit-related costs on new and renewed loans. For third quarter 2013, non-workout related loan costs represented 60% of total loan and collection expense, compared to 75% for the prior year period. Workout related costs declined $527,000 as the level of problem loans declined.

Other expenses declined $522,000, or 16%, from third quarter2012. Other expenses include bank charges, costs associated with the CDARS^® product offering, intangible asset amortization, education-related costs, subscriptions, provision for unfunded commitments, and miscellaneous losses and expenses. The decline was primarily related to a $1.3 million reduction of the unfunded commitments reserve that was previously provided for in the first quarter 2013 and related to a specific credit.

Our efficiency ratio was 53.0% for third quarter 2013, improving from 61.0% for third quarter2012, reflecting steady revenue and lower non-interest expenses.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Non-interest expense declined $18.3 million, or 7%, for the nine months ended September 30, 2013 compared to the prior year period, due to declines in net foreclosed property expense, share-based costs, deposit insurance expenses and loan and collection expense and were partially offset by certain non-recurring charges included in other expense.

Compensation expense declined overall by $5.3 million, or 4%, from the prior year period, benefiting from a decline in share-based costs. Share-based costs declined$5.6 million, or 38%, primarily due to certain share-based compensation awards made in 2007 and 2008 that were fully amortized in December 2012. Expenses relating to such awards were $7.4 million for the nine months ended September 30, 2012. The related reduction in share-based costs in the first half of 2013 was partially offset by $2.8 million in additional expense recognition relating to equity awards granted in February 2013 as part of the Company's 2012 annual incentive and 2013 long-term incentive programs. Incentive compensation, retirement costs and other employee benefits were up by $513,000, or 1%, compared to the nine months ended September 30, 2012, principally due to higher incentive compensation related to improved Company performance and the inclusion of certain executives in the incentive program which were restricted in the prior year due to TARP incentive limitations.

Marketing expense increased$1.1 million, or 14%, for the nine months ended September 30, 2013 compared to the prior year period, due largely to our new advertising program to raise our corporate profile in 2013, as well as higher client development costs.

71

Net foreclosed property expenses declined $12.1 million, or 42%, compared to the prior year period. The decline in net foreclosed property expenses was primarily due to $3.7 million in lower OREO valuation write-downs compared to the prior year period, as well as a decline in net loss on OREO sales. In addition, property ownership costs, such as property management and real estate taxes, were down $1.8 million from the prior year period. Finally, net gains on sales of OREO was $1.7 million on properties with a net book value of $40.9 million for the nine months ended September 30, 2013, compared to net losses of $4.0 million on properties with a net book value of $34.7 million for the nine months ended September 30, 2012.

Insurance costs declined$4.0 million, or 33%, for the nine months ended September 30, 2013 compared to the prior year period and was primarily due to lower FDIC deposit insurance premiums reflecting improved credit quality metrics and an increase of deposits in our funding mix compared to levels at September 30, 2012, resulting in lower current year assessments. Also included in insurance costs for the nine months ended September 30, 2013 were $960,000 in refunds on previously paid deposit insurance assessments due to clarification of deposit classification rules under the assessment model.

Loan and collection expense declined $3.0 million, or 32%, from the nine months ended September 30, 2013. The decline was primarily due to lower costs related to a lower level of problem loans.

Other expenses increased$5.5 million, or 51%, for the nine months ended September 30, 2013 compared to the prior year period largely due to several non-recurring charges that were incurred during the first nine months of 2013, including $2.0 million in restructuring cost, $1.0 million charge on repurchased loans and $457,000 in franchise taxes that had a tax benefit of $300,000 for the first nine months of 2012. Other expenses for the nine months ended September 30, 2013 also included $749,000 in losses related to our CRA investments and $844,000 in provision for unfunded commitments.

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. For the quarter ended September 30, 2013, we recorded an income tax provision of $21.2 million on pre-tax income of $54.2 million (equal to a 39.0% effective tax rate) compared to an income tax provision of $15.0 million on pre-tax income of $38.0 million for the quarter ended September 30, 2012 (equal to a 39.3% effective tax rate).

For the nine months ended September 30, 2013, income tax expense totaled $55.8 million on pre-tax income of $145.1 million (equal to a 38.5% effective tax rate) compared to an income tax provision of $37.8 million on pre-tax income of $92.7 million for the nine months ended September 30, 2012 (equal to a 40.8% effective tax rate).

The decrease in our effective tax rate in the third quarter 2013 compared to the third quarter of 2012 was primarily due to the restoration of tax benefits for executive compensation subsequent to the repayment of TARP.

The decrease in our effective tax rate for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily due to the restoration of tax benefits for executive compensation subsequent to the repayment of TARP, the substantially greater amount of charges in the 2012 period associated with share-based compensation and the negative impact in the 2012 periods of changes in state effective tax rates.

Net deferred tax assets totaled $94.6 million at September 30, 2013. We have concluded that it is more likely than not that the deferred tax assets will be realized and no valuation allowance was recorded. This conclusion was based in part on the fact that the Company has cumulative book income for financial statement purposes at September 30, 2013, measured on a trailing three-year basis. In addition, we considered the Company's recent earnings history, on both a book and tax basis, and our outlook for earnings and taxable income in future periods.

At September 30, 2013, we had approximately $14.4 million of deferred tax assets that relate to equity compensation awards, including both unexercised stock options and unvested restricted shares. In certain cases, the deferred tax assets may not be fully realized in future periods primarily due to stock price valuation. Currently, a substantial number of our stock options are "out of the money" with an exercise price above our current stock price. Depending in part on changes in our stock price, we could incur tax charges at the expiration date of the options or prior to that time if employees terminate and "out-of-the money" options expire, or in certain instances, when employees exercise options. In the case of restricted shares, the tax benefits will not be fully realized if the fair market value of the awards on the vesting/release date is less than the value of the awards on the grant date.

In such circumstances where there is a "shortfall" in tax benefits on the exercise, vesting or expiration of an equity award, such "shortfall" amounts are charged to stockholders' equity if there is a sufficient level of "excess" tax benefits accumulated from prior periods or charged to income tax expense if there is not sufficient "excess" tax benefits accumulated. As a result of equity award transactions during the nine months ended September 30, 2013, there was an immaterial amount of charges included in income

72

tax expense. Based on our current stock price level, scheduled vesting of restricted shares and anticipated option expirations, we do not expect to incur material equity compensation "shortfall" tax charges during the balance of 2013. However, the amount of such "shortfall" charges in the fourth quarter of 2013 and subsequent periods, if any, is dependent on changes in our stock price as well as the impact of employee terminations, option exercise decisions and other factors.

For calendar year 2013, we currently expect the effective tax rate to be in the range of 38-39%, although a number of factors will continue to influence that estimate.

Operating Segments Results

We have three primary business segments: Banking, Trust and Investments, and Holding Company Activities.

Banking

Our Banking segment is the Company's most significant segment, as it represents 89% of consolidated total assets and generates nearly all of the Company's net income. The profitability of our Banking segment is dependent on net interest income, provision for loan and covered loan losses, non-interest income, and non-interest expense. The net income for the Banking segment for the quarter ended September 30, 2013 was $38.9 million, an increase of $9.3 million from net income of $29.6 million for the prior year period. The increase in net income for the Banking segment was primarily due to a $5.4 million decline in the provision for loan and covered loan losses from the prior period, largely driven by improvements in credit quality metrics. Also contributing to the increase in net income was the decline in non-operating expense, including a $1.0 million decline in share-based costs and $762,000 decrease in insurance costs primarily due to lower FDIC deposit insurance premiums reflecting improving credit quality metrics.

Total loans for the Banking segment were $10.4 billion and $10.1 billion at September 30, 2013 and December 31, 2012, respectively. Total deposits declined from December 31, 2012 levels of $12.3 billion to $11.9 billion at September 30, 2013.

Trust and Investments

The Trust and Investments segment includes investment management, personal trust and estate administration, custodial and escrow, retirement account administration, and brokerage services. Lodestar Investment Counsel, LLC ("Lodestar"), an investment management firm and wholly-owned subsidiary of the Bank, is included in our Trust and Investments segment.

Net income from Trust and Investments increased to $659,000 for third quarter 2013 from $533,000 for the prior year period. The increase in net income from 2012 to 2013 is primarily attributable to a $315,000 increased in non-interest income largely due to continued client acquisition and growth in AUMA. Overall stock market improvements also contributed to asset growth leading to increased asset-based fees. AUMA grew to $5.6 billion at September 30, 2013 from $5.2 billion at December 31, 2012 primarily due to new client relationships and improved market performance during the nine months ended September 30, 2013.

Holding Company Activities

The Holding Company Activities segment consists of parent company-only activity and intersegment eliminations. The Holding Company’s most significant asset is its investment in its bank subsidiary. Undistributed earnings relating to this investment is not included in the Holding Company financial results. Holding Company financial results are represented primarily by interest expense on borrowings and operating expenses. Recurring operating expenses consist primarily of compensation expense allocated to the Holding Company and professional fees. The Holding Company Activities segment reported a net loss of $6.5 million for the quarter ended September 30, 2013, compared to a net loss of $7.1 million for the prior year period. The lower net loss in the third quarter 2013 as compared to the prior year period was the result of a $2.9 million decline in share-based costs, partially offset by a $2.2 million increase in interest expense, due to subordinated debt issued in October 2012.

Additional information about our operating segments are also discussed in Note 17 of "Notes to Consolidated Financial Statements" in Item 1 of this Form 10-Q.

73

FINANCIAL CONDITION

Investment Portfolio Management

We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to attempt to serve as some protection of net interest income levels against the impact of changes in interest rates.

We may adjust the size and composition of our securities portfolio according to a number of factors, including expected liquidity needs, the current and forecasted interest rate environment, our actual and anticipated balance sheet growth rate, the relative value of various segments of the securities markets, and the broader economic and regulatory environment.

Investments are comprised of debt securities. Our debt securities portfolio is primarily comprised of U.S Treasury and Agency securities, residential and commercial mortgage-backed pools, collateralized mortgage obligations, and state and municipal bonds.

Debt securities that are classified as available-for-sale are carried at fair value and may be sold as part of our asset/liability management strategy in response to changes in interest rates, liquidity needs or significant prepayment risk. Unrealized gains and losses on available-for-sale securities represent the difference between the aggregated cost and fair value of the portfolio and are reported, on an after-tax basis, as a separate component of equity in accumulated other comprehensive income ("AOCI"). This balance sheet component will fluctuate as current market interest rates and conditions change, with such changes affecting the aggregate fair value of the portfolio. In periods of significant market volatility we may experience significant changes in AOCI. AOCI is not currently included in the calculation of regulatory capital but its inclusion is contemplated in the proposed changes in capital standards.

Debt securities that are classified as held-to-maturity are securities that we have the ability and intent to hold until maturity and are accounted for using historical cost, adjusted for amortization of premiums and accretion of discounts.

Table 6

Investment Securities Portfolio Valuation Summary

(Dollars in thousands)

	As of September 30, 2013					As of December 31, 2012
	Fair Value		Amortized Cost		% of Total	Fair Value		Amortized Cost		% of Total
Available-for-Sale
U.S. Treasury securities	$	155,674	$	157,573	6	$	115,262	$	114,252	5
U.S. Agency securities	45,946		47,521		2	—		—		—
Collateralized mortgage obligations	186,036		179,025		7	241,034		229,895		10
Residential mortgage-backed securities	948,219		924,782		38	868,322		823,191		37
State and municipal securities	274,647		270,964		11	226,042		214,174		10
Foreign sovereign debt	500		500		*	500		500		*
Total available-for-sale	1,611,022		1,580,365		64	1,451,160		1,382,012		62
Held-to-Maturity
Collateralized mortgage obligations	66,219		69,276		2	74,644		74,164		3
Residential mortgage-backed securities	706,721		712,120		28	725,448		703,419		31
Commercial mortgage-backed securities	143,604		149,482		6	86,213		85,680		4
State and municipal securities	472		464		*	469		464		*
Total held-to-maturity	917,016		931,342		36	886,774		863,727		38
Total securities	$	2,528,038	$	2,511,707	100	$	2,337,934	$	2,245,739	100

* Less than 1%

As of September 30, 2013, our securities portfolio totaled $2.5 billion, an increase from $2.3 billion at December 31, 2012. During the nine months ended September 30, 2013, purchases of securities totaled $714.4 million, with $544.7 million in the available-for-sale portfolio and $169.7 million in the held-to-maturity portfolio. The current year purchases in the investment portfolio

74

primarily represent the reinvestment of proceeds from sales, maturities and paydowns in largely similar agency guaranteed residential mortgage-backed securities, as well as purchases of commercial agency guaranteed mortgage-backed securities, U.S. Treasury and Agency securities and state and municipal securities. During the nine months ended September 30, 2013, we sold $77.1 million in U.S. Treasury securities and $2.8 million in tax-exempt municipal securities, resulting in a net securities gain of $895,000.

Investments in collateralized mortgage obligations and residential and commercial mortgage-backed securities comprised 81% of the total portfolio at September 30, 2013. All of the mortgage securities are backed by U.S. Government agencies or issued by U.S. Government-sponsored enterprises. All residential mortgage securities are composed of fixed-rate, fully-amortizing collateral with final maturities of 30 years or less.

Investments in debt instruments of state and local municipalities comprised 11% of the total portfolio at September 30, 2013. This type of security has historically experienced very low default rates and provided a predictable cash flow since it generally is not subject to significant prepayment. Insurance companies regularly provide credit enhancement to improve the credit rating and liquidity of a municipal bond issuance. Management considers the credit enhancement and underlying municipality credit strength when evaluating a purchase or sale decision.

At September 30, 2013, our reported equity reflected unrealized net securities gains on available-for-sale securities, net of tax, of $18.7 million, declining$23.5 million from December 31, 2012 due to increases in certain interest rates. We continue to add, as needed, to the held-to-maturity portfolio to mitigate the potential future AOCI volatility of adding bonds to the available-for-sale portfolio in a low interest rate environment.

The following table summarizes activity in the Company's investment securities portfolio during 2013. There were no transfers of securities between investment categories during the year.

Table 7

Investment Portfolio Activity

(Dollars in thousands)

	Quarter Ended September 30, 2013							Nine Months Ended September 30, 2013
	Available-for-Sale			Held-to-Maturity				Available-for-Sale			Held-to-Maturity
Balance at beginning of period	$	1,580,179		$	955,688			$	1,451,160		$	863,727
Additions:
Purchases	129,011			8,882				544,743			169,682
Reductions:
Sales proceeds	(27,116		)	—				(79,962		)	—
Net gains on sale	118			—				895			—
Principal maturities, prepayments and calls, net of gains	(71,873		)	(31,985		)		(258,636		)	(98,139		)
Amortization of premiums and accretion of discounts	(2,963		)	(1,243		)		(8,687		)	(3,928		)
Total reductions	(101,834		)	(33,228		)		(346,390		)	(102,067		)
Increase (decrease) in market value	3,666			—			(1)	(38,491		)	—			(1)
Balance at end of period	$	1,611,022		$	931,342			$	1,611,022		$	931,342

⁽¹⁾  The held-to-maturity portfolio is recorded at cost, with no adjustment for the decrease in market value of $30.5 million and $37.4 million for the quarter and nine months ended September 30, 2013, respectively.

75

The following table presents the maturities of the different types of investments that we owned at September 30, 2013, and the corresponding interest rates.

Table 8

Repricing Distribution and Portfolio Yields

(Dollars in thousands)

	As of September 30, 2013
	One Year or Less				One Year to Five Years				Five Years to Ten Years				After 10 years
	Amortized Cost		Yield to Maturity		Amortized Cost		Yield to Maturity		Amortized Cost		Yield to Maturity		Amortized Cost		Yield to Maturity
Available-for-Sale
U.S. Treasury securities	$	9,996	1.15	%	$	122,256	0.94	%	$	25,321	1.13	%	$	—	—	%
U.S. Agency securities	—		—	%	—		—	%	47,521		1.30	%	—		—	%
Collateralized mortgage obligations (1)	6,631		2.94	%	152,713		3.34	%	19,681		3.29	%	—		—	%
Residential mortgage-backed securities (1)	36		5.08	%	725,747		3.41	%	197,838		2.07	%	1,161		7.55	%
State and municipal securities (2)	27,990		4.45	%	105,175		2.49	%	137,398		2.00	%	401		4.13	%
Foreign sovereign debt	—		—	%	500		1.51	%	—		—	%	—		—	%
Total available-for-sale	44,653		3.49	%	1,106,391		3.04	%	427,759		1.96	%	1,562		6.67	%
Held-to-Maturity
Collateralized mortgage obligations (1)	—		—	%	69,276		1.41	%	—		—	%	—		—	%
Residential mortgage-backed securities (1)	—		—	%	558,268		2.47	%	140,972		2.11	%	12,880		2.69	%
Commercial mortgage-backed securities (1)	—		—	%	48,108		1.29	%	101,374		1.89	%	—		—	%
State and municipal securities (2)	80		2.71	%	384		3.11	%	—		—	%	—		—	%
Total held-to-maturity	80		2.71	%	676,036		2.28	%	242,346		2.02	%	12,880		2.69	%
Total securities	$	44,733	3.49	%	$	1,782,427	2.75	%	$	670,105	1.98	%	$	14,442	3.12	%

⁽¹⁾  The repricing distributions and yields to maturity of collateralized mortgage obligations and mortgage-backed securities are based on average life of expected cash flows. Actual repricings and yields of the securities may differ from those reflected in the table depending upon actual interest rates and prepayment speeds.

⁽²⁾  The maturity date of state and municipal bonds is based on contractual maturity, unless the bond, based on current market prices, is deemed to have a high probability that a call right will be exercised, in which case the call date is used as the maturity date.

LOAN PORTFOLIO AND CREDIT QUALITY (excluding covered assets)

Portfolio Composition

The following discussion of our loan portfolio and credit quality excludes covered assets. Covered assets represent assets acquired through an FDIC-assisted transaction that are subject to a loss share agreement and are presented separately on the Consolidated Statements of Financial Condition. For additional discussion of covered assets, refer to "Covered Assets" further in "Management’s Discussion and Analysis" and Note 6 of "Notes to Consolidated Financial Statements."

Total loans were $10.4 billion at September 30, 2013 compared to $10.1 billion at December 31, 2012. During the first half of 2013, total loans were relatively flat. Loans grew by $314.8 million during the third quarter 2013, with the growth primarily attributable to increased commercial and industrial loans. New client activity and increased borrowings from existing clients contributed to loan growth during the current quarter. Revolving line usage was up slightly to 46% at September 30, 2013, compared to 45% usage at December 31, 2012.

Our third quarter loan growth was strong despite the level of competition in our markets from both bank and finance companies amid continuing low loan demand. Overall loan growth from quarter-to-quarter continues to be impacted by the heightened

76

competition which is affecting both pricing and structure. Our strategy is to maintain a disciplined approach to pricing and structuring new credit opportunities. Given the competitive environment, we may experience uneven loan growth from quarter-to-quarter.

Commercial loans (including commercial owner-occupied real estate loans) increased$491.9 million, or 8%, from the prior year end. The mix of loans has continued to shift towards commercial loans, which generally provide us higher yields than other segments of our total loan portfolio and greater potential for cross-selling of other products and services. As a proportion of the loan portfolio, commercial loans were 67% at September 30, 2013, compared to 64% at December 31, 2012.

In the normal course of our business, we participate in loan transactions that involve a number of banks, primarily to maintain and build client relationships with a view to cross-selling products and originating loans for the borrowers in the future. Although we may strive to lead or co-lead the arrangement, we will also participate with other banks when we have a relationship with the borrower. Participations and syndications assist us with decreasing credit exposure linked to individual client relationships or loan concentrations by industry, type or size. Of our $10.4 billion in total loans at September 30, 2013, we were party to $1.9 billion in shared national credits ("SNCs") which transactions are typically led by larger institutions. At September 30, 2013, total syndications and participations outstanding were $3.4 billion, including SNCs, and of this total, we were the lead or co-lead on transactions with $1.5 billion outstanding at quarter end.

The following table presents the composition of our loan portfolio at the dates shown.

Table 9

Loan Portfolio

(Dollars in thousands)

	September 30, 2013		% of Total	December 31, 2012		% of Total	% Change in Balances
Commercial and industrial	$	5,384,222	52	$	4,901,210	48	10
Commercial – owner-occupied real estate	1,604,470		15	1,595,574		16	1
Total commercial	6,988,692		67	6,496,784		64	8
Commercial real estate	1,914,725		18	2,132,063		21	-10
Commercial real estate – multi-family	573,371		6	543,622		5	5
Total commercial real estate	2,488,096		24	2,675,685		26	-7
Construction	237,440		3	190,496		2	25
Total commercial real estate and construction	2,725,536		27	2,866,181		28	-5
Residential real estate	346,619		3	373,580		4	-7
Home equity	148,058		1	167,760		2	-12
Personal	200,538		2	235,677		2	-15
Total loans	$	10,409,443	100	$	10,139,982	100	3

77

The following table summarizes the composition of our commercial loan portfolio at September 30, 2013 and December 31, 2012. Our commercial loan portfolio is categorized based on our most significant industry segments, as classified pursuant to the North American Industrial Classification System standard industry description. These categories are based on the nature of the client's ongoing business activity as opposed to the collateral underlying an individual loan.

Table 10

Commercial Loan Portfolio Composition by Industry Segment

(Dollars in thousands)

	September 30, 2013						December 31, 2012
	Amount		% of Total	Amount Non- performing		% Non- performing (1)	Amount		% of Total	Amount Non- performing		% Non- performing (1)
Manufacturing	$	1,665,701	24	$	199	*	$	1,496,719	23	$	—	—
Healthcare	1,530,726		22	309		*	1,514,496		23	322		*
Wholesale trade	699,778		10	130		*	635,477		10	—		—
Finance and insurance	640,171		9	513		*	584,763		9	194		*
Real estate, rental and leasing	400,965		6	1,736		*	359,947		6	16,550		5
Professional, scientific and technical services	476,878		7	2,940		1	391,976		6	10,805		3
Administrative, support, waste management and remediation services	402,113		6	—		—	426,960		7	—		—
Architecture, engineering and construction	247,487		3	9,625		4	225,199		3	629		*
All other (2)	924,873		13	11,429		1	861,247		13	13,413		2
Total commercial (3)	$	6,988,692	100	$	26,881	*	$	6,496,784	100	$	41,913	1

⁽¹⁾  Calculated as nonperforming loans in the respective industry segment divided by total loans of the corresponding industry segment presented above.

⁽²⁾  All other consists of numerous smaller balances across a variety of industries with no category greater than 3%.

⁽³⁾  Includes owner-occupied commercial real estate of $1.6 billion at September 30, 2013 and December 31, 2012.

* Less than 1%

One of the largest segments within our commercial lending business is the healthcare industry. We have a specialized niche in the "assisted living," "skilled nursing," and residential care segment of the healthcare industry. Loan relationships to these providers tend to be larger extensions of credit and are primarily to for-profit businesses. At September 30, 2013, 22% of the commercial loan portfolio and 15% of the total loan portfolio was composed of loans extended primarily to operators in this segment to finance the working capital needs and cost of facilities providing such services. The facilities securing the loans are dependent, in part, on the receipt of payments and reimbursements under government contracts for services provided. Our clients and their ability to service debt may be adversely impacted by the financial health of state or federal payors. In recent years, there have been reductions in the reimbursement rates in certain states and certain government entities are taking longer to reimburse for services previously provided, particularly in states experiencing some budgetary stress in the current economic environment. At September 30, 2013, approximately $295 million of our healthcare portfolio related to facilities doing business in Illinois and $162 million to facilities doing business in California, two states which have experienced budgetary stress. To date, despite some impact on client cash flows, the healthcare loan portfolio segment has experienced minimal defaults and losses.

At September 30, 2013, we characterized approximately 12%, or $826.8 million of our commercial loan portfolio as cash flow loans. Cash flow loans are primarily underwritten on the recurring earnings and cash flow of the borrower with less reliance on collateral coverage; as such, in the event of default, the loss potential may be greater. Our definition of cash flow loans may differ from that of other financial institutions, and not all of our cash flow loans meet the regulatory definition of higher-risk commercial and industrial loans. Cash flow loans are spread across multiple industries with approximately 42% of the total in the manufacturing segment at September 30, 2013.

78

The following table summarizes our commercial real estate and construction loan portfolios by collateral type at September 30, 2013 and December 31, 2012.

Table 11

Commercial Real Estate and Construction Loan Portfolios by Collateral Type

(Dollars in thousands)

	September 30, 2013						December 31, 2012
	Amount		% of Total	Amount Non- performing		% Non- performing (1)	Amount		% of Total	Amount Non- performing		% Non- performing (1)
Commercial Real Estate
Land	$	207,112	8	$	36,188	17	$	240,503	9	$	19,747	8
Residential 1-4 family	40,779		2	3,405		8	58,704		2	13,213		23
Multi-family	573,371		23	2,633		*	543,622		20	6,553		1
Industrial/warehouse	256,826		10	9,035		4	272,535		10	8,902		3
Office	485,162		20	4,519		1	566,834		21	5,849		1
Retail	483,548		19	3,356		1	472,024		18	8,873		2
Healthcare	217,407		9	—		—	205,318		8	—		—
Mixed use/other	223,891		9	3,818		2	316,145		12	5,417		2
Total commercial real estate	$	2,488,096	100	$	62,954	3	$	2,675,685	100	$	68,554	3
Construction
Residential 1-4 family	$	13,014	5	$	—	—	$	14,160	7	$	—	—
Multi-family	39,173		17	—		—	36,129		19	—		—
Industrial/warehouse	21,326		9	—		—	29,633		16	—		—
Office	21,866		9	—		—	8,863		5	402		5
Retail	85,096		36	—		—	37,457		20	—		—
Healthcare	27,553		12	—		—	14,196		7	—		—
Mixed use/other	29,412		12	—		—	50,058		26	155		*
Total construction	$	237,440	100	$	—	—	$	190,496	100	$	557	*

⁽¹⁾  Calculated as nonperforming loans in the respective collateral type divided by total loans of the corresponding collateral type presented above.

* Less than 1%

Of the combined commercial real estate and construction portfolios, the three largest categories at September 30, 2013 were office real estate, retail and multi-family, which represent 19%, 21% and 22%, respectively of the combined portfolios.

Within the commercial real estate portfolio, our exposure to land loans totaled $207.1 million at September 30, 2013 and $240.5 million at December 31, 2012. Land remains an illiquid asset class as buyers and sellers may hold divergent future development outlooks for the land, therefore affecting saleability and market prices. As a percentage of the commercial real estate portfolio, land loans were 8% at September 30, 2013 and 9% at December 31, 2012.

79

Maturity and Interest Rate Sensitivity of Loan Portfolio

The following table summarizes the maturity distribution of our loan portfolio as of September 30, 2013, by category, as well as the interest rate sensitivity of loans in these categories that have maturities in excess of one year.

Table 12

Maturities and Sensitivities of Loans to Changes in Interest Rates

(Amounts in thousands)

	As of September 30, 2013
	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years		Total
Commercial	$	1,954,199	$	4,799,965	$	234,528	$	6,988,692
Commercial real estate	1,033,955		1,301,014		153,127		2,488,096
Construction	63,594		170,559		3,287		237,440
Residential real estate	11,332		15,019		320,268		346,619
Home equity	32,314		58,110		57,634		148,058
Personal	131,608		68,667		263		200,538
Total	$	3,227,002	$	6,413,334	$	769,107	$	10,409,443
Loans maturing after one year:
Predetermined (fixed) interest rates			$	193,800	$	135,515
Floating interest rates			6,219,534		633,592
Total			$	6,413,334	$	769,107

Of the $6.9 billion in loans maturing after one year with a floating interest rate, $1.4 billion are subject to interest rate floors, of which $1.3 billion have such floors in effect at September 30, 2013.

Delinquent Loans, Special Mention and Potential Problem Loans, Restructured Loans and Nonperforming Assets

Loans are reported delinquent if the required principal and interest payments have not been received within 30 days of the date such payments are due. Delinquency can be driven by either failure of the borrower to make payments within the term of the loan or failure to make the final payment at maturity. The majority of our loans are not fully amortizing over the term. As a result, a sizeable final repayment is often required at maturity. If a borrower lacks refinancing options or the ability to pay, the loan may become delinquent in connection with its maturity. Table 13 provides information on current, delinquent and nonaccrual loans by product type. Of total commercial, commercial real estate, and construction loans outstanding at September 30, 2013, $848.0 million are scheduled to mature in the fourth quarter of 2013, 97% of which were performing.

Loans considered special mention are performing in accordance with the contractual terms but demonstrate potential weakness that if left unresolved, may result in deterioration in the Company’s credit position and/or the repayment prospects for the credit. Borrowers rated special mention may exhibit adverse operating trends, high leverage, tight liquidity, or other credit concerns. These loans continue to accrue interest.

Potential problem loans, like special mention, are loans that are performing in accordance with contractual terms, but for which management has some level of concern (greater than that of special mention loans) about the ability of the borrowers to meet existing repayment terms in future periods. These loans continue to accrue interest but the ultimate collection of these loans in full is questionable due to the same conditions that characterize a special mention credit. These credits may also have somewhat increased risk profiles as a result of the current net worth and/or paying capacity of the obligor or guarantors or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize collection of the debt and are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not resolved. Although potential problem loans require additional attention by management, they may never become nonperforming.

Special mention and potential problem loans as of September 30, 2013 and December 31, 2012 are presented in Tables 14 and 19.

80

Nonperforming assets include nonperforming loans and real estate that has been acquired primarily through foreclosure proceedings and are awaiting disposition and are presented in Table 14. Nonperforming loans consist of nonaccrual loans, including restructured loans that remain on nonaccrual. We specifically exclude certain restructured loans that accrue interest from our definition of nonperforming loans.

All loans are placed on nonaccrual status when principal or interest payments become 90 days past due or earlier if management deems the collectability of the principal or interest to be in question prior to the loans becoming 90 days past due. When interest accruals are discontinued, accrued but uncollected interest is reversed, reducing interest income. Subsequent receipts on nonaccrual loans are recorded in the financial statements as a reduction of principal, and interest income is only recorded on a cash basis if the remaining recorded investment after charge-offs is deemed fully collectible. Classification of a loan as nonaccrual does not necessarily preclude the ultimate collection of loan principal and/or interest. Nonperforming loans are presented in Tables 14, 15, 16, and 19. Restructured loans that are accruing interest are also included in Table 14.

As part of our ongoing risk management practices and in certain circumstances, we may extend or modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties. The modification may consist of reduction in interest rate, extension of the maturity date, reduction in the principal balance, or other action intended to minimize potential losses and maximize our chances of a more successful recovery on a troubled loan. When we make such concessions as part of a modification, we report the loan as a TDR and account for the interest due in accordance with our TDR policy. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. The TDR is classified as an accruing TDR if the borrower has demonstrated the ability to meet the new terms of the restructuring as evidenced by a minimum of six months of performance in compliance with the restructured terms or if the borrower's performance prior to the restructuring or other significant events at the time of the restructuring supports returning or maintaining the loan on accrual status. TDRs accrue interest as long as the borrower complies with the revised terms and conditions and management is reasonably assured as to the collectability of principal and interest; otherwise, the restructured loan will be classified as nonaccrual. The TDR classification is removed when the loan is either fully repaid or is re-underwritten at market terms and an evaluation of the loan determines that it does not meet the definition of a TDR under current accounting guidance (i.e., the new terms do not represent a concession, the borrower is no longer experiencing financial difficulty, and the re-underwriting is executed at current market terms for new debt with similar risk). The composition of our restructured loans by loan category, current period activity and size stratification is presented in Tables 14, 17 and 18.

As part of our restructuring strategies, we may utilize a multiple note structure as a workout alternative for certain loans. The multiple note structure typically bifurcates a troubled loan into two separate notes, where the first note is reasonably assured of repayment and performance according to the modified terms, and the second note of the troubled loan that is not reasonably assured of repayment is charged-off.

Aside from the decision to restructure a loan, thereby increasing our outstanding TDRs, changes in the level of TDRs from period to period may be impacted by both favorable and unfavorable developments associated with the respective TDR. Favorable developments include payoffs at par, paydowns of principal earlier than expected and regular amortizing payments. In addition, certain TDRs may be subsequently re-underwritten as pass-rated credits typically due to the strengthened financial condition of the borrower, which is evidence that the borrower would no longer be considered "troubled" and, accordingly, the TDR classification is removed. Unfavorable developments include performance deterioration in the borrower's operations, which can cause the loan's classification to be changed to nonperforming and removed from the accruing TDR portfolio.

Foreclosed assets represent property acquired as the result of borrower defaults on loans secured by a mortgage on real property. Foreclosed assets are recorded at the lesser of current carrying value or estimated fair value, less estimated selling costs at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On a periodic basis, the carrying values of these properties are adjusted based upon new appraisals and/or market indications. Write-downs are recorded for subsequent declines in fair value less estimated selling costs and are included in non-interest expense along with other expenses related to maintaining the properties. Additional information on our OREO assets is presented in Tables 20 through 22.

During third quarter 2013, credit quality metrics continued to improve as nonperforming assets declined 33% from the prior year end to $148.6 million at September 30, 2013. The decline in nonperforming assets was largely attributable to sales of OREO. Nonperforming assets as a percentage of total assets were 1.07% at September 30, 2013, down from 1.57% at December 31, 2012.

Nonperforming loans totaled $113.3 million at September 30, 2013, down18% from $138.8 million at December 31, 2012. Inflows to nonperforming loans of $25.6 million in third quarter 2013 were down$548,000 from second quarter 2013 and down$13.3 million from third quarter 2012. As shown in Table 15, third quarter 2013 nonperforming loan inflows were more than offset by problem loan resolutions (paydowns, payoffs, and return to accruing status), dispositions, and charge-offs.

81

Our nonperforming loan population contains some larger-sized credits. As shown in Table 16, which provides the nonperforming loan stratification by size, five nonperforming loans in excess of $5.0 million comprised 43% of our total nonperforming loans at September 30, 2013.

OREO declined$46.6 million, or 57%, to $35.3 million from $81.9 million at December 31, 2012, as sales exceeded inflows to OREO. Refer to "Foreclosed Real Estate" below for further discussion on OREO.

During the nine months ended September 30, 2013, we used a variety of resolution strategies, including asset sales, which reduced special mention, potential problem loan and nonperforming assets from 2012 year end. Disposition activity during the nine months ended September 30, 2013 included the disposition of $78.8 million in problem assets, including $37.8 million in nonperforming loans, $418,000 in early stage problem loans, and $41.0 million in OREO. Our asset management activities, along with a slowly improving economy and some asset price stability in certain market segments, have led to declines in problem loans (which include special mention, potential problem, and nonperforming loans) of 18% from $343.5 million at December 31, 2012 to $282.1 million at September 30, 2013.

Accruing TDRs totaled $32.3 million at September 30, 2013, decreasing$28.6 million from $61.0 million at December 31, 2012. As presented in the accruing TDR rollforward at Table 17, the decline was due to paydowns and payoffs of $ 17.7 million and $14.9 million of accruing TDRs moving to nonperforming loan status during the first quarter 2013, of which $8.8 million related to a single borrower that was restructured in fourth quarter 2011.

Because our loan portfolio contains loans that may be larger in size in order to accommodate the financing needs of some of our borrowers, changes in the performance of larger credits could create volatility in our credit quality metrics, including nonperforming loans and accruing TDR loans as discussed above. In addition, credit quality trends may also be impacted by uncertainty in global economic conditions and market turmoil that could disrupt workout plans, adversely affect clients, or negatively impact collateral valuations.

We have made significant progress in reducing nonperforming assets over the past year and expect further reductions in nonperforming assets will largely come from the disposition of OREO. Our efforts to continue to dispose of nonperforming assets in future quarters may be impacted by a number of factors, including but not limited to, the pace and timing of the overall recovery of the economy, activity in the commercial and industrial transaction market, activity levels in the real estate market and real estate inventory coming into the market for sale. We continue to assess the disposition market, seeking to maximize liquidation proceeds of the individual assets sold. Losses as a percent of net book value on sales of OREO property may fluctuate or increase in future quarters should we alter our approach on individual or larger group dispositions of properties based on individual property characteristics or relevant market factors as part of our overall strategy to maximize recovery from OREO.

82

The following table breaks down our loan portfolio at September 30, 2013 and December 31, 2012 between performing, delinquent and nonaccrual status.

Table 13

Delinquency Analysis

(Dollars in thousands)

				Delinquent
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due and Accruing			Nonaccrual			Total Loans
As of September 30, 2013
Loan Balances:
Commercial	$	6,960,352		$	642		$	817		$	—		$	26,881		$	6,988,692
Commercial real estate	2,422,950			717			1,475			—			62,954			2,488,096
Construction	237,440			—			—			—			—			237,440
Residential real estate	335,173			—			209			—			11,237			346,619
Personal and home equity	333,640			2,243			499			—			12,214			348,596
Total loans	$	10,289,555		$	3,602		$	3,000		$	—		$	113,286		$	10,409,443
% of Loan Balance:
Commercial	99.60		%	0.01		%	0.01		%	—		%	0.38		%	100.00		%
Commercial real estate	97.38		%	0.03		%	0.06		%	—		%	2.53		%	100.00		%
Construction	100.00		%	—		%	—		%	—		%	—		%	100.00		%
Residential real estate	96.70		%	—		%	0.06		%	—		%	3.24		%	100.00		%
Personal and home equity	95.72		%	0.64		%	0.14		%	—		%	3.50		%	100.00		%
Total loans	98.85		%	0.03		%	0.03		%	—		%	1.09		%	100.00		%
As of December 31, 2012
Loan Balances:
Commercial	$	6,451,311		$	2,195		$	1,365		$	—		$	41,913		$	6,496,784
Commercial real estate	2,597,780			4,073			5,278			—			68,554			2,675,685
Construction	189,939			—			—			—			557			190,496
Residential real estate	359,096			3,260			—			—			11,224			373,580
Personal and home equity	384,606			1,837			462			—			16,532			403,437
Total loans	$	9,982,732		$	11,365		$	7,105		$	—		$	138,780		$	10,139,982
% of Loan Balance:
Commercial	99.30		%	0.03		%	0.02		%	—		%	0.65		%	100.00		%
Commercial real estate	97.09		%	0.15		%	0.20		%	—		%	2.56		%	100.00		%
Construction	99.71		%	—		%	—		%	—		%	0.29		%	100.00		%
Residential real estate	96.13		%	0.87		%	—		%	—		%	3.00		%	100.00		%
Personal and home equity	95.33		%	0.46		%	0.11		%	—		%	4.10		%	100.00		%
Total loans	98.45		%	0.11		%	0.07		%	—		%	1.37		%	100.00		%

83

The following table provides a comparison of our nonperforming assets, restructured loans accruing interest, special mention, potential problem and past due loans for the past five periods.

Table 14

Nonperforming Assets and Restructured and Past Due Loans

(Dollars in thousands)

	2013									2012
	September 30			June 30			March 31			December 31			September 30
Nonaccrual loans:
Commercial	$	26,881		$	47,782		$	31,323		$	41,913		$	61,182
Commercial real estate	62,954			45,759			63,643			68,554			88,057
Construction	—			—			402			557			557
Residential real estate	11,237			12,812			14,966			11,224			12,502
Personal and home equity	12,214			15,406			18,323			16,532			17,597
Total nonaccrual loans	113,286			121,759			128,657			138,780			179,895
90 days past due loans (still accruing interest)	—			—			—			—			—
Total nonperforming loans	113,286			121,759			128,657			138,780			179,895
OREO	35,310			57,134			73,857			81,880			97,833
Total nonperforming assets	$	148,596		$	178,893		$	202,514		$	220,660		$	277,728
Nonaccrual restructured loans (included in nonaccrual loans):
Commercial	$	13,342		$	14,631		$	13,353		$	25,200		$	56,688
Commercial real estate	13,540			15,240			24,391			29,426			29,749
Construction	—			—			—			—			—
Residential real estate	2,546			3,213			3,284			2,867			2,607
Personal and home equity	4,511			4,589			7,478			7,299			7,786
Total nonaccrual restructured loans	$	33,939		$	37,673		$	48,506		$	64,792		$	96,830
Restructured loans accruing interest:
Commercial	$	30,079		$	43,873		$	36,847		$	44,267		$	44,321
Commercial real estate	665			2,803			8,126			14,758			11,946
Residential real estate	—			—			—			465			670
Personal and home equity	1,599			1,605			1,618			1,490			1,494
Total restructured loans accruing interest	$	32,343		$	48,281		$	46,591		$	60,980		$	58,431
Special mention loans	$	67,518		$	92,880		$	106,446		$	96,794		$	104,706
Potential problem loans	$	101,324		$	97,196		$	78,185		$	107,876		$	112,929
30-89 days past due loans	$	6,602		$	10,766		$	21,171		$	18,470		$	20,626
Nonperforming loans to total loans	1.09		%	1.20		%	1.28		%	1.37		%	1.87		%
Nonperforming loans to total assets	0.82		%	0.90		%	0.96		%	0.99		%	1.35		%
Nonperforming assets to total assets	1.07		%	1.33		%	1.51		%	1.57		%	2.09		%
Allowance for loan losses as a percent of nonperforming loans	128		%	122		%	120		%	116		%	93		%

84

The following table presents changes in our nonperforming loans for the past five periods.

Table 15

Nonperforming Loans Rollforward

(Amounts in thousands)

	Quarters Ended
	2013									2012
	September 30			June 30			March 31			December 31			September 30
Nonperforming loans:
Balance at beginning of period	$	121,759		$	128,657		$	138,780		$	179,895		$	209,339
Additions:
New nonaccrual loans (1)	25,642			26,190			31,331			28,527			38,948
Reductions:
Return to performing status	—			(2,288		)	—			(3,824		)	(236		)
Paydowns and payoffs, net of advances	(12,205		)	(246		)	(885		)	(21,454		)	(11,094		)
Net sales	(1,119		)	(12,601		)	(12,809		)	(20,544		)	(21,351		)
Transfer to OREO	(1,036		)	(3,366		)	(6,266		)	(2,826		)	(3,250		)
Transfer to loans held-for-sale	(7,359		)	—			(2,240		)	—			(9,200		)
Charge-offs	(12,396		)	(14,587		)	(19,254		)	(20,994		)	(23,261		)
Total reductions	(34,115		)	(33,088		)	(41,454		)	(69,642		)	(68,392		)
Balance at end of period	$	113,286		$	121,759		$	128,657		$	138,780		$	179,895
Nonaccruing restructured loans (included in nonperforming loans):
Balance at beginning of period	$	37,673		$	48,506		$	64,792		$	96,830		$	92,004
Additions:
New nonaccrual restructured loans (1)	1,630			2,382			16,075			5,635			20,462
Reductions:
Return to performing status	—			(1,828		)	—			(3,823		)	—
Paydowns and payoffs, net of advances	(1,295		)	(1,074		)	(886		)	(16,919		)	(9,055		)
Net sales	(725		)	(4,063		)	(11,348		)	(4,881		)	(3,339		)
Transfer to OREO	—			—			(5,060		)	—			(136		)
Transfer to loans held-for-sale	—			—			(2,240		)	—			—
Charge-offs	(3,344		)	(6,250		)	(12,827		)	(12,050		)	(3,106		)
Total reductions	(5,364		)	(13,215		)	(32,361		)	(37,673		)	(15,636		)
Balance at end of period	$	33,939		$	37,673		$	48,506		$	64,792		$	96,830

⁽¹⁾  Amounts represent loan balances as of the end of the month in which loans were classified as new nonaccrual loans.

85

The following table presents the stratification by carrying amount of our nonperforming loans as of September 30, 2013 and December 31, 2012.

Table 16

Nonperforming Loans Stratification

(Dollars in thousands)

	Stratification
	$10.0 Million or More		$5.0 Million to $9.9 Million		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of September 30, 2013
Nonperforming loans:
Amount:
Commercial	$	—	$	18,565	$	—	$	2,855	$	5,461	$	26,881
Commercial real estate	24,590		5,788		8,935		6,674		16,967		62,954
Residential real estate	—		—		4,789		—		6,448		11,237
Personal and home equity	—		—		—		—		12,214		12,214
Total nonperforming loans	$	24,590	$	24,353	$	13,724	$	9,529	$	41,090	$	113,286
Number of Borrowers:
Commercial	—		2		—		1		26		29
Commercial real estate	2		1		2		3		32		40
Residential real estate	—		—		1		—		29		30
Personal and home equity	—		—		—		—		46		46
Total	2		3		3		4		133		145
Nonaccruing restructured loans (included in nonperforming loans):
Amount:
Commercial	$	—	$	9,125	$	—	$	2,855	$	1,362	$	13,342
Commercial real estate	11,122		—		—		—		2,418		13,540
Residential real estate	—		—		—		—		2,546		2,546
Personal and home equity	—		—		—		—		4,511		4,511
Total nonaccruing restructured loans	$	11,122	$	9,125	$	—	$	2,855	$	10,837	$	33,939
Number of Borrowers:
Commercial	—		1		—		1		8		10
Commercial real estate	1		—		—		—		8		9
Residential real estate	—		—		—		—		10		10
Personal and home equity	—		—		—		—		20		20
Total	1		1		—		1		46		49

86

Nonperforming Loans Stratification (Continued)

(Dollars in thousands)

	Stratification
	$10.0 Million or More		$5.0 Million to $9.9 Million		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of December 31, 2012
Nonperforming loans:
Amount:
Commercial	$	26,756	$	—	$	7,709	$	2,869	$	4,579	$	41,913
Commercial real estate	15,890		12,425		4,274		15,473		20,492		68,554
Construction	—		—		—		—		557		557
Residential real estate	—		—		4,789		—		6,435		11,224
Personal and home equity	—		—		3,760		—		12,772		16,532
Total nonperforming loans	$	42,646	$	12,425	$	20,532	$	18,342	$	44,835	$	138,780
Number of Borrowers:
Commercial	2		—		2		1		26		31
Commercial real estate	1		2		1		7		38		49
Construction	—		—		—		—		2		2
Residential real estate	—		—		1		—		26		27
Personal and home equity	—		—		1		—		39		40
Total	3		2		5		8		131		149
Nonaccruing restructured loans (included in nonperforming loans):
Amount:
Commercial	$	14,527	$	—	$	4,371	$	4,238	$	2,064	$	25,200
Commercial real estate	15,890		6,409		—		3,708		3,419		29,426
Residential real estate	—		—		—		—		2,867		2,867
Personal and home equity	—		—		3,760		—		3,539		7,299
Total nonaccruing restructured loans	$	30,417	$	6,409	$	8,131	$	7,946	$	11,889	$	64,792
Number of Borrowers:
Commercial	1		—		1		2		8		12
Commercial real estate	1		1		—		2		10		14
Residential real estate	—		—		—		—		11		11
Personal and home equity	—		—		1		—		11		12
Total	2		1		2		4		40		49

87

The following table presents changes in our restructured loans accruing interest for the past five periods.

Table 17

Restructured Loans Accruing Interest Rollforward

(Amounts in thousands)

	Quarters Ended
	2013										2012
	September 30			June 30			March 31				December 31			September 30
Balance at beginning of period	$	48,281		$	46,591		$	60,980			$	58,431		$	97,690
Additions:
New restructured loans accruing interest (1)	1,408			4,219			458				6,552			2,001
Restructured loans returned to accruing status	—			—			—				3,823			—
Reductions:
Paydowns and payoffs, net of advances	(15,368		)	(2,347		)	36				(3,995		)	(3,935		)
Transferred to nonperforming loans	—			—			(14,883		)	(2)	(2,988		)	(15,464		)
Net sales	—			—			—				—			—
Removal of restructured loan status (3)	(1,978		)	(182		)	—				(843		)	(21,861		)
Balance at end of period	$	32,343		$	48,281		$	46,591			$	60,980		$	58,431

⁽¹⁾  Amounts represent loan balances as of the end of the month in which loans were classified as new restructured loans accruing interest.

⁽²⁾  This amount includes $8.8 million related to a single borrower that was restructured in the fourth quarter of 2011.

⁽³⁾  For the five quarters presented, the Company re-underwrote eight loans totaling $24.9 million that, at the time of re-underwriting, were at market term and an evaluation of the loans determined that they did not meet the definition of a TDR under current accounting guidance because the loans qualified as pass-rated credits due to the strengthened financial condition of the borrowers. Seven of the eight loans, with an aggregate loan balance of $22.0 million, were re-underwritten in conjunction with the loan maturity. None of the eight loans had principal or interest forgiveness at the time the loan was originally classified as a TDR.

88

The following table presents the stratification by carrying amount of our restructured loans accruing interest as of September 30, 2013 and December 31, 2012.

Table 18

Restructured Loans Accruing Interest Stratification

(Dollars in thousands)

	Stratification
	$10.0 Million or More		$5.0 Million to $9.9 Million		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of September 30, 2013
Amount:
Commercial	$	10,447	$	13,830	$	3,969	$	—	$	1,833	$	30,079
Commercial real estate	—		—		—		—		665		665
Personal and home equity	—		—		—		—		1,599		1,599
Total restructured loans accruing interest	$	10,447	$	13,830	$	3,969	$	—	$	4,097	$	32,343
Number of Borrowers:
Commercial	1		2		1		—		3		7
Commercial real estate	—		—		—		—		2		2
Personal and home equity	—		—		—		—		2		2
Total	1		2		1		—		7		11
As of December 31, 2012
Amount:
Commercial	$	25,073	$	13,661	$	4,460	$	—	$	1,073	$	44,267
Commercial real estate	—		11,667		—		2,193		898		14,758
Residential real estate	—		—		—		—		465		465
Personal and home equity	—		—		—		—		1,490		1,490
Total restructured loans accruing interest	$	25,073	$	25,328	$	4,460	$	2,193	$	3,926	$	60,980
Number of Borrowers:
Commercial	2		2		1		—		3		8
Commercial real estate	—		2		—		1		3		6
Residential real estate	—		—		—		—		1		1
Personal and home equity	—		—		—		—		1		1
Total	2		4		1		1		8		16

89

The following table presents the credit quality of our loan portfolio as of September 30, 2013 and December 31, 2012.

Table 19

Credit Quality

(Dollars in thousands)

	Special Mention		% of Portfolio Loan Type	Potential Problem Loans		% of Portfolio Loan Type	Non- Performing Loans		% of Portfolio Loan Type	Total Loans
As of September 30, 2013
Commercial	$	58,829	0.8	$	81,704	1.2	$	26,881	0.4	$	6,988,692
Commercial real estate	518		*	9,198		0.4	62,954		2.5	2,488,096
Construction	—		—	—		—	—		—	237,440
Residential real estate	5,945		1.7	6,412		1.8	11,237		3.2	346,619
Home equity	1,790		1.2	3,951		2.7	11,450		7.7	148,058
Personal	436		0.2	59		*	764		0.4	200,538
Total	$	67,518	0.6	$	101,324	1.0	$	113,286	1.1	$	10,409,443
As of December 31, 2012
Commercial	$	72,651	1.1	$	40,495	0.6	$	41,913	0.6	$	6,496,784
Commercial real estate	21,209		0.8	48,897		1.8	68,554		2.6	2,675,685
Construction	—		—	—		—	557		0.3	190,496
Residential real estate	2,364		0.6	13,844		3.7	11,224		3.0	373,580
Home equity	562		0.3	4,351		2.6	11,710		7.0	167,760
Personal	8		*	289		0.1	4,822		2.0	235,677
Total	$	96,794	1.0	$	107,876	1.1	$	138,780	1.4	$	10,139,982

* Less than 0.1%

As shown above in Table 19, during the third quarter 2013 we reduced the level of total problem loans (special mention, potential problem and nonperforming loans), with an overall reduction of 18% from December 31, 2012.

Foreclosed real estate

OREO is carried at the lower of the recorded investment in the loan at the time of acquisition or the fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. The decision to foreclose on real property collateral is based on a number of factors, including but not limited to: our determination of the probable success of further collection from the borrower, location of the property, borrower attention to the property's maintenance and condition, and other factors unique to the situation and asset. In all cases, the decision to foreclose represents management's judgment that ownership of the property will likely result in the best repayment and collection potential on the nonperforming exposure. Updated appraisals on OREO are typically obtained every twelve months and evaluated internally at least every six months. In addition, both property-specific and market-specific factors as well as collateral-type factors are taken into consideration in assessing property valuation, which may result in obtaining more frequent appraisal updates or internal assessments.

OREO totaled $35.3 million at September 30, 2013, down 57% from $81.9 million at December 31, 2012, with inflows into OREO more than offset by sales during the nine-month period. During the third quarter 2013, we sold OREO with a net book value of $17.1 million at a gain of $1.8 million, or 10% of the net book value. Valuation adjustments on OREO for the third quarter 2013 were $5.7 million, down $511,000 from third quarter 2012, due in part to writedowns taken against properties under contract and expected to close by the end of the year. At September 30, 2013, OREO land parcels, currently a fairly illiquid asset class, represented the largest portion of OREO at 52%, with more than half of this OREO located in Illinois. Office/industrial properties, the next largest OREO asset class, represented 37% of the total OREO.

We have been generally consistent to date in our principal approach to disposing of distressed assets, typically utilizing direct sales to end-users or other parties interested in particular assets. We have sourced dispositions opportunistically, limiting the use

90

of brokered or pooled transactions. Losses as a percent of net book value on sales of OREO property may fluctuate or increase in future quarters should we alter our approach on individual or larger group dispositions of properties based on individual property characteristics or relevant market factors as part of our overall strategy to maximize recovery value from OREO.

Table 20 presents a rollforward of OREO for the quarters and nine months ended September 30, 2013 and 2012. Table 21 presents the composition of OREO properties at September 30, 2013 and December 31, 2012, and Table 22 presents OREO property by geographic location at September 30, 2013 and December 31, 2012.

Table 20

OREO Rollforward

(Amounts in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at beginning of period	$	57,134		$	109,836		$	81,880		$	125,729
New foreclosed properties	1,036			3,250			10,668			26,731
Valuation adjustments	(5,734		)	(6,245		)	(16,320		)	(19,974		)
Disposals:
Sale proceeds	(18,902		)	(8,041		)	(42,646		)	(30,636		)
Net gain (loss) on sale	1,776			(967		)	1,728			(4,017		)
Balance at end of period	$	35,310		$	97,833		$	35,310		$	97,833

Table 21

OREO Properties by Type

(Dollars in thousands)

	September 30, 2013				December 31, 2012
	Number of Properties	Amount		% of Total	Number of Properties	Amount		% of Total
Single-family homes	14	$	2,981	8	49	$	6,238	8
Land parcels	145	18,498		52	177	37,125		45
Multi-family	1	201		1	4	7,458		9
Office/industrial	22	13,009		37	39	28,038		34
Retail	2	621		2	5	3,021		4
Total OREO properties	184	$	35,310	100	274	$	81,880	100

91

Table 22

OREO Property Type by Location

(Dollars in thousands)

	Illinois			Colorado			Wisconsin			South Eastern(1)			Mid Western(2)			Other			Total
As of September 30, 2013
Single-family homes	$	525		$	—		$	322		$	—		$	2,134		$	—		$	2,981
Land parcels	14,789			—			—			1,030			2,679			—			18,498
Multi-family	201			—			—			—			—			—			201
Office/industrial	10,231			—			980			527			1,271			—			13,009
Retail	552			—			—			—			69			—			621
Total OREO properties	$	26,298		$	—		$	1,302		$	1,557		$	6,153		$	—		$	35,310
% of Total	75		%	—		%	4		%	4		%	17		%	—		%	100		%
As of December 31, 2012
Single-family homes	$	4,301		$	—		$	—		$	—		$	1,767		$	170		$	6,238
Land parcels	22,722			—			—			10,446			3,957			—			37,125
Multi-family	525			6,933			—			—			—			—			7,458
Office/industrial	17,960			—			2,300			4,048			3,730			—			28,038
Retail	2,428			—			—			593			—			—			3,021
Total OREO properties	$	47,936		$	6,933		$	2,300		$	15,087		$	9,454		$	170		$	81,880
% of Total	59		%	8		%	3		%	18		%	12		%	*			100		%

⁽¹⁾  Represents the southeastern states of Arkansas, Florida and Georgia.

⁽²⁾  Represents the midwestern states of Kansas, Michigan, Missouri, Indiana and Ohio.

* Less than 1%.

Credit Quality Management and Allowance for Loan Losses

We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for loan losses is assessed quarterly and represents an accounting estimate of probable losses in the portfolio at each balance sheet date based on a review of available and relevant information at that time. The allowance is not a prediction of our actual credit losses going forward. The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships that are considered to be impaired (the "specific component" of the allowance), as well as probable losses inherent in the loan portfolio that are not specifically identified (the "general allocated component" of the allowance), which is determined using a methodology that is a function of quantitative and qualitative factors and management judgment applied to defined segments of our loan portfolio.

The specific component of the allowance relates to impaired loans. Impaired loans consist of nonaccrual loans (which include nonaccrual TDRs) and loans classified as accruing TDRs. A loan is considered impaired when, based on current information and events, management believes that either it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement or it has been classified as a TDR. All loans that are over 90 days past due in principal or interest are placed on nonaccrual status. Management may also place some loans on nonaccrual status before they are 90 days past due if they meet the above definition of "nonaccrual." Once a loan is determined to be impaired, the amount of impairment is measured based on the loan’s observable fair value, the fair value of the underlying collateral less selling costs if the loan is collateral-dependent, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Impaired loans exceeding $500,000 are evaluated individually while smaller loans are evaluated as pools using historical loss experience as well as management’s loss expectations for the respective asset class and product type. If the estimated fair value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees and costs and unamortized premium or discount), impairment is recognized by creating a specific reserve as a component of the allowance for loan losses. The recognition of any reserve required on new impaired loans is recorded in the same quarter in which the transfer of the loan to nonaccrual status occurred. All impaired loans are reviewed quarterly for any changes that would affect the specific reserve. Any impaired loan in which a determination has been made that the economic value is permanently reduced

92

is charged-off against the allowance for loan losses to reflect its current economic value in the period in which the determination has been made.

At the time a collateral-dependent loan is initially determined to be impaired, we review the existing collateral appraisal. If the most recent appraisal is greater than one year old, a new appraisal is obtained on the underlying collateral. The Company generally obtains "as is" appraisal values for use in the evaluation of collateral-dependent impaired loans. Appraisals for collateral-dependent impaired loans in excess of $500,000 are updated with new independent appraisals at least annually and are formally reviewed by our internal appraisal department. Additional diligence is also performed at the six-month interval between annual appraisals. If during the course of the six-month review process there is evidence supporting a meaningful decline in the value of collateral, the appraised value is either internally adjusted downward or a new appraisal is required to support the value of the impaired loan.

In addition to the appraisal, both borrower and market-specific factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement. Appraisals are either reviewed internally by our appraisal department or are sent to an outside firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the loan and its collateral. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. To validate the reasonableness of the appraisals obtained, we may consider many factors, including a comparison of the appraised value to the actual sales price of similar properties, relevant comparable sale price listings, broker opinions, and local or regional real estate valuation and sales data.

As of September 30, 2013, the average appraisal age used in the impaired loan valuation process was 204 days. The amount of impaired assets which, by policy, requires an independent appraisal, but does not have a current external appraisal at September 30, 2013 due to the timing of the receipt of the appraisal is not material. In situations such as this, we perform an internal assessment to determine if a probable impairment reserve is required for the account based on our experience in the related asset class and type.

The general allocated component of the allowance is determined using a methodology that is a function of quantitative and qualitative factors applied to segments of our loan portfolio. The methodology takes into account at a product level originating line of business (transformational or legacy), year of origination, the risk-rating migration of the loans, and historical default and loss history of similar products. Using this information, the methodology produces a range of possible reserve amounts by product type. We consider the appropriate balance of the general allocated component of the reserve within these ranges based on a variety of internal and external quantitative and qualitative factors to reflect data or timeframes not captured by the model as well as market and economic data and management judgment. We consider relevant factors related to individual product types and will also consider, when appropriate, changes in lending practices, changes in business or economic conditions, changes in the nature and volume of loans, changes in staffing or management, changes in the quality of our results from loan reviews, changes in collateral values, concentration risks, and other external factors such as legal or regulatory matters relevant to management’s assessment of required reserve levels. In certain instances, these additional factors and judgments may lead to management’s conclusion that the appropriate level of the reserve is outside the range determined through the quantitative framework with respect to a given product type.

The Bank has limited exposure with a related junior collateral position in any product type with the exception of home equity lines of credit ("HELOCs"). This product is by definition usually secured in the junior position to the first mortgage on the related property. The Bank evaluates the allowance for loan losses for HELOCs as one of our six primary, segregated product types and considers the potential impact of the junior security position (as opposed to our generally senior position in all other product types) in setting final allocated reserve amounts for this product. Our allowance reflects the performance and loss history unique to our portfolio.

In our evaluation of the quantitatively-determined range and the adequacy of the allowance at September 30, 2013, we considered a number of factors for each product that included, but were not limited to, the following:

• for the commercial portfolio, the pace of growth in the commercial loan sector, portfolio credit performance, impact of competition on loan structures, the existence of larger individual credits and specialized industry concentrations, the average age of the loans in the portfolio, comparison of our default rates to overall U.S. industry averages at industry subsets, default emergence from recent years compared to historical stressed periods, results of "back testing" of model results versus actual recent charge-off history, nonperforming loan inflows and other portfolio trends, as well as general macroeconomic indicators, such as GDP, employment trends and manufacturing activity, which still are susceptible to sustainability risk;

93

• for the commercial real estate portfolio, the potential impact of general commercial real estate trends, particularly occupancy and leasing rate trends, charge-off severity, nonperforming loan inflows, default likelihood in our book versus the general U.S. averages, default emergence from recent years compared to historical stressed periods, results of "back testing" of model results versus recent charge-off history, collateral value changes in commercial real estate, and the impact that a negative general macroeconomic condition could have on this sector;

• for the construction portfolio, construction employment, industry experience on construction loan losses, and construction spending rates;

• and for the residential, home equity, and personal portfolios, home price indices and delinquency rates, and general economic conditions which impact these products.

In determining our September 30, 2013 reserve levels, we established a general reserve level which was higher than our model's output range, in total. This judgment was influenced primarily by recent indicators in our transformational commercial portfolio, specifically, (i) larger loan sizes in the portfolio which can cause volatility, (ii) the impact of competition on loan structures, and (iii) a slight degradation in the portfolio's weighted average risk rating. At the same time, management's qualitative upward adjustment to the model output with respect to the transformational commercial real estate portfolio decreased from prior periods as a result of improving portfolio attributes (including a decrease in weighted average risk rating, loss given default and criticized and non-performing loan inflows) and improvement evident in the commercial real estate markets.

Management also considers the amount and characteristics of the accruing TDRs removed from the general allocation reserve formulas in establishing final reserve requirements.

The establishment of the allowance for loan losses involves a high degree of judgment and includes an inherent level of imprecision given the difficulty of identifying all the factors impacting loan repayment and the timing of when losses actually occur. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control, including, but not limited to, client performance, the economy, changes in interest rates and property values, and the interpretation by regulatory authorities of loan classifications.

Although we determine the amount of each element of the allowance separately and consider this process to be an important credit management tool, the entire allowance for loan losses is available for the entire loan portfolio.

Management evaluates the adequacy of the allowance for loan losses and reviews the allowance for loan losses and the underlying methodology with the Audit Committee of the Board of Directors quarterly. As of September 30, 2013, management concluded the allowance for loan losses was adequate (i.e., sufficient to absorb losses that are inherent in the portfolio at that date, including those loans not yet identifiable).

As an integral part of their examination process, various federal and state regulatory agencies also review the allowance for loan losses. These agencies may require that certain loan balances be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

The accounting policies underlying the establishment and maintenance of the allowance for loan losses through provisions charged to operating expense are discussed more fully in Note 1 of "Notes to Consolidated Financial Statements" of our 2012 Annual Report on Form 10-K.

94

The following table presents changes in the allowance for loan losses, excluding covered assets, for the periods presented.

Table 23

Allowance for Loan Losses and Summary of Loan Loss Experience

(Dollars in thousands)

	Quarters Ended
	2013									2012
	September 30			June 30			March 31			December 31			September 30
Change in allowance for loan losses:
Balance at beginning of period	$	148,183		$	153,992		$	161,417		$	166,859		$	174,302
Loans charged-off:
Commercial	(7,285		)	(2,372		)	(11,146		)	(10,388		)	(4,062		)
Commercial real estate	(1,706		)	(8,725		)	(7,566		)	(8,105		)	(16,790		)
Construction	—			—			70			30			64
Residential real estate	(395		)	(783		)	(436		)	(621		)	(299		)
Home equity	(2,146		)	(334		)	(374		)	(1,640		)	(1,001		)
Personal	(893		)	(2,776		)	(5		)	(612		)	(1,006		)
Total charge-offs	(12,425		)	(14,990		)	(19,457		)	(21,336		)	(23,094		)
Recoveries on loans previously charged-off:
Commercial	1,301			459			396			947			919
Commercial real estate	366			141			1,364			2,133			544
Construction	7			25			9			16			594
Residential real estate	7			2			2			106			7
Home equity	135			199			61			52			117
Personal	142			46			52			43			229
Total recoveries	1,958			872			1,884			3,297			2,410
Net charge-offs	(10,467		)	(14,118		)	(17,573		)	(18,039		)	(20,684		)
Provisions charged to operating expense	7,797			8,309			10,148			12,597			13,241
Balance at end of period	$	145,513		$	148,183		$	153,992		$	161,417		$	166,859
Allowance as a percent of loans at period end	1.40		%	1.47		%	1.53		%	1.59		%	1.73		%
Average loans, excluding covered assets	$	10,268,910		$	10,070,194		$	10,116,719		$	9,890,102		$	9,508,258
Ratio of net charge-offs (annualized) to average loans outstanding for the period	0.40		%	0.56		%	0.70		%	0.73		%	0.87		%
Allowance for loan losses as a percent of nonperforming loans	128		%	122		%	120		%	116		%	93		%

Charge-offs declined to $12.4 million for the third quarter 2013, from $23.1 million for the year ago period and $15.0 million for the prior quarter. Commercial and commercial real estate comprised 72% of total charge-offs in the third quarter 2013, reflecting the concentration of the overall loan portfolio in these product types. Of total charge-offs for third quarter 2013, $8.6 million related to five borrowers, of which $4.0 million related to legacy loans and were primarily commercial.

The allowance for loan losses declined $15.9 million to $145.5 million at September 30, 2013 from $161.4 million at December 31, 2012. The decline in the overall allowance from December 31, 2012 was primarily driven by a 38% reduction in specific reserves due to declining impaired loans and, to a lesser extent, the rotation of the loan portfolio mix into commercial and industrial. As a result of these factors, the provision for loan losses for the quarter declined to $7.8 million compared to $8.3 million for the prior quarter and $13.2 million for third quarter2012. The allowance for loan losses to total loans ratio was 1.40% at September 30, 2013, down from 1.59% as of December 31, 2012. There is no assurance that the balance of the allowance for loan losses will continue to decline in coming quarters.

95

The following table presents our allocation of the allowance for loan losses by loan category at the dates shown.

Table 24

Allocation of Allowance for Loan Losses

(Dollars in thousands)

	September 30, 2013		% of Total		December 31, 2012		% of Total
Commercial	$	78,066	53		$	63,709	39
Commercial real estate	47,974		33		73,150		45
Construction	3,314		2		2,434		2
Residential real estate	8,165		6		9,696		6
Home equity	5,186		4		6,797		4
Personal	2,808		2		5,631		4
Total	$	145,513	100	%	$	161,417	100	%
Specific reserve	$	26,698	18	%	$	43,390	27	%
General allocated reserve	$	118,815	82	%	$	118,027	73	%
Recorded Investment in Loans:
Ending balance, specific reserve	$	145,629			$	199,760
Ending balance, general allocated reserve	10,263,814				9,940,222
Total loans at period end	$	10,409,443			$	10,139,982

Under our methodology, the allowance for loan losses is comprised of the following components:

General Allocated Component of the Allowance

The general allocated component of the allowance was relatively flat during the period, increasing from $118.0 million at December 31, 2012 to $118.8 million at September 30, 2013, and increased to 82% of total allowance compared to 73% of total allowance at December 31, 2012. The increase in the general allocated reserve was influenced by a combination of loan growth during the period, continued rotation of the portfolio mix into commercial and industrial, and the impact of recent degradation of framework loss factors.

Specific Component of the Allowance

At September 30, 2013, the specific component of the allowance decreased by $16.7 million to $26.7 million from $43.4 million at December 31, 2012. The specific reserve requirements are the summation of the reserves on the impaired individual reserves analyzed on an account by account basis at the balance sheet date, which are largely influenced by collateral values. Our impaired loans are primarily collateral-dependent with such loans totaling $131.0 million of the total $145.6 million in impaired loans at September 30, 2013. As a result of a lower level of nonperforming loans, the related reserves have declined in nine months ended September 30, 2013.

Reserve for Unfunded Commitments

In addition to the allowance for loan losses, we maintain a reserve for unfunded commitments at a level we believe to be sufficient to absorb estimated probable losses related to unfunded credit facilities. During the nine months ended September 30, 2013, our reserve for unfunded commitments increased $844,000 from December 31, 2012 to $8.2 million. The balance of the increase resulted from higher unfunded commitment levels, an increase in the likelihood of certain product categories to draw on unused lines and loss factor adjustments. Net adjustments to the reserve for unfunded commitments are included in other non-interest expense in the Consolidated Statements of Income. Unfunded commitments, excluding covered assets, totaled $4.8 billion and $4.6 billion at September 30, 2013 and 2012, respectively. At September 30, 2013, unfunded commitments with maturities of less than one year approximated $1.5 billion. For further information on our unfunded commitments, refer to Note 15 of "Notes to Consolidated Financial Statements" in Item 1 of this Form 10-Q.

96

COVERED ASSETS

Covered assets represent purchased loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC as a result of the 2009 FDIC-assisted acquisition of the former Founders Bank from the FDIC. Under the loss share agreement, generally the FDIC will assume 80% of the first $173 million of credit losses and 95% of the credit losses in excess of $173 million, in both cases relating to assets that existed on the date of acquisition. The loss share agreement expires on September 30, 2014 for non-residential mortgage loans and September 30, 2019 for residential mortgage loans.

The carrying amounts of covered assets as of September 30, 2013 and December 31, 2012 are presented in the following table.

Table 25

Covered Assets

(Amounts in thousands)

	September 30, 2013			December 31, 2012
Commercial loans	$	15,357		$	21,046
Commercial real estate loans	56,685			82,820
Residential mortgage loans	37,967			42,529
Consumer installment and other loans	3,993			4,706
Foreclosed real estate	16,104			24,395
Asset in lieu	11			11
Estimated loss reimbursement by the FDIC	9,966			18,709
Total covered assets	140,083			194,216
Allowance for covered loan losses	(21,653		)	(24,011		)
Net covered assets	$	118,430		$	170,205

Total net covered assets declined by $51.8 million, or 30%, from $170.2 million at December 31, 2012 to $118.4 million at September 30, 2013. The reduction was mainly attributable to $28.4 million in principal paydowns, net of advances, as well as the impact of such on the evaluation of expected cash flows and discount accretion levels. In addition, loss claims paid by the FDIC contributed to the reduction as we collected on the estimated loss reimbursement by the FDIC ("the FDIC indemnification receivable"). The allowance for covered loan losses declined by $2.4 million to $21.7 million at September 30, 2013 from $24.0 million at December 31, 2012 and is attributable to a lower level of outstanding covered loans at September 30, 2013 compared to year end 2012. As of September 30, 2013, the FDIC had reimbursed the Company $116.4 million in losses under the loss share agreement. The remaining balance of our FDIC indemnification receivable is $10.0 million at September 30, 2013 with the value adjusted quarterly in accordance with applicable accounting requirements.

97

The following table presents covered loan delinquencies and nonperforming covered assets as of September 30, 2013 and December 31, 2012 and excludes purchased impaired loans which are accounted for on a pool basis. Since each purchased impaired pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past due status of the pools, or that of individual loans within the pools, is not meaningful. Because we are recognizing interest income on each pool of such loans, they are all considered to be performing. Covered assets are excluded from the asset quality presentation of our originated loan portfolio, given the loss share indemnification from the FDIC.

Table 26

Past Due Covered Loans and Nonperforming Covered Assets

(Amounts in thousands)

	September 30, 2013		December 31, 2012
30-59 days past due	$	1,620	$	1,870
60-89 days past due	2,100		1,400
90 days or more past due and still accruing	—		—
Nonaccrual	17,622		18,242
Total past due and nonperforming covered loans	21,342		21,512
Foreclosed real estate	16,104		24,395
Total past due and nonperforming covered assets	$	37,446	$	45,907

FUNDING AND LIQUIDITY MANAGEMENT

We have implemented various policies to manage our liquidity position in order to meet our cash flow requirements and maintain sufficient capacity to meet our clients’ needs and accommodate fluctuations in asset and liability levels due to changes in our business operations as well as unanticipated events. We also have in place contingency funding plans designed to allow us to operate through a period of stress when access to normal sources of funding may be constrained. As part of our asset/liability management strategy, we utilize a variety of funding sources in an effort to optimize the balance of duration risk, cost, liquidity risk and contingency planning.

The Bank’s principal sources of funds are client deposits, including large institutional deposits, brokered time deposits, wholesale borrowings, and cash from operations. The Bank’s principal uses of funds include funding growth in the core asset portfolios, including loans, and to a lesser extent, our investment portfolio, which is used primarily to manage liquidity risk and interest rate risk. The primary sources of funding for the Holding Company include dividends when received from its bank subsidiary, intercompany tax reimbursements from the Bank, and proceeds from the issuance of senior and subordinated debt, as well as equity. Further, in September 2013, the Company entered into a 364-day revolving line of credit (the "Facility") with a group of commercial banks allowing borrowings of up to $60.0 million. At September 30, 2013, no amounts have been drawn on the Facility. Net liquid assets at the Holding Company totaled $61.4 million at September 30, 2013 and $78.0 million at December 31, 2012.

We consider client deposits our core funding source. At September 30, 2013, 81% of our total assets were funded by client deposits, compared to 84% at December 31, 2012. We define client deposits as all deposits other than traditional brokered time deposits and non-client CDARS^® (as described in the footnotes to Table 27 below). While we expect overall liquidity in the banking system to remain high while the economy recovers and market factors improve, the level of our client deposits may fluctuate significantly based on client needs and other economic, market or regulatory factors, including deposit insurance limits. If client deposits decline due to any of these factors, we would expect to utilize other external sources of liquidity, including wholesale funding.

Given the commercial focus of our core business strategy, a majority of our deposit base is comprised of corporate accounts which are typically larger than retail accounts. We have built a suite of deposit and cash management products and services that support our efforts to attract and retain corporate client accounts, resulting in a concentration of large deposits in our funding base. At September 30, 2013, we had 26 client relationships in which each had $50 million or more in total deposits, totaling $3.3 billion, or 28% of total deposits. Of these client relationships, 14 relationships had more than $75million in deposits. In comparison, at December 31, 2012, we had 27 client relationships in which each had $50 million or more in total deposits, totaling $3.6 billion, or 30% of total deposits. At both periods, over half of the deposits of $50 million or greater were from financial services-related businesses, including omnibus accounts from broker-dealer and mortgage companies representing underlying accounts of their customers some of which may be eligible for pass-through deposit insurance limits.

98

Our ten largest depositor accounts totaled $2.3 billion or 19% of total deposits, at September 30, 2013. Commercial deposits are held in various deposit products we offer, including interest-bearing and noninterest-bearing demand deposits, CDARS^®, savings and money market accounts. The CDARS^® deposit program allows clients to obtain greater FDIC deposit insurance for time deposits in excess of the FDIC insurance limits. Through our community banking and private wealth groups, we offer a variety of personal banking products, including checking, savings and money market accounts and CDs, which serve as an additional source of client deposits.

We take deposit concentration risk into account in managing our liquid asset levels. Liquid assets refer to cash on hand, federal funds sold and securities. Net liquid assets represent the sum of the liquid asset categories less the amount of such assets pledged to secure public funds, certain deposits that require collateral and for other purposes as required or permitted by law. Net liquid assets at the Bank were $2.4 billion and $2.7 billion at September 30, 2013 and December 31, 2012, respectively. We had higher net liquid assets at the Bank at December 31, 2012 in part due to an increase in client deposits that can be typical towards year end and uncertainty relating to the potential for deposit outflows resulting from the expiration of the unlimited FDIC deposit insurance on noninterest-bearing deposit accounts at December 31, 2012.

We experienced some client deposit outflows during the nine months ended September 30, 2013 and have experienced a corresponding decline in liquid assets as well. We maintain liquidity at levels we believe sufficient to meet anticipated client liquidity needs, fund anticipated loan growth, selectively purchase securities and investments, and opportunistically pay down wholesale funds.

While we first look toward internally generated deposits as our funding source, we also utilize wholesale funding, including brokered time deposits, as needed to enhance liquidity and to fund asset growth. Brokered time deposits are deposits that are sourced from external and unrelated financial institutions by a third party. Brokered time deposits can vary in term from one month to several years and have the benefit of being a source of longer-term funding. Our asset/liability management policy currently limits our use of brokered time deposits, excluding client CDARS^®, to levels no more than 25% of total deposits, and total brokered time deposits to levels no more than 40% of total deposits. Brokered time deposits exclusive of client CDARS^® were 5% and 3% of total deposits at September 30, 2013 and December 31, 2012, respectively.

Our cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows from operating activities primarily include results of operations for the period, adjusted for items in net income that did not impact cash. Net cash provided by operating activities increased by $74.3 million from the nine months ended September 30, 2012 to $205.7 million for the nine months ended September 30, 2013. Cash flows from investing activities reflect the impact of loans and investments acquired for our interest-earning asset portfolios and asset maturities and sales. For the nine months ended September 30, 2013, net cash used in investing activities was $496.3 million, compared to $677.1 million for the prior year period. This change in cash flows primarily represents larger amounts of cash redeployed towards the funding of loans in the nine months ended September 30, 2012 than the current period. Cash flows from financing activities include transactions and events whereby cash is obtained from and/or paid to depositors, creditors or investors. Net cash used in financing activities for the nine months ended September 30, 2013 was $222.8 million, compared to net cash provided by financing activities of $798.4 million for the prior year period. The current period financing cash flows primarily represents the decline in deposits from the prior year end, offset by a net increase in FHLB advances of $120.0 million for the nine months ended September 30, 2013.

For information regarding our investment portfolio, see the "Investment Portfolio Management" section above.

Deposits

The primary source of our deposit base is middle market commercial client relationships from a diversified industry base in our markets. Due to our middle market commercial banking focused business model, our client deposit base provides access to larger deposit balances that result in a concentrated deposit base.

99

The following table provides a comparison of deposits by category for the periods presented.

Table 27

Deposits

(Dollars in thousands)

	September 30, 2013		% of Total	December 31, 2012		% of Total	% Change in Balances
Noninterest-bearing deposits	$	3,106,986	26	$	3,690,340	30	-16
Interest-bearing demand deposits	1,183,471		10	1,057,390		9	12
Savings deposits	260,822		2	310,188		3	-16
Money market accounts	4,517,235		38	4,602,632		38	-2
Brokered time deposits:
Traditional	548,429		5	382,833		3	43
Client CDARS® (1)	755,167		7	610,622		5	24
Non-client CDARS®(1)	—		—	—		—	—
Total brokered time deposits	1,303,596		12	993,455		8	31
Time deposits	1,460,446		12	1,519,629		12	-4
Total deposits	$	11,832,556	100	$	12,173,634	100	-3
Client deposits (2)	$	11,284,127	95	$	11,790,801	97	-4

⁽¹⁾  The CDARS^® deposit program is a deposit services arrangement that effectively achieves FDIC deposit insurance for jumbo deposit relationships. These deposits are classified as brokered time deposits for regulatory deposit purposes; however, we classify certain of these deposits as client CDARS^® due to the source being our client relationships and are, therefore, not traditional brokered time deposits. We also participate in a non-client CDARS^® program that is more like a traditional brokered time deposit program.

⁽²⁾  Total deposits, net of traditional brokered time deposits and non-client CDARS^®.

Total deposits at September 30, 2013decreased by $341.1 million from year end 2012, primarily driven by a 16%decline in noninterest-bearing demand deposits and was somewhat offset by a 31% , or $310.1 million increase in brokered time deposits (including client CDARS®). A number of factors contributed to the decrease in noninterest-bearing demand deposits, including movement to interest-bearing products, a category in which balances increased 12% from December 31, 2012; expiration of the unlimited guarantee program, and client usage. The deposit balances of our commercial clients may fluctuate depending on their cash management and liquidity needs. Client deposits as a percentage of total deposits were 95% and 97% of deposits at September 30, 2013 and December 31, 2012, respectively. The deposit to loan ratio was 113.7% at September 30, 2013 compared to 120.1% at December 31, 2012.

Brokered time deposits totaled $1.3 billion at September 30, 2013, up $310.0 million from December 31, 2012. Brokered time deposits fluctuate based upon the Bank's general funding needs related to deposits, loans and other funding needs. Brokered time deposits at September 30, 2013 included $755.2 million in client-related CDARS^®. Brokered time deposits, excluding client CDARS^®, increased by $165.6 million from the prior year end and were 5% of total deposits at September 30, 2013 and 3% of total deposits December 31, 2012.

Public balances, denoting the funds held on account for municipalities and other public entities, are included as a part of our total deposits. We enter into specific agreements with certain public customers to pledge collateral, primarily securities, in support of the balances on account. These relationships may provide cross-sell opportunities with treasury management, as well as other business referral opportunities. At September 30, 2013, we had public funds on account totaling $1.1 billion, of which approximately 21% were collateralized with securities. At December 31, 2012, public fund balances totaled $961.1 million. Changes in balances are influenced by the tax collection activities of the various municipalities as well as the general level of interest rates.

100

The following table presents our brokered and time deposits as of September 30, 2013, with scheduled maturity dates during the period specified.

Table 28

Scheduled Maturities of Brokered and Time Deposits

(Amounts in thousands)

	Brokered		Time		Total
Year Ended December 31, 2013
Fourth quarter	$	499,908	$	313,223	$	813,131
2014	605,088		651,573		1,256,661
2015	171,202		366,106		537,308
2016	27,398		21,175		48,573
2017	—		65,484		65,484
2018 and thereafter	—		42,885		42,885
Total	$	1,303,596	$	1,460,446	$	2,764,042

The following table presents our brokered and time deposits of $100,000 or more as of September 30, 2013, which are expected to mature during the period specified.

Table 29

Maturities of Brokered and Time Deposits of $100,000 or More

(Amounts in thousands)

	September 30, 2013
Maturing within 3 months	$	715,569
After 3 but within 6 months	346,052
After 6 but within 12 months	673,456
After 12 months	686,416
Total	$	2,421,493

Over the past several years in the generally low interest rate environment, our clients have tended to keep the maturities of their deposits short, and short-term certificates of deposit have generally been renewed on terms and with maturities of similar duration. In the event that time deposits are not renewed, we expect to replace those deposits with traditional deposits, brokered time deposits, or borrowed money sufficient to meet our funding needs.

Short-term and Secured Borrowings and Long-term Debt

Short-term borrowings at September 30, 2013 and December 31, 2012 consisted primarily of FHLB advances that mature in one year or less. We may continue to use FHLB advances to meet our funding needs although we may choose to use brokered deposits as an alternative depending on cost and certain other factors.

101

The following table provides a comparison of short-term borrowings by category for the periods presented.

Table 30

Short-term Borrowings

(Dollars in thousands)

	September 30, 2013				December 31, 2012
	Amount		Rate		Amount		Rate
Outstanding:
FHLB advances	$	125,000	0.13	%	$	5,000	4.96	%
Other Information:
Weighted average remaining maturity of FHLB advances at period end	1 day				6 months
Unused FHLB advances availability	$	694,046			$	999,722
Unused overnight federal funds availability (1)	$	525,000			$	385,000
Borrowing capacity through the Federal Reserve Bank’s ("FRB") discount window’s primary credit program (2)	$	649,347			$	688,608

⁽¹⁾  Our total availability of overnight federal fund borrowings is not a committed line of credit and is dependent upon lender availability.

⁽²⁾  Our borrowing capacity changes each quarter subject to available collateral and FRB discount factors.

Also included in short-term and secured borrowings on the Consolidated Statements of Financial Condition are amounts related to certain loan participation agreements on loans we originated that were classified as secured borrowings as they did not qualify for sale accounting treatment. As of September 30, 2013, these loan participation agreements totaled $6.4 million. A corresponding amount was recorded within loans on the Consolidated Statements of Financial Condition.

Long-term debt, which is comprised of junior subordinated debentures, subordinated debt, and the long-term portion of FHLB advances, totaled $499.8 million at September 30, 2013 and December 31, 2012. The earliest scheduled maturity of long term-debt is $2.0 million of FHLB advances due in December 2014.

On October 24, 2013, the $120.0 million outstanding balance of the Bank’s subordinated debt facility due September 2015 was repaid in full out of available cash. We replaced the funding provided by the subordinated debt facility, which had a weighted average rate of 3.8% for the nine months ended September 30, 2013, with lower-costing client deposits, brokered time deposits, and FHLB borrowings. We opportunistically repaid this facility prior to maturity because only 20% of the outstanding balance, or $24.0 million, qualified as Tier 2 capital at September 30, 2013.

In addition to on-balance sheet funding and other liquid assets such as cash and investment securities, we maintain access to various external sources of funding, which assist in the prudent management of funding costs, interest rate risk, and anticipated funding needs or other considerations. Some sources of funding are accessible same-day while others require advance notice. Funds that are immediately accessible include Federal Fund counterparty lines, which are uncommitted lines of credit from other financial institutions, and the borrowing term is typically overnight. Availability of Federal Fund lines fluctuate based on market conditions and counterparty relationship strength. Unused overnight Fed Funds borrowings available for use totaled $525.0 million and $385.0 million, respectively, at September 30, 2013 and December 31, 2012, respectively.

We also had borrowing capacity of $819.4 million with the FHLB Chicago at September 30, 2013, of which $694.0 million was available, subject to the availability of acceptable collateral to pledge. This borrowing source may be utilized by the Bank for short-term funding needs, including overnight advances as well as long-term funding needs.

Repurchase agreements ("Repos") are also an immediate source of funding in which we pledge assets to a counterparty against which we can borrow with the agreement to repurchase at a specified date in the future. Repos can vary in term, from overnight to longer, but are regarded as short-term in nature.

The discount window at the FRB is an additional source of overnight funding is the discount window at the FRB. We maintain access to the discount window by pledging loans as collateral to the FRB. Funding availability is primarily dictated by the amount of loans pledged, but also impacted by the margin applied to the loans by the FRB. The amount of loans pledged to the FRB can fluctuate due to the availability of loans eligible under the FRB’s criteria which include stipulations of documentation requirements,

102

credit quality, payment status and other criteria. At September 30, 2013, we had $649.3 million in borrowing capacity through the FRB discount window’s primary credit program compared to $688.6 million at December 31, 2012.

CAPITAL

Equity totaled $1.3 billion at September 30, 2013, increasing by $66.5 million compared to December 31, 2012, and is primarily due to net income for the nine months ended September 30, 2013 of $89.2 million, offset by a $29.7 milliondecline in accumulated other comprehensive income, net of tax, which is mainly associated with a decline in market values on our available-for-sale investment portfolio due to a rise in interest rates starting in the latter part of the second quarter 2013.

Capital Management

Under applicable regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements adopted and administered by the federal banking agencies. These guidelines specify minimum capital ratios calculated in accordance with the definitions in the guidelines, including the leverage ratio which is Tier 1 capital as a percentage of adjusted average assets, and the Tier 1 capital ratio and the total capital ratio each as a percentage of risk-weighted assets and off-balance sheet items that have been weighted according to broad risk categories. These minimum ratios are shown in the table below.

To satisfy safety and soundness standards, banking institutions are expected to maintain capital levels in excess of the regulatory minimums depending on the risk inherent in the balance sheet, regulatory expectations and the changing risk profile of business activities and plans. Under our capital management policy, we conduct periodic stress testing of our capital adequacy and target capital ratios at levels above regulatory minimums that we believe are appropriate based on various other risk considerations, including the current operating and economic environment and outlook, internal risk guidelines, and our strategic objectives as well as regulatory expectations.

103

The following table presents information about our capital measures and the related regulatory capital guidelines.

Table 31

Capital Measurements

(Dollars in thousands)

	Actual				FRB Guidelines For Minimum Regulatory Capital				Regulatory Minimum For "Well Capitalized" under FDICIA
	September 30, 2013		December 31, 2012		Ratio		Excess Over Regulatory Minimum at 9/30/13		Ratio		Excess Over "Well Capitalized" under FDICIA at 9/30/13
Regulatory capital ratios:
Total risk-based capital:
Consolidated	13.48	%	13.17	%	8.00	%	$	691,827	n/a		n/a
The PrivateBank	12.80		12.34		n/a		n/a		10.00	%	$	353,315
Tier 1 risk-based capital:
Consolidated	11.05		10.51		4.00		889,957		n/a		n/a
The PrivateBank	11.36		10.69		n/a		n/a		6.00		675,554
Tier 1 leverage:
Consolidated	10.30		9.50		4.00		853,281		n/a		n/a
The PrivateBank	10.59		9.67		n/a		n/a		5.00		755,801
Other capital ratios (consolidated)(1):
Tier 1 common equity to risk-weighted assets (2)	9.11		8.52
Tangible common equity to tangible assets	8.49		7.88

⁽¹⁾  Ratios are not subject to formal FRB regulatory guidance and are non-U.S. GAAP financial measures. Refer to Table 32, "Non-U.S. GAAP Financial Measures" for a reconciliation to U.S. GAAP presentation.

⁽²⁾  Does not give effect to the final Basel III capital rules adopted and issued by the Federal Reserve Board in July 2013.

n/a Not applicable.

As of September 30, 2013, all of our $244.8 million of outstanding junior subordinated debentures ("Debentures") held by trusts that issued trust preferred securities are included in Tier 1 capital. The Tier 1 qualifying amount is limited to 25% of Tier 1 capital as defined under FRB regulations currently in effect. At September 30, 2013, the Company's trust preferred securities as a percent of Tier 1 capital were less than 20%. Under the final regulatory capital rules issued in July 2013, as further discussed in the following "Newly Issued Regulatory Capital Rules" section, the Tier 1 capital treatment for the Company's trust preferred securities will be grandfathered, subject to the 25% limitation of Tier 1 capital. In the event we make an acquisition and the resulting organization has total consolidated assets of $15 billion or more, the Tier 1 capital treatment for these instruments will be subject to the phase-out schedule for bank holding companies with greater than $15 billion in total assets. All of our outstanding trust preferred securities are callable by us and we may, from time to time, redeem some or all of these securities with internal resources or with other instruments, or depending on market conditions and other factors, we may seek to replace all or some of our trust preferred securities with other Tier 1 qualifying capital.

Of the $120.0 million in outstanding principal balance of the Bank's subordinated debt facility at September 30, 2013, 20%, or $24.0 million, qualified as Tier 2 capital. On October 24, 2013, the Bank repaid the full $120.0 million outstanding which did not impact its capital classification of Well Capitalized under current regulatory guidelines. On a proforma basis, after giving effect for the subordinated debt repayment, the total risk-based capital ratio at September 30, 2013 was 13.29% for the Company and 12.61% for the Bank. All of the $125.0 million in outstanding principal balance of the Company's subordinated debt at September 30, 2013 and December 31, 2012 qualified as Tier 2 capital.

For a full description of our Debentures and subordinated debt, refer to Notes 9 and 10 of "Notes to Consolidated Financial Statements" in Item 1 of this Form 10-Q.

104

Regulatory Capital Rules Issued In July 2013

In July 2013, U.S. banking regulators approved final rules that alter the agencies' current regulatory capital requirements to align with the Basel III international capital standards and implement certain changes required by the Dodd-Frank Act. Compliance with the rules is phased in over a period of five years beginning on January 1, 2015. The rules, which finalize the proposed rules released by the U.S. banking regulators in June 2012, are generally expected to require U.S. banks to hold higher amounts of capital, especially common equity, against their risk-weighted assets.

Among other things, the rules establish a common equity Tier 1 capital requirement and a required "capital conservation buffer," establish new regulatory capital minimums, change the treatment of certain assets for purposes of calculating regulatory capital and adopt a more conservative calculation of risk-weighted assets.

The new capital requirements (on a fully phased-in basis) are:

• Common Equity Tier 1 capital to total risk-weighted assets of 7.0% (4.5% minimum plus a capital conservation buffer of 2.5%);

• Tier 1 capital to total risk-weighted assets of 8.5% (6% minimum plus a capital conservation buffer of 2.5%);

• Total capital to total risk-weighted assets of 10.5% (8% minimum plus a capital conservation buffer of 2.5%); and

• Tier 1 capital to adjusted average total assets (leverage ratio) of 4%.

Banking organizations that fail to maintain capital ratios in excess of the requirements including the capital conservation buffer will be subject to limitations on dividend payments, capital repurchases and payments of discretionary executive compensation. The rules also change the minimum Tier 1 capital thresholds for purposes of the existing prompt corrective action framework.

Under the rules, for bank holding companies like us with less than $15 billion in total consolidated assets as of December 31, 2009, trust preferred securities that were issued prior to May 19, 2010 are grandfathered in as a component of Tier 1 capital. Bank holding companies with grandfathered trust preferred securities will become subject to the Tier 1 capital treatment phase-out schedule for other bank holding companies with assets greater than $15 billion at the time of any acquisition that results in post-closing total consolidated assets equal to or greater than $15 billion.

In a change to existing capital treatment, unrealized gains and losses on certain debt and equity securities available-for-sale will be included as a component of Tier 1 capital unless the financial institution makes a one-time “opt out” election to continue to exclude these gains and losses from its regulatory capital. While we are still in the process of analyzing the final rules, our current expectation is that we will decide to make the opt-out election.

Risk-weighted assets are calculated using new and expanded risk-weighting categories. Among other categories, banking institutions would be required to assign higher risk-weightings to certain commercial real estate loans, past due or nonaccrual loans, unfunded commitments of less than one year, portions of deferred tax assets exceeding certain limits and credit valuation adjustments. The rules retain the existing risk weighting treatment on residential real estate loans.

Given our current capital position and the grandfathering of our existing trust preferred securities and our expectation that we will continue to generate capital through earnings, we do not currently anticipate significant changes to our business strategy in order to achieve compliance with these capital rules. In evaluating the potential impact of the final rules on us, we have focused primarily on the following:

• The Tier 1 capital treatment of our existing $244.8 million in trust preferred securities is grandfathered in under the rules unless we pursue balance sheet growth through acquisitions.

• The rules provide for an increased risk weighting on unfunded commitments of less than one year from zero percent to 20 percent unless the commitments are unconditionally cancellable at any time.

• The rules provide for higher risk weighting on certain derivatives including the removal of the existing 50% cap and the inclusion of certain derivatives depending on investment grade.

• The rules provide for an increased risk weighting on certain non-performing loans from 100 percent to 150 percent.

• The rules provide for an increased risk weighting from 100 percent to 150 percent on certain commercial real estate exposures that are considered high volatility commercial real estate ("HVCRE") loans (certain loans not conforming to Supervisory LTV guidelines that are used to finance the acquisition, development, or construction of real property,

105

excluding one-to-four family residential loans) under the proposal. We expect that our construction loans and certain of our commercial real estate loans would likely be considered HVCRE loans as proposed.

The regulations require us to comply with most aspects of the rules, including the minimum regulatory capital ratios (without giving effect to the capital conservation buffer), beginning on January 1, 2015, and we will be required to comply with the capital conservation buffer requirements which will be phased in beginning on January 1, 2016 with full compliance by January 1, 2019.

Dividends

We declared dividends of $0.01 per common share during the third quarter 2013, unchanged from 2012. Based on the closing stock price at September 30, 2013 of $21.40, the annualized dividend yield on our common stock was 0.19%. The dividend payout ratio, which represents the percentage of common dividends declared to stockholders to basic earnings per share, was 2.38% for the third quarter 2013 compared to 3.70% for the third quarter 2012. We have no current plans to seek to raise dividends on our common stock.

For additional information regarding limitations and restrictions on our ability to pay dividends, refer to the "Supervision and Regulation" and "Risk Factors" sections of our 2012 Annual Report on Form 10-K.

Stock Repurchases and Issuances and Conversion of Nonvoting Common Stock

We currently do not have a stock repurchase program in place; however, we have repurchased shares in connection with the administration of our employee benefit plans. Under the terms of these plans, we accept shares of common stock from plan participants if they elect to surrender previously-owned shares upon exercise of options to cover the exercise price or, in the case of both restricted shares of common stock or stock options, the withholding of shares to satisfy tax withholding obligations associated with the vesting of restricted shares or exercise of stock options. During the third quarter 2013, we repurchased 1,325 shares with an average value of $22.71 per share.

During first quarter 2013, the Company began issuing shares from treasury upon the exercise of stock options, granting of restricted stock awards and the settlement of share unit awards pursuant to its share-based compensation plans. At September 30, 2013, the Company held 313,000 shares in the treasury and 947,000 at December 31, 2012. The reduction in shares held is primarily attributable to the annual granting of restricted stock awards in February 2013 as part of the Company's 2012 annual incentive and 2013 long-term incentive programs. Prior to 2013, the Company issued new shares to fulfill its obligation to settle share-based awards.

During the second quarter 2013, holders of our nonvoting common stock sold 1.95 million shares of our nonvoting common stock and, upon settlement, were converted to shares of voting common stock on a one for one basis in accordance with their terms. At September 30, 2013, 1.59 million shares of nonvoting common stock remained outstanding.

NON-U.S. GAAP FINANCIAL MEASURES

This report contains both U.S. GAAP and non-U.S. GAAP based financial measures. These non-U.S. GAAP financial measures include net interest income, net interest margin, net revenue, operating profit, and efficiency ratio all on a fully taxable-equivalent basis, return on average tangible common equity, Tier 1 common equity to risk-weighted assets, tangible equity to tangible assets, tangible equity to risk-weighted assets, tangible common equity to tangible assets, and tangible book value. We believe that presenting these non-U.S. GAAP financial measures will provide information useful to investors in understanding our underlying operational performance, our business, and performance trends and facilitates comparisons with the performance of others in the banking industry.

We use net interest income on a taxable-equivalent basis in calculating various performance measures by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments assuming a 35% tax rate. Management believes this measure to be the preferred industry measurement of net interest income as it enhances comparability to net interest income arising from taxable and tax-exempt sources, and accordingly believes that providing this measure may be useful for peer comparison purposes.

In addition to capital ratios defined by banking regulators, we also consider various measures when evaluating capital utilization and adequacy, including return on average tangible common equity, Tier 1 common equity to risk-weighted assets, tangible equity to tangible assets, tangible equity to risk-weighted assets, tangible common equity to tangible assets, and tangible book value. These calculations are intended to complement the capital ratios defined by banking regulators for both absolute and comparative

106

purposes. All of these measures exclude the ending balances of goodwill and other intangibles while certain of these ratios exclude preferred capital components. Because U.S. GAAP does not include capital ratio measures, we believe there are no comparable U.S. GAAP financial measures to these ratios. We believe these non-U.S. GAAP financial measures are relevant because they provide information that is helpful in assessing the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of our capitalization to other companies. However, because there are no standardized definitions for these ratios, our calculations may not be comparable with other companies, and this may affect the usefulness of these measures to investors. Calculations of the Tier 1 common equity to risk-weighted assets ratio contained herein exclude the effect of the final Basel III capital rules adopted and issued by the Federal Reserve Board in July 2013, which are effective January 1, 2014 with compliance required January 1, 2015.

Non-U.S. GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-U.S. GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under U.S. GAAP. As a result, we encourage readers to consider our Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

107

The following table reconciles non-U.S. GAAP financial measures to U.S. GAAP.

Table 32

Non-U.S. GAAP Financial Measures

(Dollars in thousands, except per share data)

(Unaudited)

	Quarters Ended
	2013									2012
	September 30			June 30			March 31			December 31			September 30
Taxable-equivalent net interest income
U.S. GAAP net interest income	$	105,835		$	103,732		$	103,040		$	104,803		$	105,408
Taxable-equivalent adjustment	818			805			784			765			729
Taxable-equivalent net interest income (a)	$	106,653		$	104,537		$	103,824		$	105,568		$	106,137
Average Earning Assets(b)	$	13,154,557		$	12,858,942		$	13,026,571		$	13,115,687		$	12,420,769
Net Interest Margin((a)annualized) / (b)	3.18		%	3.22		%	3.19		%	3.16		%	3.35		%
Net Revenue
Taxable-equivalent net interest income (a)	$	106,653		$	104,537		$	103,824		$	105,568		$	106,137
U.S. GAAP non-interest income	27,773			29,009			30,468			29,454			27,837
Net revenue (c)	$	134,426		$	133,546		$	134,292		$	135,022		$	133,974
Operating Profit
U.S. GAAP income before income taxes	$	54,219		$	46,643		$	44,188		$	39,765		$	38,006
Provision for loan and covered loan losses	8,120			8,843			10,357			13,177			13,509
Taxable-equivalent adjustment	818			805			784			765			729
Operating profit	$	63,157		$	56,291		$	55,329		$	53,707		$	52,244
Efficiency Ratio
U.S. GAAP non-interest expense (d)	$	71,269		$	77,255		$	78,963		$	81,315		$	81,730
Net revenue	$	134,426		$	133,546		$	134,292		$	135,022		$	133,974
Efficiency ratio (d) / (c)	53.02		%	57.85		%	58.80		%	60.22		%	61.00		%
Adjusted Net Income
U.S. GAAP net income available to common stockholders	$	33,058		$	28,915		$	27,270		$	20,040		$	19,607
Amortization of intangibles, net of tax	472			473			473			411			407
Adjusted net income (e)	$	33,530		$	29,388		$	27,743		$	20,451		$	20,014
Average Tangible Common Equity
U.S. GAAP average total equity	$	1,257,541		$	1,250,141		$	1,227,628		$	1,260,875		$	1,356,244
Less: average goodwill	94,494			94,506			94,519			94,531			94,544
Less: average other intangibles	10,865			11,644			12,426			13,152			13,820
Less: average preferred stock	—			—			—			60,409			241,389
Average tangible common equity (f)	$	1,152,182		$	1,143,991		$	1,120,683		$	1,092,783		$	1,006,491
Return on average tangible common equity ((e) annualized) / (f)	11.55		%	10.30		%	10.04		%	7.45		%	7.91		%

108

Non-U.S. GAAP Financial Measures (Continued)

	Nine Months Ended September 30,
	2013			2012
Taxable-equivalent net interest income
U.S. GAAP net interest income	$	312,607		$	315,130
Taxable-equivalent adjustment	2,407			2,109
Taxable-equivalent net interest income (a)	$	315,014		$	317,239
Average Earning Assets(b)	$	13,013,825		$	12,123,534
Net Interest Margin((a) annualized) / (b)	3.19		%	3.44		%
Net Revenue
Taxable-equivalent net interest income (a)	$	315,014		$	317,239
U.S. GAAP non-interest income	87,250			81,587
Net revenue (c)	$	402,264		$	398,826
Operating Profit
U.S. GAAP income before income taxes	$	145,050		$	92,652
Provision for loan and covered loan losses	27,320			58,248
Taxable-equivalent adjustment	2,407			2,109
Operating profit	$	174,777		$	153,009
Efficiency Ratio
U.S. GAAP non-interest expense (d)	$	227,487		$	245,817
Net revenue (c)	$	402,264		$	398,826
Efficiency ratio (d) / (c)	56.55		%	61.64		%
Adjusted Net Income
U.S. GAAP net income available to common stockholders	$	89,243		$	44,488
Amortization of intangibles, net of tax	1,419			1,215
Adjusted net income (e)	$	90,662		$	45,703
Average Tangible Common Equity
U.S. GAAP average total equity	$	1,245,214		$	1,334,671
Less: average goodwill	94,506			94,556
Less: average other intangibles	11,640			14,387
Less: average preferred stock	—			240,996
Average tangible common equity (f)	$	1,139,068		$	984,732
Return on average tangible common equity ((e) annualized) / (f)	10.67		%	6.2		%

109

Non-U.S. GAAP Financial Measures (Continued)

	2013									2012
	September 30			June 30			March 31			December 31			September 30
Tier 1 Common Capital
U.S. GAAP total equity	$	1,273,688		$	1,233,040		$	1,232,065		$	1,207,166		$	1,363,440
Trust preferred securities	244,793			244,793			244,793			244,793			244,793
Less: accumulated other comprehensive income, net of tax	18,323			14,180			44,285			48,064			55,818
Less: goodwill	94,484			94,496			94,509			94,521			94,534
Less: other intangibles	10,486			11,266			12,047			12,828			13,500
Tier 1 risk-based capital	1,395,188			1,357,891			1,326,017			1,296,546			1,444,381
Less: preferred stock	—			—			—			—			241,585
Less: trust preferred securities	244,793			244,793			244,793			244,793			244,793
Tier 1 common capital (g)	$	1,150,395		$	1,113,098		$	1,081,224		$	1,051,753		$	958,003
Tangible Common Equity
U.S. GAAP total equity	$	1,273,688		$	1,233,040		$	1,232,065		$	1,207,166		$	1,363,440
Less: goodwill	94,484			94,496			94,509			94,521			94,534
Less: other intangibles	10,486			11,266			12,047			12,828			13,500
Tangible equity (h)	1,168,718			1,127,278			1,125,509			1,099,817			1,255,406
Less: preferred stock	—			—			—			—			241,585
Tangible common equity (i)	$	1,168,718		$	1,127,278		$	1,125,509		$	1,099,817		$	1,013,821
Tangible Assets
U.S. GAAP total assets	$	13,869,140		$	13,476,493		$	13,372,230		$	14,057,515		$	13,278,554
Less: goodwill	94,484			94,496			94,509			94,521			94,534
Less: other intangibles	10,486			11,266			12,047			12,828			13,500
Tangible assets (j)	$	13,764,170		$	13,370,731		$	13,265,674		$	13,950,166		$	13,170,520
Risk-weighted Assets(k)	$	12,630,779		$	12,294,375		$	12,164,677		$	12,337,398		$	11,804,578
Period-end Common Shares     Outstanding(l)	77,680			77,630			77,649			77,115			72,436
Ratios:
Tier 1 common equity to risk-weighted assets (g) / (k)	9.11		%	9.05		%	8.89		%	8.52		%	8.12		%
Tangible equity to tangible assets (h) / (j)	8.49		%	8.43		%	8.48		%	7.88		%	9.53		%
Tangible equity to risk-weighted assets (h) / (k)	9.25		%	9.17		%	9.25		%	8.91		%	10.63		%
Tangible common equity to tangible assets (i) / (j)	8.49		%	8.43		%	8.48		%	7.88		%	7.70		%
Tangible book value (i) / (l)	$	15.05		$	14.52		$	14.49		$	14.26		$	14.00

110

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

As a continuing part of our asset/liability management, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. We may manage interest rate risk by structuring the asset and liability characteristics of our balance sheet and/or by executing derivatives designated as cash flow hedges. We initiated the use of interest rate derivatives as part of our asset liability management strategy in July 2011 to hedge interest rate risk in our primarily floating-rate loan portfolio and, depending on market conditions have continued the use of such hedges.

Interest rate changes do not affect all categories of assets and liabilities equally or simultaneously. There are other factors that are difficult to measure and predict that would influence the effect of interest rate fluctuations on our Consolidated Statements of Income.

The majority of our interest-earning assets are floating rate instruments. At September 30, 2013, approximately 75% of the total loan portfolio is indexed to LIBOR, 18% of the total loan portfolio is indexed to the prime rate, and another 2% of the total loan portfolio otherwise adjusts with other reference interest rates. Of the $6.9 billion in loans maturing after one year with a floating interest rate, $1.4 billion are subject to interest rate floors, of which 91% are in effect at September 30, 2013 and are reflected in the interest sensitivity analysis below. To manage the interest rate risk of our balance sheet, we have the ability to use a combination of financial instruments, including medium-term and short-term financings, variable-rate debt instruments, fixed rate loans and securities and interest rate swaps.

We use a simulation model to estimate the potential impact of various interest rate changes on our income statement and our interest-earning asset and interest-bearing liability portfolios. The starting point of the analysis is the current size and nature of these portfolios at the beginning of the measurement period as well as the then-current applicable pricing structures. During the twelve-month measurement period, the model will re-price assets and liabilities based on the contractual terms and market rates in effect at the beginning of the measurement period and assuming instantaneous parallel shifts in the applicable yield curves and instruments remain at that new interest rate through the end of the twelve-month measurement period. The model only analyzes changes in the portfolios based on assets and liabilities at the beginning of the measurement period and does not assume any changes from growth or business plans over the following twelve months.

The sensitivity analysis is based on numerous assumptions including: the nature and timing of interest rate levels including the shape of the yield curve, prepayments on loans and securities, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, non-maturity deposit behavior and others. While our assumptions are developed based upon current economic and local market conditions, historical loan and deposit data and other quantitative and qualitative factors, we cannot make any assurances as to the predictive nature of these assumptions. Market factors, client preferences or behavior, and competitor influences might change and cause a divergence from these assumptions. In addition, the simulation model assumes certain one-time instantaneous interest rate shifts that are consistent across all yield curves and do not continue to increase over the measurement period. As such, these assumptions and modeling reflect an estimation of the sensitivity to interest rates or market risk and do not predict the timing and direction of interest rates or the shape and steepness of the yield curves. Therefore, the actual results may differ materially from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

Modeling the sensitivity of net interest income to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. We periodically review and adjust these assumptions based on various internal and external factors including balance sheet changes, product offerings, product mix, external micro- and macro-economic factors, anticipated client behavior and anticipated Company and market pricing behavior. The majority of our deposits are from commercial clients, many of which tend to be large accounts, and it is particularly difficult to predict the deposit flows and pricing sensitivity of these depositors in a rising rate environment.

The decrease in the overall interest rate sensitivity, as measured by income simulations, from the prior year end, as reflected in the table below, is primarily due to a $583 million decrease in noninterest-bearing demand deposits over that time. A reduction in noninterest-bearing demand deposits decreases our overall interest rate sensitivity because they fund rate-responsive assets but are not themselves sensitive to interest rates. In addition, through the first three quarters of 2013, overall short-term cash balances on deposit with the Federal Reserve decreased, while loans and investments increased. The reduction in cash and an increase in the investment portfolio and loans represent a rotation into assets that, in aggregate, are less rate sensitive than short-term cash. That is because, while investments and loan assets are rate sensitive, they are less so than cash on deposit with the Federal Reserve which deposits reprice daily and are therefore inherently interest rate sensitive. Further, borrowings have increased since December 31, 2012, comprised primarily of short-term FHLB advances, which further offset overall asset sensitivity. Taken together, a

111

reduction in highly rate sensitive assets, and a rotation out of non-sensitive liabilities and into rate sensitive liabilities produced a decrease in overall rate sensitivity.

We recently re-categorized certain deposits and loans in our modeling in an effort to allow us to analyze and consider their interest rate sensitivity on a more granular and tailored level. In conjunction with such newly defined categories, during the third quarter, we updated and revised the assumptions related to some of our deposits, such as sensitivity to interest rates related to deposit pricing. The cumulative impact of these changes slightly decreased overall asset sensitivity (primarily due to the expectation that larger-sized deposits will be more interest rate sensitive than smaller-sized deposits). We will continue to periodically review and refine, as appropriate, the assumptions used in our interest rate risk modeling. Based on the modeling and underlying assumptions, the Company remains in an asset sensitive position and the illustrative model indicates we would benefit from a rise in interest rates.

The following table shows the estimated impact of an immediate change in interest rates as of September 30, 2013 based on our current simulation modeling assumptions and as of December 31, 2012, as previously reported in our 2012 Annual Report on Form 10-K.

Analysis of Net Interest Income Sensitivity

(Dollars in thousands)

	Immediate Change in Rates
	-50			+50			+100			+200			+300
September 30, 2013
Dollar change	$	(6,139	)	$	14,056		$	26,421		$	56,465		$	89,804
Percent change	-1.6		%	3.6		%	6.7		%	14.3		%	22.7		%
December 31, 2012
Dollar change	$	(13,496	)	$	20,240		$	40,417		$	82,421		$	127,855
Percent change	-3.5		%	5.3		%	10.6		%	21.6		%	33.6		%

The estimated impact to our net interest income over a one-year period is reflected in dollar terms and percentage change. As an example, this table illustrates that if there had been an instantaneous parallel shift in the yield curve of +100 basis points on September 30, 2013, net interest income would increase by $26.4 million or 6.7% over a twelve-month period, as compared to a net interest income increase of $40.4 million, or 10.6% if there had been an instantaneous parallel shift of +100 basis points at December 31, 2012.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In June 2013, we were served with a complaint naming the Bank as an additional defendant in a lawsuit pending in the Circuit Court of the 21st Judicial Circuit, Kankakee County, Illinois known as Maas vs. Marek et. al. There have been no material developments during the third quarter 2013 in this lawsuit. For more information, please see Item 1. Legal Proceedings of Part II of the Company's Form 10-Q for the quarter ended June 30, 2013. Although this litigation is in the early stages and we are not

112

able to predict the likelihood of an adverse outcome, we currently anticipate that ultimate resolution of this matter will not have a material adverse impact on our financial condition or results of operations.

As of September 30, 2013, there were various other legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. Management does not believe that the outcome of these proceedings will have, individually or in the aggregate, a material adverse effect on the Company’s results of operations, financial condition or cash flows.

ITEM 1A. RISK FACTORS

Before making a decision to invest in our securities, you should carefully consider the information discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012, regarding our business, financial condition or future results. You should also consider information included in this report, including the information set forth in Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement Regarding Forward-Looking Statements."

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table summarizes the Company's monthly common stock purchases during the quarter ended September 30, 2013, which are solely in connection with the administration of our employee share-based compensation plans. Under the terms of these plans, we accept shares of common stock from plan participants if they elect to surrender previously-owned shares upon exercise of options to cover the exercise price or, in the case of both restricted shares of common stock and stock options, the withholding of shares to satisfy tax withholding obligations associated with the vesting of restricted shares or exercise of stock options.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
July 1 - July 31, 2013	1,000	$	22.74	—	—
August 1 - August 31, 2013	114	24.14		—	—
September 1 - September 30, 2013	211	21.79		—	—
Total	1,325	$	22.71	—	—

⁽¹⁾  Does not include shares forfeited by departing employees that were surrendered pursuant to the terms of non-compete provisions.

Unregistered Sale of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

113

ITEM 6. EXHIBITS

Exhibit Number	Description of Documents
3.1	Restated Certificate of Incorporation of PrivateBancorp, Inc., dated August 6, 2013 is incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-34006) filed on August 7, 2013.
3.2	Amended and Restated By-laws of PrivateBancorp, Inc. are incorporated herein by reference to Exhibit 3.5 to the Annual Report on Form 10-K (File No. 001-34066) filed on March 1, 2010.
3.3	Amendment to Amended and Restated By-laws of PrivateBancorp, Inc., is incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-34066) filed on May 24, 2013.
4.1	Certain instruments defining the rights of the holders of certain securities of PrivateBancorp, Inc. and certain of its subsidiaries, none of which authorize a total amount of securities in excess of 10% of the total assets of PrivateBancorp, Inc. and its subsidiaries on a consolidated basis, have not been filed as exhibits. PrivateBancorp, Inc. hereby agrees to furnish a copy of any of these agreements to the Securities and Exchange Commission upon request.
4.2	Form of Preemptive and Registration Rights Agreement dated as of November 26, 2007 is incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-34066) filed on November 27, 2007.
4.3	Amendment No. 1 to Preemptive and Registration Rights Agreement dated as of June 17, 2009 by and among PrivateBancorp, Inc., GTCR Fund IX/A, L.P., GTCR Fund IX/B, L.P., and GTCR Co-Invest III, L.P., is incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-34066) filed on June 19, 2009.
11	Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per share is included in Note 12 of the Company’s Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" of this report on Form 10-Q.
12 (a)	Statement re: Computation of Ratio of Earnings to Fixed Charges.
15 (a)	Acknowledgment of Independent Registered Public Accounting Firm.
31.1 (a)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 (a)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 (a) (b)	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.
99 (a) (b)	Report of Independent Registered Public Accounting Firm.
101 (a)	The following financial statements from the PrivateBancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 4, 2013, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

(a)	Filed herewith.
(b)	This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

114

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

PrivateBancorp, Inc.

/s/ Larry D. Richman

Larry D. Richman

President and Chief Executive Officer

/s/ Kevin M. Killips

Kevin M. Killips

Chief Financial Officer and Principal Financial Officer

Date: November 4, 2013

115