PRIVATEBANCORP, INC - FORM 10-Q

Attached files

file	filename
EX-99 - EXHIBIT 99 - PRIVATEBANCORP, INC	pvtb0331201710-qex99.htm
EX-32 - EXHIBIT 32 - PRIVATEBANCORP, INC	pvtb0331201710-qex32.htm
EX-31.2 - EXHIBIT 31.2 - PRIVATEBANCORP, INC	pvtb0331201710-qex312.htm
EX-31.1 - EXHIBIT 31.1 - PRIVATEBANCORP, INC	pvtb0331201710-qex311.htm
EX-15 - EXHIBIT 15 - PRIVATEBANCORP, INC	pvtb0331201710-qex15.htm
EX-12 - EXHIBIT 12 - PRIVATEBANCORP, INC	pvtb0331201710-qex12.htm

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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 March 31, 2017



¨	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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨

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

		Emerging growth company	¨



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
		¨

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 May 9, 2017, there were 80,074,161 shares of the issuer’s voting common stock, no par value, outstanding.

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PRIVATEBANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS



	Page
Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Financial Condition	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Changes in Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3. Quantitative and Qualitative Disclosures About Market Risk	88

Item 4. Controls and Procedures	90

Part II. OTHER INFORMATION

Item 1. Legal Proceedings	90

Item 1A. Risk Factors	91

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	91

Item 3. Defaults Upon Senior Securities	91

Item 4. Mine Safety Disclosures	91

Item 5. Other Information	91

Item 6. Exhibits	92

Signatures	93

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands, except shares and per share data)



	March 31, 2017			December 31, 2016
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	166,012		$	161,168
Federal funds sold and interest-bearing deposits in banks	335,943			587,563
Loans held-for-sale	42,276			103,284
Securities available-for-sale, at fair value (pledged as collateral to creditors: $84.9 million - 2017; $86.6 million - 2016)	2,112,165			2,013,525
Securities held-to-maturity, at amortized cost (fair value: $1.8 billion - 2017; $1.7 billion - 2016)	1,801,973			1,738,123
Federal Home Loan Bank ("FHLB") stock	38,163			54,163
Loans – excluding covered assets, net of unearned fees	15,591,656			15,056,241
Allowance for loan losses	(194,615		)	(185,765		)
Loans, net of allowance for loan losses and unearned fees	15,397,041			14,870,476
Covered assets	21,181			22,063
Allowance for covered loan losses	(4,931		)	(4,766		)
Covered assets, net of allowance for covered loan losses	16,250			17,297
Other real estate owned, excluding covered assets	8,888			10,203
Premises, furniture, and equipment, net	45,050			46,967
Accrued interest receivable	57,316			57,986
Investment in bank owned life insurance	58,449			58,115
Goodwill	94,041			94,041
Other intangible assets	748			1,269
Derivative assets	21,511			27,965
Other assets	220,392			211,628
Total assets	$	20,416,218		$	20,053,773
Liabilities
Deposits:
Noninterest-bearing	$	5,258,941		$	5,196,587
Interest-bearing	11,449,774			10,868,642
Total deposits	16,708,715			16,065,229
Short-term borrowings	1,195,318			1,544,746
Long-term debt	338,335			338,310
Accrued interest payable	9,590			9,063
Derivative liabilities	15,420			18,122
Other liabilities	153,849			158,628
Total liabilities	18,421,227			18,134,098
Equity
Common stock (no par value, $1 stated value; authorized shares: 174 million; issued and outstanding shares: 80,023,549 - 2017 and 79,849,213 - 2016)	79,765			79,313
Additional paid-in capital	1,117,982			1,101,946
Retained earnings	793,927			736,798
Accumulated other comprehensive income, net of tax	3,317			1,618
Total equity	1,994,991			1,919,675
Total liabilities and equity	$	20,416,218		$	20,053,773

See accompanying notes to consolidated financial statements.

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PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Interest Income
Loans, including fees	$	165,180		$	140,067
Federal funds sold and interest-bearing deposits in banks	549			340
Securities:
Taxable	18,436			15,210
Exempt from Federal income taxes	2,412			2,333
Other interest income	290			150
Total interest income	186,867			158,100
Interest Expense
Deposits	18,405			13,141
Short-term borrowings	2,324			230
Long-term debt	5,120			5,211
Total interest expense	25,849			18,582
Net interest income	161,018			139,518
Provision for loan and covered loan losses	8,408			6,402
Net interest income after provision for loan and covered loan losses	152,610			133,116
Non-interest Income
Asset management	5,590			4,725
Mortgage banking	2,450			2,969
Capital markets products	6,924			5,199
Treasury management	9,247			8,186
Loan, letter of credit and commitment fees	5,551			5,200
Syndication fees	5,962			5,434
Deposit service charges and fees and other income	1,502			1,358
Net securities gains	57			531
Total non-interest income	37,283			33,602
Non-interest Expense
Salaries and employee benefits	73,139			58,339
Net occupancy and equipment expense	8,037			7,215
Technology and related costs	6,680			5,293
Marketing	4,770			4,404
Professional services	4,851			2,994
Outsourced servicing costs	994			1,840
Net foreclosed property (income) expenses	(189		)	566
Postage, telephone, and delivery	852			840
Insurance	4,178			3,820
Loan and collection expense	1,968			1,532
Other expenses	5,129			3,650
Total non-interest expense	110,409			90,493
Income before income taxes	79,484			76,225
Income tax provision	21,532			26,673
Net income available to common stockholders	$	57,952		$	49,552
Per Common Share Data
Basic earnings per share	$	0.72		$	0.63
Diluted earnings per share	$	0.70		$	0.62
Cash dividends declared	$	0.01		$	0.01
Weighted-average common shares outstanding	79,516			78,550
Weighted-average diluted common shares outstanding	81,300			79,856

See accompanying notes to consolidated financial statements.

Note: Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

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PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Net income	$	57,952		$	49,552
Other comprehensive income:
Available-for-sale securities:
Net unrealized gains	4,431			18,930
Reclassification of net gains included in net income	(57		)	(531		)
Income tax expense	(1,671		)	(7,079		)
Net unrealized gains on available-for-sale securities	2,703			11,320
Cash flow hedges:
Net unrealized (losses) gains	(421		)	12,008
Reclassification of net gains included in net income	(1,213		)	(2,190		)
Income tax benefit (expense)	630			(3,799		)
Net unrealized (losses) gains on cash flow hedges	(1,004		)	6,019
Other comprehensive income	1,699			17,339
Comprehensive income	$	59,651		$	66,891

See accompanying notes to consolidated financial statements.

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PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except per share data)

(Unaudited)



	Common Shares Out- standing		Common Stock			Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumu- lated Other Compre- hensive Income		Total
Balance at January 1, 2016	79,097		$	78,439		$	(103	)	$	1,071,674		$	531,682		$	17,259	$	1,698,951
Comprehensive income ⁽¹⁾	—		—			—			—			49,552			17,339		66,891
Cash dividends declared ($0.01 per common share)	—		—			—			—			(816		)	—		(816		)
Common stock issued for:
Nonvested (restricted) stock grants	263		—			—			—			—			—		—
Exercise of stock options	53		44			311			625			—			—		980
Restricted stock activity	32		408			—			(408		)	—			—		—
Deferred compensation plan	5		3			66			222			—			—		291
Stock repurchased in connection with benefit plans	(128	)	—			(4,663		)	—			—			—		(4,663		)
Share-based compensation expense	—		—			—			6,357			—			—		6,357
Balance at March 31, 2016	79,322		$	78,894		$	(4,389	)	$	1,078,470		$	580,418		$	34,598	$	1,767,991
Balance at January 1, 2017	79,849		$	79,313		$	—		$	1,101,946		$	736,798		$	1,618	$	1,919,675
Comprehensive income ⁽¹⁾	—		—			—			—			57,952			1,699		59,651
Cash dividends declared ($0.01 per common share)	—		—			—			—			(823		)	—		(823		)
Common stock issued for:
Exercise of stock options	217		217			—			5,593			—			—		5,810
Restricted stock activity	62		339			—			(339		)	—			—		—
Deferred compensation plan	2		2			—			498			—			—		500
Stock repurchased in connection with benefit plans	(106	)	(106		)	—			(6,033		)	—			—		(6,139		)
Share-based compensation expense	—		—			—			16,317			—			—		16,317
Balance at March 31, 2017	80,024		$	79,765		$	—		$	1,117,982		$	793,927		$	3,317	$	1,994,991


⁽¹⁾	Net of taxes and reclassification adjustments.

See accompanying notes to consolidated financial statements.

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PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Operating Activities
Net income	$	57,952		$	49,552
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and covered loan losses	8,408			6,402
Provision for unfunded commitments	753			595
Depreciation, impairment, and adjustments of premises, furniture, and equipment	3,416			2,348
Net amortization of premium on securities	5,993			5,099
Net gains on sale of securities	(57		)	(531		)
Valuation adjustments on other real estate owned	480			588
Net losses on sale of other real estate owned	6			24
Net accretion of discount on covered assets	—			(51		)
Bank owned life insurance income	(334		)	(358		)
Net increase in deferred loan fees and unamortized discounts and premiums on loans	4,050			3,415
Share-based compensation expense	16,317			6,357
Excess tax benefit from exercise of stock options and vesting of restricted shares	(4,885		)	(2,081		)
Deferred income tax (benefit) expense	(894		)	1,300
Amortization of other intangibles	521			540
Originations and purchases of loans held-for-sale	(68,919		)	(101,612		)
Proceeds from sales of loans held-for-sale	133,091			149,001
Net gains from sales of loans held-for-sale	(2,872		)	(2,604		)
Net decrease (increase) in derivative assets and liabilities	3,752			(21,522		)
Net decrease (increase) in accrued interest receivable	670			(1,867		)
Net increase (decrease) in accrued interest payable	527			(450		)
Net (increase) decrease in other assets	(10,837		)	24,490
Net decrease in other liabilities	(622		)	(6,031		)
Net cash provided by operating activities	146,516			112,604
Investing Activities
Available-for-sale securities:
Proceeds from maturities, prepayments, and calls	51,717			49,584
Proceeds from sales	18,029			26,682
Purchases	(167,434		)	(126,833		)
Held-to-maturity securities:
Proceeds from maturities, prepayments, and calls	57,478			41,308
Purchases	(123,842		)	(144,869		)
Net redemption (purchase) of FHLB stock	16,000			(11,500		)
Net increase in loans	(539,006		)	(205,715		)
Net decrease in covered assets	1,017			1,084
Proceeds from sale of other real estate owned	842			1,149
Net purchases of premises, furniture, and equipment	(1,499		)	(1,660		)
Net cash used in investing activities	(686,698		)	(370,770		)
Financing Activities
Net increase in deposit accounts	643,486			119,277
Net increase (decrease) in short-term borrowings, excluding FHLB advances	572			(102		)
Net (decrease) increase in FHLB advances	(350,000		)	230,000
Stock repurchased in connection with benefit plans	(6,139		)	(4,663		)
Cash dividends paid	(823		)	(809		)
Proceeds from exercise of stock options and issuance of common stock under benefit plans	6,310			1,271
Net cash provided by financing activities	293,406			344,974
Net (decrease) increase in cash and cash equivalents	(246,776		)	86,808
Cash and cash equivalents at beginning of year	748,731			383,658
Cash and cash equivalents at end of period	$	501,955		$	470,466

See accompanying notes to consolidated financial statements.

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PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Amounts in thousands)

(Unaudited)



	Three Months Ended March 31,
	2017		2016
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	25,322	$	19,032
Cash paid for income taxes	619		3,272
Non-cash transfers of loans to loans held-for-sale	8,641		28,335
Non-cash transfers of loans to other real estate	13		9,294

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Nature of Operations – PrivateBancorp, Inc. (“PrivateBancorp” or the “Company”), a Delaware corporation incorporated in 1989, is a Chicago-based bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company is the holding company for The PrivateBank and Trust Company (“PrivateBank” or the “Bank”), an Illinois-chartered bank founded in Chicago in 1991. Through the Bank, we provide customized business and personal financial services to middle market companies, as well as business owners, executives, entrepreneurs and families in the markets and communities we serve.

Pending Transaction with Canadian Imperial Bank of Commerce – On June 29, 2016, the Company entered into a definitive merger agreement (the “Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”), a Canadian chartered bank, and CIBC Holdco Inc. (“Holdco”), a newly-formed Delaware corporation and a direct, wholly owned subsidiary of CIBC, which contemplates that the Company will merge with and into Holdco, with Holdco surviving the merger. Following the merger, the Bank will be headquartered in Chicago, Illinois, retain its Illinois state banking charter and be an indirect, wholly owned subsidiary of CIBC. As described in the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2016, the original Agreement had provided that, at the effective time of the merger, each share of common stock, without par value, of PrivateBancorp was to be converted into the right to receive 0.3657 of a CIBC common share and $18.80 in cash.

On March 30, 2017, the Company entered into an amendment to the original Agreement, which, as described in the Current Report on Form 8-K filed with the SEC on such date, increased the per share merger consideration to 0.4176 and $24.20 in cash. On May 4, 2017, the Agreement was further amended, as described in the Current Report on Form 8-K filed with the SEC on such date, to increase the per share cash consideration to $27.20. The per share stock consideration of 0.4176 of a CIBC common share was unchanged. As of May 3, 2017, the last trading day before public announcement of the transaction, total consideration for the transaction was valued at approximately $4.9 billion, or $60.43 per share of common stock of the Company, based on CIBC’s closing stock price on such date of $79.58. The actual transaction value will be based on the number of shares of common stock of the Company outstanding at the closing and the price of CIBC common stock as of the closing.

PrivateBancorp stockholders of record as of March 31, 2017 will be entitled to vote on the revised Agreement at the special meeting of stockholders to be held on May 12, 2017. The completion of the transaction remains subject to the receipt of required regulatory and stockholder approvals and other customary closing conditions.

The full text of and additional information about the Agreement and the amendments to the Agreement is included in the Company’s Current Reports on Form 8-K filed with the SEC on July 6, 2016, March 30, 2017 and May 4, 2017.

Direct costs related to the proposed transaction were expensed as incurred and totaled $1.6 million for the three months ended March 31, 2017. These costs were primarily comprised of financial advisor and other professional services fees.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated interim financial statements of PrivateBancorp have been prepared pursuant to the rules and regulations of the SEC 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. GAAP, and (where applicable) in accordance with accounting and reporting guidelines prescribed by bank regulation and authority, 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 full year or any other period.

The accompanying consolidated financial statements include the accounts and results of operations of the Company and the Bank, 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.

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In preparing the consolidated financial statements, we have considered the impact of events occurring subsequent to March 31, 2017, for potential recognition or disclosure. Refer to “Pending Transaction with Canadian Imperial Bank of Commerce” above for additional disclosure of the amendment to the Agreement subsequent to March 31, 2017.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Interests Held through Related Parties that are Under Common Control - On January 1, 2017, we adopted new accounting guidance issued by the Financial Accounting Standards Board (“FASB”) that alters how a decision maker considers indirect interests in a variable interest entity (“VIE”) held through an entity under common control. Under the new ASU, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The guidance is applied prospectively. The adoption of this guidance did not impact our consolidated financial position or consolidated results of operations.

Accounting Pronouncements Pending Adoption

Revenue from Contracts with Customers - In May 2014, August 2015, March 2016, April 2016, May 2016 and December 2016, the FASB issued new revenue recognition guidance that will replace most of the existing revenue recognition guidance in U.S. GAAP. All arrangements involving the transfer of goods or services to customers are within the scope of the guidance, except for certain contracts subject to other U.S. GAAP guidance, including lease contracts and rights and obligations related to financial instruments. The standard’s core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also includes new disclosure requirements related to the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for the Company’s financial statements beginning January 1, 2018. The guidance allows an entity to apply the new standard either retrospectively or through a cumulative-effect adjustment as of January 1, 2018. We have elected to implement this new accounting guidance using a cumulative-effect adjustment. This guidance does not apply to revenue associated with financial instruments, including loans, securities, and derivatives that are accounted for under other U.S. GAAP guidance. For that reason, we do not expect it to have a material impact on our consolidated results of operations for elements of the statement of income associated with financial instruments, including securities gains, interest income and interest expense. However, we do believe the new standard will result in new disclosure requirements. We are currently in the process of reviewing contracts to assess the impact of the new guidance on our service offerings that are in the scope of the guidance, including Treasury Management and Asset Management services. The Company is continuing to evaluate the effect of the new guidance on revenue sources other than financial instruments on our financial position and consolidated results of operations.

Recognition and Measurement of Financial Assets and Financial Liabilities - In January 2016, the FASB issued guidance that amends the accounting for certain financial asset and financial liabilities. The guidance will require the Company to (1) measure certain equity investments at fair value with changes in fair value recognized in earnings, (2) record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income, and (3) assess the realizability of deferred tax assets related to available-for-sale debt securities in combination with the Company’s other deferred tax assets. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. The guidance amends certain disclosure requirements related to financial assets and financial liabilities. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2018. Certain provisions of the standard will be applied through a cumulative-effect adjustment as of January 1, 2018, and other provisions will be applied prospectively. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Leases - In February 2016, the FASB issued guidance that amends the accounting for leases. Under the new guidance, lessees will need to recognize a right-of-use asset and a lease liability for the vast majority of leases. Operating leases will result in straight-line expense, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. Lessor accounting will remain similar to the current model. Lessors will classify leases as operating, direct financing, or sales-type, consistent with the current model. The new guidance will also require extensive quantitative and qualitative disclosures related to the revenue and expense recognized and expected to be recognized over the lease term, as well as significant judgments made by management. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2019, and early adoption is permitted. The new standard must be applied using a modified retrospective transition. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

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Measurement of Credit Losses on Financial Instruments - In June 2016, the FASB issued guidance that changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. For financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures (including loans, held-to-maturity debt securities, and loan commitments), the new guidance will require the Company to record an allowance based on the estimated credit losses expected over the life of the financial instrument or pool of financial instruments. The estimate of lifetime expected credit losses must consider historical information, current conditions, and reasonable and supportable forecasts. The new guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities. The new guidance will require the Company to record an allowance for estimated credit losses on available-for-sale securities when the fair value of the security is below the amortized cost of the asset. Additionally, the guidance expands the disclosure requirements related to the Company’s assumptions, models, and methods for estimating the allowance for credit losses. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2020. Early adoption is permitted beginning January 1, 2019. The new standard will be applied using a modified retrospective approach. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Classification of Certain Cash Receipts and Cash Payments - In August 2016, the FASB issued guidance that clarifies how certain cash receipts and cash payments are presented and classified in the consolidated statements of cash flows. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2018, with early adoption permitted. The guidance will be applied using a retrospective transition method. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Intra-Entity Transfers of Assets Other Than Inventory - In October 2016, the FASB issued guidance that will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use. The guidance is effective for the Company’s financial statements that include periods beginning after January 1, 2018. Early adoption is permitted. The guidance will be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Restricted Cash - In November 2016, the FASB issued clarifying guidance that requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts and that the statement of cash flows explain changes in restricted cash during the period. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2018. Early adoption is permitted. The amendments will be applied using a retrospective transition method. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Clarifying the Definition of a Business - In January 2017, the FASB issued guidance that clarifies when a set of transferred assets and activities is a business. Under the new guidance, an entity will determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of identifiable assets. If this threshold is met, the set of assets and activities is not a business. If the threshold is not met, the entity then evaluates whether the set of assets and activities meets the requirement that a business include an input and a substantive process. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2018. Early adoption is permitted. The amendments will be applied prospectively. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment - In January 2017, the FASB issued guidance that simplifies how an entity assesses goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity will recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2020. Early adoption is permitted. The amendments will be applied prospectively. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets - In February 2017, the FASB amended guidance on how entities account for the derecognition of a nonfinancial asset or an in-substance nonfinancial asset that is not a business. The guidance is effective for the Company’s financial statements that include periods beginning January 1, 2018. The guidance is to be applied using a full retrospective method or a modified retrospective method and is effective for the Company’s financial statements that include periods beginning January 1, 2018. Early adoption is permitted. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

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Premium Amortization on Purchased Callable Debt Securities - In March 2017, the FASB issued guidance that shortens the amortization period for the premium on certain purchased callable debt securities. Specifically, the amendments require the premium to be amortized to the earliest call date. The guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to the maturity date. The guidance will be effective for the Company beginning January 1, 2019 and must be applied using a modified retrospective transition approach. Early adoption is permitted. The Company is in the process of determining the effect of the new guidance on our financial position and consolidated results of operations.

3. SECURITIES

Securities Portfolio

(Amounts in thousands)



	March 31, 2017									December 31, 2016
	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
Available-for-Sale
U.S. Treasury	$	598,573	$	458	$	(6,134	)	$	592,897	$	548,894	$	351	$	(6,950	)	$	542,295
U.S. Agencies	45,927		—		(106		)	45,821		46,043		—		(103		)	45,940
Collateralized mortgage obligations	67,260		2,126		(51		)	69,335		73,228		2,167		(50		)	75,345
Residential mortgage-backed securities	935,346		10,057		(8,017		)	937,386		884,176		10,741		(8,367		)	886,550
State and municipal securities	466,152		4,110		(3,536		)	466,726		466,651		2,630		(5,886		)	463,395
Total	$	2,113,258	$	16,751	$	(17,844	)	$	2,112,165	$	2,018,992	$	15,889	$	(21,356	)	$	2,013,525
Held-to-Maturity
Collateralized mortgage obligations	$	38,556	$	—	$	(1,219	)	$	37,337	$	40,568	$	—	$	(1,295	)	$	39,273
Residential mortgage-backed securities	1,417,781		3,074		(17,804		)	1,403,051		1,378,610		2,529		(20,218		)	1,360,921
Commercial mortgage-backed securities	338,396		769		(4,609		)	334,556		314,622		692		(5,153		)	310,161
State and municipal securities	204		—		—			204		204		—		—			204
Foreign sovereign debt	500		—		(2		)	498		500		—		—			500
Other securities	6,536		422		—			6,958		3,619		92		—			3,711
Total	$	1,801,973	$	4,265	$	(23,634	)	$	1,782,604	$	1,738,123	$	3,313	$	(26,666	)	$	1,714,770

The carrying value of securities pledged to secure public deposits, FHLB advances, trust deposits, Federal Reserve Bank (“FRB”) discount window borrowing availability, derivative transactions, and standby letters of credit with counterparty banks and for other purposes as permitted or required by law totaled $349.7 million and $351.4 million at March 31, 2017 and December 31, 2016, 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 $84.9 million and $86.7 million at March 31, 2017 and December 31, 2016, respectively.

Excluding securities issued or backed by the U.S. Government, its agencies and U.S. Government-sponsored enterprises, there were no investments in securities from one issuer that exceeded 10% of consolidated equity at March 31, 2017 or December 31, 2016.

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The following table presents the fair values of securities with unrealized losses as of March 31, 2017 and December 31, 2016. 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
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
As of March 31, 2017
Securities Available-for-Sale
U.S. Treasury	14	$	342,105	$	(6,134	)	—	$	—	$	—		$	342,105	$	(6,134	)
U.S. Agencies	3	45,821		(106		)	—	—		—			45,821		(106		)
Collateralized mortgage obligations	7	5,414		(51		)	—	—		—			5,414		(51		)
Residential mortgage-backed securities	51	547,366		(8,017		)	—	—		—			547,366		(8,017		)
State and municipal securities	444	197,854		(3,438		)	7	3,037		(98		)	200,891		(3,536		)
Total		$	1,138,560	$	(17,746	)		$	3,037	$	(98	)	$	1,141,597	$	(17,844	)
Securities Held-to-Maturity
Collateralized mortgage obligations	1	$	9,002	$	(216	)	3	$	28,335	$	(1,003	)	$	37,337	$	(1,219	)
Residential mortgage-backed securities	90	970,333		(17,384		)	4	12,631		(420		)	982,964		(17,804		)
Commercial mortgage-backed securities	64	230,846		(4,501		)	1	3,231		(108		)	234,077		(4,609		)
Foreign sovereign debt	1	498		(2		)		—		—			498		(2		)
Total		$	1,210,679	$	(22,103	)		$	44,197	$	(1,531	)	$	1,254,876	$	(23,634	)
As of December 31, 2016
Securities Available-for-Sale
U.S. Treasury	14	$	341,497	$	(6,950	)	—	$	—	$	—		$	341,497	$	(6,950	)
U.S. Agencies	3	45,940		(103		)	—	—		—			45,940		(103		)
Collateralized mortgage obligations	4	4,438		(50		)	—	—		—			4,438		(50		)
Residential mortgage-backed securities	51	535,001		(8,367		)	—	—		—			535,001		(8,367		)
State and municipal securities	686	309,958		(5,764		)	5	2,462		(122		)	312,420		(5,886		)
Total		$	1,236,834	$	(21,234	)		$	2,462	$	(122	)	$	1,239,296	$	(21,356	)
Securities Held-to-Maturity
Collateralized mortgage obligations	1	$	9,261	$	(224	)	3	$	30,012	$	(1,071	)	$	39,273	$	(1,295	)
Residential mortgage-backed securities	92	1,023,841		(19,816		)	4	13,036		(402		)	1,036,877		(20,218		)
Commercial mortgage-backed securities	56	207,235		(5,063		)	1	3,361		(90		)	210,596		(5,153		)
Total		$	1,240,337	$	(25,103	)		$	46,409	$	(1,563	)	$	1,286,746	$	(26,666	)

There were $47.2 million of securities with $1.6 million in an unrealized loss position for greater than 12 months at March 31, 2017. At December 31, 2016, there were $48.9 million of securities with $1.7 million in an unrealized loss position for greater than 12 months. The Company does not consider these unrealized losses to be credit-related. These unrealized losses relate to changes in interest rates and market spreads. We do not intend to sell the securities and we do not believe it is 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.

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We conduct a quarterly assessment of our investment portfolio to determine whether any securities are other-than-temporarily impaired (“OTTI”). There has been no impairment recorded as of March 31, 2017 or December 31, 2016.

The following table presents the remaining contractual maturity of securities as of March 31, 2017, by amortized cost and fair value.

Remaining Contractual Maturity of Securities

(Amounts in thousands)



	March 31, 2017
	Available-for-Sale				Held-To-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasury, U.S. Agencies, state and municipal and foreign sovereign debt and other securities:
One year or less	$	129,138	$	129,204	$	204	$	204
One year to five years	515,772		516,900		500		498
Five years to ten years	430,272		424,979		6,536		6,958
After ten years	35,470		34,361		—		—
All other securities:
Collateralized mortgage obligations	67,260		69,335		38,556		37,337
Residential mortgage-backed securities	935,346		937,386		1,417,781		1,403,051
Commercial mortgage-backed securities	—		—		338,396		334,556
Total	$	2,113,258	$	2,112,165	$	1,801,973	$	1,782,604

The following table presents gains on securities for the three months ended March 31, 2017 and 2016.

Securities Gains (Losses)

(Amounts in thousands)



	Three Months Ended March 31,
	2017			2016
Proceeds from sales	$	18,029		$	26,682
Gross realized gains	$	123		$	553
Gross realized losses	(66		)	(22		)
Net realized gains	$	57		$	531
Income tax provision on net realized gains	$	22		$	205

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.

All non-marketable Community Reinvestment Act (“CRA”) qualified investments, totaling $74.1 million and $59.0 million at March 31, 2017 and December 31, 2016, respectively, are recorded in other assets on the consolidated statements of financial condition. There has been no impairment recorded for the quarter ended March 31, 2017 and year ended December 31, 2016.

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4. LOANS AND CREDIT QUALITY

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 the “Covered Assets” section in this footnote for further information regarding covered loans.

Loan Portfolio

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Commercial and industrial	$	7,865,161	$	7,506,977
Commercial - owner-occupied commercial real estate	2,246,424		2,142,068
Total commercial	10,111,585		9,649,045
Commercial real estate	3,218,566		3,127,373
Commercial real estate - multi-family	1,059,403		993,352
Total commercial real estate	4,277,969		4,120,725
Construction	330,775		417,955
Residential real estate	618,658		581,757
Home equity	112,954		119,049
Personal	139,715		167,710
Total loans	$	15,591,656	$	15,056,241
Net deferred loan fees and unamortized discount and premium on loans, included as a reduction in total loans	$	41,170	$	45,220
Overdrawn demand deposits included in total loans	$	4,971	$	2,160

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.

Loans Held-for-Sale

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Mortgage loans held-for-sale ⁽¹⁾	$	10,219	$	24,934
Other loans held-for-sale ⁽²⁾	32,057		78,350
Total loans held-for-sale	$	42,276	$	103,284


⁽¹⁾	Comprised of residential mortgage loan originations intended to be sold in the secondary market. The Company accounts for these loans under the fair value option. Refer to Note 17 for additional information regarding mortgage loans held-for-sale.


⁽²⁾	Amounts represent commercial, commercial real estate, construction and residential loans carried at the lower of aggregate cost or fair value. Generally, the Company intends to sell these loans within 30-60 days from the date the intent to sell was established.

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Carrying Value of Loans Pledged

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Loans pledged to secure outstanding borrowings or availability:
FRB discount window borrowings ⁽¹⁾	$	922,207	$	818,116
FHLB advances ⁽²⁾	4,427,522		3,855,892
Total	$	5,349,729	$	4,674,008


⁽¹⁾	No borrowings were outstanding at March 31, 2017 and December 31, 2016.


⁽²⁾	Refer to Notes 8 and 9 for additional information regarding FHLB advances.

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 March 31, 2017
Commercial	$	10,031,469	$	9,930	$	2,639	$	—	$	10,044,038	$	67,547	$	10,111,585
Commercial real estate	4,268,237		83		—		—		4,268,320		9,649		4,277,969
Construction	330,775		—		—		—		330,775		—		330,775
Residential real estate	611,642		2,253		—		—		613,895		4,763		618,658
Home equity	109,883		—		—		—		109,883		3,071		112,954
Personal	139,677		24		5		—		139,706		9		139,715
Total loans	$	15,491,683	$	12,290	$	2,644	$	—	$	15,506,617	$	85,039	$	15,591,656
As of December 31, 2016
Commercial	$	9,572,607	$	6,889	$	96	$	—	$	9,579,592	$	69,453	$	9,649,045
Commercial real estate	4,114,409		—		—		—		4,114,409		6,316		4,120,725
Construction	417,955		—		—		—		417,955		—		417,955
Residential real estate	573,667		2,859		640		—		577,166		4,591		581,757
Home equity	115,652		80		—		—		115,732		3,317		119,049
Personal	167,675		19		5		—		167,699		11		167,710
Total loans	$	14,961,965	$	9,847	$	741	$	—	$	14,972,553	$	83,688	$	15,056,241

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, either (i) management believes that 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 (ii) it has been classified as a TDR due to providing a concession to a borrower that is inconsistent with the risk profile.

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The following two tables present our recorded investment in 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 March 31, 2017
Commercial	$	156,917	$	91,096	$	62,425	$	153,521	$	19,186
Commercial real estate	9,649		8,861		788		9,649		130
Residential real estate	4,999		—		4,763		4,763		508
Home equity	5,137		1,934		3,071		5,005		347
Personal	9		—		9		9		4
Total impaired loans	$	176,711	$	101,891	$	71,056	$	172,947	$	20,175
As of December 31, 2016
Commercial	$	141,415	$	104,408	$	28,756	$	133,164	$	10,930
Commercial real estate	6,316		5,169		1,147		6,316		223
Residential real estate	4,708		—		4,591		4,591		406
Home equity	5,740		2,291		3,317		5,608		376
Personal	11		—		11		11		3
Total impaired loans	$	158,190	$	111,868	$	37,822	$	149,690	$	11,938

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

(Amounts in thousands)



	Three Months Ended March 31,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	128,646	$	1,309	$	51,994	$	320
Commercial real estate	6,985		—		8,495		—
Residential real estate	4,491		—		4,129		—
Home equity	5,127		25		8,429		27
Personal	10		—		45		—
Total	$	145,259	$	1,334	$	73,092	$	347


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

Credit Quality Indicators

We attempt to mitigate risk through loan structure, collateral, monitoring, and other credit risk management controls. 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 considered “pass” rated credits that we believe exhibit acceptable financial performance, cash flow, and leverage. Credits rated 6 are performing in accordance with contractual terms but are considered “special mention” as they demonstrate potential weakness that, if left unresolved, may result in deterioration in our 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

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borrowers to meet existing repayment terms in future periods. Potential problem loans continue to accrue interest but the ultimate collection of these loans in full is a risk 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 a declining 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 we 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, a more remote possibility. 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 circumstances warrant.

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 March 31, 2017
Commercial	$	79,777	0.8	$	190,181	1.9	$	67,547	0.7	$	10,111,585
Commercial real estate	14,552		0.3	4,456		0.1	9,649		0.2	4,277,969
Construction	—		—	—		—	—		—	330,775
Residential real estate	5,929		1.0	3,818		0.6	4,763		0.8	618,658
Home equity	381		0.3	152		0.1	3,071		2.7	112,954
Personal	21		*	62		*	9		*	139,715
Total	$	100,660	0.6	$	198,669	1.3	$	85,039	0.5	$	15,591,656
As of December 31, 2016
Commercial	$	173,626	1.8	$	114,090	1.2	$	69,453	0.7	$	9,649,045
Commercial real estate	—		—	4,632		0.1	6,316		0.2	4,120,725
Construction	—		—	—		—	—		—	417,955
Residential real estate	5,449		0.9	3,829		0.7	4,591		0.8	581,757
Home equity	508		0.4	733		0.6	3,317		2.8	119,049
Personal	28		*	61		*	11		*	167,710
Total	$	179,611	1.2	$	123,345	0.8	$	83,688	0.6	$	15,056,241


*	Less than 0.1%

Troubled Debt Restructured Loans

Troubled Debt Restructured Loans Outstanding

(Amounts in thousands)



	March 31, 2017				December 31, 2016
	Accruing		Nonaccrual ⁽¹⁾		Accruing		Nonaccrual ⁽¹⁾
Commercial	$	85,974	$	32,795	$	63,711	$	33,141
Commercial real estate	—		5,101		—		5,857
Residential real estate	—		1,227		—		1,534
Home equity	1,934		2,604		2,291		3,081
Total	$	87,908	$	41,727	$	66,002	$	43,613


⁽¹⁾	Included in nonperforming loans.

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At March 31, 2017 and December 31, 2016, credit commitments to lend additional funds to debtors whose loan terms have been modified in a TDR (both accruing and nonaccruing) totaled $15.0 million and $13.4 million, respectively. The following table presents the type of modification for loans that have been restructured and the post-modification recorded investment during the three months ended March 31, 2017 and 2016.

Additions to Troubled Debt Restructurings During the Period

(Dollars in thousands)



	Extension of Maturity Date ⁽¹⁾			Other Concession⁽²⁾			Total
	Number of Loans	Balance		Number of Loans	Balance		Number of Loans	Balance
Three Months Ended March 31, 2017
Accruing:
Commercial	—	$	—	3	$	33,453	3	$	33,453
Nonaccruing:
Commercial	1	270		2	7,729		3	7,999
Total accruing and nonaccruing additions	1	$	270	5	$	41,182	6	$	41,452
Change in recorded investment due to principal paydown or charge-off at time of modification, net of advances								$	400



Three Months Ended March 31, 2016
Accruing:
Commercial	—	$	—	2	$	15,227	2	$	15,227
Nonaccruing:
Commercial	2	762		—	—		2	762
Commercial real estate	1	77		1	691		2	768
Residential real estate	—	—		1	73		1	73
Home equity	—	—		2	124		2	124
Total accruing and nonaccruing additions	3	$	839	6	$	16,115	9	$	16,954


⁽¹⁾	Extension of maturity date also includes loans renewed at an existing rate of interest that is considered a below market rate for that particular loan’s risk profile.


⁽²⁾	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 population. However, our general reserve methodology considers amount and the nature of TDRs that occurred during the period as a proxy for potentially heightened risk in the portfolio when 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. Our allowance for loan losses included $6.8 million and $1.6 million in specific reserves for TDRs at March 31, 2017, and December 31, 2016, respectively.

During the three months ended March 31, 2017, and the three months ended March 31, 2016, there were no loans that became nonperforming within 12 months of being modified as an accruing TDR. A loan typically becomes nonperforming and placed on nonaccrual status 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 the 90-day past due date.

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Other Real Estate Owned (“OREO”)

The following table presents the composition of property acquired as a result of borrower defaults on loans secured by real property.

OREO Composition

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Single-family homes	$	121	$	186
Land parcels	1,013		1,070
Office/industrial	451		1,003
Retail	7,303		7,944
Total OREO properties	$	8,888	$	10,203

The recorded investment in consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $843,000 at March 31, 2017 and $1.4 million at December 31, 2016.

Covered Assets

Covered assets represent acquired residential mortgage loans and foreclosed real estate covered under a loss share 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. The loss share agreement will expire on September 30, 2019. The carrying amount of covered assets is presented in the following table.

Covered Assets

(Amounts in thousands)



	March 31, 2017			December 31, 2016
Residential mortgage loans ⁽¹⁾	$	19,689		$	20,347
Foreclosed real estate - single-family homes	575			777
Estimated loss reimbursement by the FDIC	917			939
Total covered assets	21,181			22,063
Allowance for covered loan losses	(4,931		)	(4,766		)
Net covered assets	$	16,250		$	17,297


⁽¹⁾	Includes $197,000 and $203,000 of purchased credit-impaired loans as of March 31, 2017 and December 31, 2016, respectively.

The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $120,000 and $194,000 at March 31, 2017 and December 31, 2016, respectively.

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5. ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED COMMITMENTS

The following allowance and credit quality disclosures exclude covered loans. Refer to Note 4 for a discussion regarding covered loans.

Allowance for Loan Losses and Recorded Investment in Loans

(Amounts in thousands)



	Three Months Ended March 31,
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Home Equity			Personal			Total
2017
Allowance for Loan Losses:
Balance at beginning of period	$	141,047		$	30,626		$	6,087		$	3,734		$	2,300		$	1,971		$	185,765
Loans charged-off	(211		)	(111		)	(21		)	(60		)	—			(12		)	(415		)
Recoveries on loans previously charged-off	455			331			7			28			31			35			887
Net recoveries (charge-offs)	244			220			(14		)	(32		)	31			23			472
Provision (release) for loan losses	10,002			(1,014		)	(429		)	1,612			(610		)	(1,183		)	8,378
Balance at end of period	$	151,293		$	29,832		$	5,644		$	5,314		$	1,721		$	811		$	194,615
Ending balance, loans individually evaluated for impairment ⁽¹⁾	$	19,186		$	130		$	—		$	508		$	347		$	4		$	20,175
Ending balance, loans collectively evaluated for impairment	$	132,107		$	29,702		$	5,644		$	4,806		$	1,374		$	807		$	174,440
Recorded Investment in Loans:
Ending balance, loans individually evaluated for impairment ⁽¹⁾	$	153,521		$	9,649		$	—		$	4,763		$	5,005		$	9		$	172,947
Ending balance, loans collectively evaluated for impairment	9,958,064			4,268,320			330,775			613,895			107,949			139,706			15,418,709
Total recorded investment in loans	$	10,111,585		$	4,277,969		$	330,775		$	618,658		$	112,954		$	139,715		$	15,591,656



2016
Allowance for Loan Losses:
Balance at beginning of period	$	117,619		$	27,610		$	5,441		$	4,239		$	3,744		$	2,083		$	160,736
Loans charged-off	(78		)	(1,497		)	—			(484		)	(192		)	(150		)	(2,401		)
Recoveries on loans previously charged-off	187			296			19			19			34			30			585
Net recoveries (charge-offs)	109			(1,201		)	19			(465		)	(158		)	(120		)	(1,816		)
Provision (release) for loan losses	2,960			3,548			(529		)	269			(160		)	348			6,436
Balance at end of period	$	120,688		$	29,957		$	4,931		$	4,043		$	3,426		$	2,311		$	165,356
Ending balance, loans individually evaluated for impairment ⁽¹⁾	$	4,671		$	1,062		$	—		$	243		$	775		$	—		$	6,751
Ending balance, loans collectively evaluated for impairment	$	116,017		$	28,895		$	4,931		$	3,800		$	2,651		$	2,311		$	158,605
Recorded Investment in Loans:
Ending balance, loans individually evaluated for impairment ⁽¹⁾	$	68,204		$	8,242		$	—		$	3,900		$	7,548		$	11		$	87,905
Ending balance, loans collectively evaluated for impairment	8,609,634			3,461,744			537,304			473,363			118,548			169,167			13,369,760
Total recorded investment in loans	$	8,677,838		$	3,469,986		$	537,304		$	477,263		$	126,096		$	169,178		$	13,457,665


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

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Reserve for Unfunded Commitments ⁽¹⁾

(Amounts in thousands)



	Three Months Ended March 31,
	2017		2016
Balance at beginning of period	$	17,140	$	11,759
Provision for unfunded commitments	753		595
Balance at end of period	$	17,893	$	12,354
Unfunded commitments, excluding covered assets, at period end	$	6,843,413	$	6,361,917


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

Refer to Note 16 for additional details of commitments to extend credit, standby letters of credit and commercial letters of credit.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Carrying Amount of Goodwill by Operating Segment

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Banking	$	81,755	$	81,755
Asset management	12,286		12,286
Total goodwill	$	94,041	$	94,041

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 impairment test was performed as of October 31, 2016, and it was determined no impairment existed as of that date nor are we aware of any events or circumstances that would indicate goodwill is impaired at March 31, 2017. There were no impairment charges for goodwill recorded in 2016. Our annual goodwill test will be completed during fourth quarter 2017.

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 12 years.

We review other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. During the three months ended March 31, 2017, there were no events or circumstances that we believe indicate there may be impairment of other intangible assets, and no impairment charges for other intangible assets were recorded for the three months ended March 31, 2017.

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Other Intangible Assets

(Dollars in thousands)



	Three Months Ended March 31, 2017		Year Ended December 31, 2016
Core deposit intangibles:
Gross carrying amount	$	12,378	$	12,378
Accumulated amortization	11,899		11,420
Net carrying amount	$	479	$	958
Amortization during the period	$	479	$	1,995
Weighted average remaining life (in years)	0.3		0.5
Client relationships:
Gross carrying amount	$	1,459	$	1,459
Accumulated amortization	1,190		1,148
Net carrying amount	$	269	$	311
Amortization during the period	$	42	$	166
Weighted average remaining life (in years)	3.8		4.1

Scheduled Amortization of Other Intangible Assets

(Amounts in thousands)



	Total
Year Ended December 31,
2017 - remaining nine months	$	604
2018	98
2019	28
2020	15
2021	3
Total	$	748

7. DEPOSITS

Summary of Deposits

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Noninterest-bearing demand deposits	$	5,258,941	$	5,196,587
Interest-bearing demand deposits	2,176,619		1,942,992
Savings deposits	443,934		439,689
Money market accounts	6,285,087		6,144,950
Time deposits ⁽¹⁾	2,544,134		2,341,011
Total deposits	$	16,708,715	$	16,065,229


⁽¹⁾	Time deposits with a minimum denomination of $250,000 totaled $1.5 billion at both March 31, 2017 and December 31, 2016.

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Scheduled Maturities of Time Deposits

(Amounts in thousands)



	Total
Year Ended December 31,
2017
Second quarter	$	624,473
Third quarter	568,228
Fourth quarter	239,170
2018	519,721
2019	152,769
2020	243,297
2021	148,001
2022 and thereafter	48,475
Total	$	2,544,134

Maturities of Time Deposits of $100,000 or More

(Amounts in thousands)



	March 31, 2017
Maturing within 3 months	$	563,428
After 3 but within 6 months	468,378
After 6 but within 12 months	454,394
After 12 months	738,452
Total	$	2,224,652

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8. SHORT-TERM BORROWINGS

Summary of Short-Term Borrowings

(Dollars in thousands)



	March 31, 2017				December 31, 2016
	Amount		Rate		Amount		Rate
Outstanding:
FHLB advances	$	1,190,000	0.82	%	$	1,540,000	0.63	%
Other borrowings	1,877		—	%	1,773		0.18	%
Secured borrowings	3,441		4.07	%	2,973		4.05	%
Total short-term borrowings	$	1,195,318			$	1,544,746
Unused Availability:
Federal funds ⁽¹⁾	$	660,500			$	620,500
FRB discount window primary credit program ⁽²⁾	773,564				668,412
FHLB advances ⁽³⁾	1,329,832				648,199
Revolving line of credit	60,000				60,000


⁽¹⁾	Our total availability of overnight Federal fund (“Fed funds”) 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.


⁽³⁾	As a member of the FHLB Chicago, the Bank has access to borrowing capacity which is subject to change based on the availability of acceptable collateral to pledge and the level of our investment in FHLB Chicago stock. At March 31, 2017, our borrowing capacity was $2.6 billion, of which $1.3 billion was available, subject to making the required additional investment in FHLB Chicago stock.

Borrowings with maturities of one year or less are classified as short-term.

FHLB Advances - At March 31, 2017, FHLB advances totaled $1.24 billion, consisting of $1.19 billion in short-term borrowings, and $50.0 million classified as long-term debt. Qualifying residential, multi-family and commercial real estate (“CRE”) loans, home equity lines of credit, and residential mortgage-backed securities are pledged as collateral to secure current outstanding balances and additional borrowing availability.

Other Borrowings - At March 31, 2017 and December 31, 2016 other borrowings consisted of the Company’s obligation to a third party bank under a commercial credit card servicing arrangement and at December 31, 2016 also included cash received by counterparty in excess of derivative liability.

Secured Borrowings - Secured borrowings represent amounts related to certain loan participation agreements on loans we originated that were classified as secured borrowings because they did not qualify for sale accounting treatment. A corresponding amount is recorded within loans on the consolidated statements of financial condition.

Revolving Line of Credit - The Company has a 364-day revolving line of credit (the “Facility”) with a group of commercial banks allowing borrowing of up to $60.0 million, and maturing on the earlier of September 22, 2017 or the consummation of the Company’s merger with CIBC. The interest rate applied to borrowings under the Facility will be elected by the Company at the time an advance is made; interest rate elections include either 30-day or 90-day LIBOR plus 1.75% or Prime minus 0.50% at the time the advance is made. Any amounts outstanding under the Facility upon or before maturity may be converted, at the Company’s option, to an amortizing term loan, with the balance of such loan due September 22, 2019 (subject to earlier maturity upon consummation of the merger with CIBC, as previously noted). At March 31, 2017 and December 31, 2016, no amounts were drawn on the Facility.

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9. LONG-TERM DEBT

Long-Term Debt

(Dollars in thousands)



	Rate Type	Current Rate	Maturity	March 31, 2017		December 31, 2016
Parent Company:
Junior Subordinated Debentures ⁽¹⁾
Bloomfield Hills Statutory Trust I	Floating, three-month LIBOR + 2.65%	3.80%	2034	$	8,248	$	8,248
PrivateBancorp Statutory Trust II	Floating, three-month LIBOR + 1.71%	2.84%	2035	51,547		51,547
PrivateBancorp Statutory Trust III	Floating, three-month LIBOR + 1.50%	2.63%	2035	41,238		41,238
PrivateBancorp Statutory Trust IV⁽²⁾	Fixed	10.00%	2068	66,628		66,618
Subordinated debt facility ⁽³⁾⁽⁴⁾	Fixed	7.125%	2042	120,674		120,659
Subtotal				$	288,335	$	288,310
Subsidiaries:
FHLB advances⁽⁵⁾	Fixed	3.58% - 4.68%	2019	50,000		50,000
Total long-term debt				$	338,335	$	338,310

⁽¹⁾

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 could be subject to phase-out in the event we were to make certain acquisitions. Furthermore, upon completion of our pending merger with CIBC, we do not expect the outstanding Trust Preferred Securities to continue to qualify as Tier 1 capital under FRB regulations as currently in effect.


⁽²⁾	Net of deferred financing costs of $2.1 million at both March 31, 2017 and December 31, 2016.


⁽³⁾	Net of deferred financing costs of $4.3 million at both March 31, 2017 and December 31, 2016.


⁽⁴⁾	Qualifies as Tier 2 capital for regulatory capital purposes.


⁽⁵⁾	Weighted average interest rate was 3.75% at both March 31, 2017 and December 31, 2016.

The $167.7 million in junior subordinated debentures presented 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.

At March 31, 2017, outstanding long-term FHLB advances were secured by qualifying residential, multi-family, CRE, and home equity lines of credit. From time to time, we may pledge eligible real estate mortgage-backed securities to support additional borrowings.

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

Scheduled Maturities of Long-Term Debt

(Amounts in thousands)



	Total
Year Ended December 31,
2019	$	50,000
2034 and thereafter	288,335
Total	$	338,335

10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES HELD BY TRUSTS THAT ISSUED TRUST PREFERRED SECURITIES

As of March 31, 2017, we sponsored and wholly owned 100% of the common equity of four trusts that were formed for the purpose of issuing 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 totaled $167.7 million, net of deferred financing costs, at

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March 31, 2017, are the sole assets of each respective trust. Our obligations under the Debentures and related documents constitute a full and unconditional guarantee by the Company on a subordinated basis of all 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 at a redemption price of 100% of the principal amount plus accrued and unpaid interest. The repayment, redemption or repurchase of any of the Debentures would be subject to the terms of the applicable indenture and result in a corresponding repayment, redemption or repurchase of an equivalent amount of the related series of Trust Preferred Securities. Any redemption of the 10% Debentures held by the PrivateBancorp Capital Trust IV also would be subject to the terms of the replacement capital covenant described below.

In connection with the issuance in 2008 of the 10% Debentures, which rank junior to the other Debentures, we entered into a replacement capital covenant that relates to the redemption of the 10% 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 10% 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 and held by us are included in other assets in our consolidated statements of financial condition with the related dividend distributions recorded in other non-interest income.

Common Securities, Preferred Securities, and Related Debentures

(Dollars in thousands)



		Common Securities Issued		Trust Preferred Securities Issued⁽¹⁾					Principal Amount of Debentures ⁽¹⁾
	Issuance Date	Common Securities Issued		Trust Preferred Securities Issued⁽¹⁾		Coupon Rate ⁽²⁾		Maturity	March 31, 2017
Bloomfield Hills Statutory Trust I	May 2004	$	248	$	8,000	3.80	%	June 2034	$	8,248
PrivateBancorp Statutory Trust II	June 2005	1,547		50,000		2.84	%	Sept. 2035	51,547
PrivateBancorp Statutory Trust III	Dec. 2005	1,238		40,000		2.63	%	Dec. 2035	41,238
PrivateBancorp Capital Trust IV	May 2008	5		68,750		10.00	%	June 2068	66,628		⁽³	⁾
Total		$	3,038	$	166,750				$	167,661


⁽¹⁾	The Trust Preferred Securities accrue distributions at a rate equal to the interest rate on, and have a redemption date identical to the maturity date of, the corresponding Debentures. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Debentures at maturity or upon earlier redemption.

⁽²⁾

Reflects the coupon rate in effect at March 31, 2017. The coupon rates for Bloomfield Hills Statutory Trust I, PrivateBancorp Statutory Trust II and PrivateBancorp Statutory Trust III are variable based on three-month LIBOR plus 2.65%, 1.71% and 1.50%, respectively. The coupon rate for PrivateBancorp Capital Trust IV is fixed. Distributions on all Trust Preferred Securities 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⁾	Net of deferred financing costs of $2.1 million at March 31, 2017.

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11. EQUITY

Capital Stock

At March 31, 2017 and December 31, 2016, the Company had authority to issue 180 million shares of capital stock, consisting of one million shares of preferred stock, five million shares of non-voting common stock and 174 million shares of voting common stock. At March 31, 2017 and December 31, 2016, no shares of preferred stock or non-voting common stock were issued or outstanding. The Company had 80.0 million and 79.8 million shares of voting common stock issued and outstanding at March 31, 2017 and December 31, 2016, respectively.

The Company reissues treasury stock, when available, or new shares to fulfill its obligation to issue shares granted pursuant to the share-based compensation plans. Treasury shares are reissued at average cost. The Company held no shares in treasury at March 31, 2017 or December 31, 2016.

Comprehensive Income

Change in Accumulated Other Comprehensive Income (“AOCI”) by Component

(Amounts in thousands)



	Three Months Ended March 31,
	2017									2016
	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	$	(3,476	)	$	5,094		$	1,618		$	14,048		$	3,211		$	17,259
Increase in unrealized gains on securities	4,431			—			4,431			18,930			—			18,930
Increase in unrealized (losses) gains on cash flow hedges	—			(421		)	(421		)	—			12,008			12,008
Tax (expense) benefit on increase in unrealized gains (losses)	(1,693		)	163			(1,530		)	(7,284		)	(4,646		)	(11,930		)
Other comprehensive income (losses) before reclassifications	2,738			(258		)	2,480			11,646			7,362			19,008
Reclassification adjustment of net gains included in net income ⁽¹⁾	(57		)	(1,213		)	(1,270		)	(531		)	(2,190		)	(2,721		)
Reclassification adjustment for tax expense on realized net gains ⁽²⁾	22			467			489			205			847			1,052
Amounts reclassified from AOCI	(35		)	(746		)	(781		)	(326		)	(1,343		)	(1,669		)
Net current period other comprehensive income (losses)	2,703			(1,004		)	1,699			11,320			6,019			17,339
Balance at end of period	$	(773	)	$	4,090		$	3,317		$	25,368		$	9,230		$	34,598


⁽¹⁾	The amounts reclassified from AOCI for the available-for-sale securities are reported in net securities gains on the consolidated statements of income, while the amounts reclassified from AOCI for cash flow hedges are included in interest income on loans on the consolidated statements of income.


⁽²⁾	The tax expense amounts reclassified from AOCI in connection with the available-for-sale securities reclassification and cash flow hedges reclassification are included in income tax provision on the consolidated statements of income.

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12. EARNINGS PER COMMON SHARE

Basic and Diluted Earnings per Common Share

(Amounts in thousands, except per share data)



	Three Months Ended March 31,
	2017			2016
Basic earnings per common share
Net income	$	57,952		$	49,552
Net income allocated to participating stockholders ⁽¹⁾	(707		)	(425		)
Net income allocated to common stockholders	$	57,245		$	49,127
Weighted-average common shares outstanding	79,516			78,550
Basic earnings per common share	$	0.72		$	0.63
Diluted earnings per common share
Diluted earnings applicable to common stockholders ⁽²⁾	$	57,260		$	49,134
Weighted-average diluted common shares outstanding:
Weighted-average common shares outstanding	79,516			78,550
Dilutive effect of stock awards ⁽³⁾	1,784			1,306
Weighted-average diluted common shares outstanding	81,300			79,856
Diluted earnings per common share	$	0.70		$	0.62


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


⁽²⁾	Net income 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⁾	For the three months ended March 31, 2017 and 2016, the weighted-average outstanding non-participating securities of 24,000 and 463,000 shares, respectively, were not included in the computation of diluted earnings per common share because their inclusion would have been antidilutive for the periods presented.

13. INCOME TAXES

Income Tax Provision Analysis

(Dollars in thousands)



	Three Months Ended March 31,
	2017			2016
Income before income taxes	$	79,484		$	76,225
Income tax provision:
Current income tax provision	$	22,426		$	25,373
Deferred income (benefit) tax provision	(894		)	1,300
Total income tax provision	$	21,532		$	26,673
Effective tax rate	27.1		%	35.0		%

The effective tax rate includes net tax benefits from the exercise and vesting of share-based compensation. Such tax benefits totaled $4.9 million for the three months ended March 31, 2017, and $2.1 million for three months ended March 31, 2016. Most of the Company’s restricted stock awards vest annually in the first quarter. Additionally, the effective tax rate for the three months ended March 31, 2017 included $2.7 million in tax benefits from the completion of certain tax examinations.

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Deferred Tax Assets

Net deferred tax assets totaled $128.6 million at March 31, 2017 and $128.8 million at December 31, 2016. Net deferred tax assets are included in other assets in the accompanying consolidated statements of financial condition.

At March 31, 2017, we have concluded that it is more likely than not that the deferred tax assets will be realized and, accordingly, no valuation allowance was recorded. This conclusion was based in part on our recent earnings history, on both a book and tax basis, and our outlook for earnings and taxable income in future periods.

At March 31, 2017 and December 31, 2016, we had $682,000 and $3.3 million, respectively, of unrecognized tax benefits relating to uncertain tax positions that, if recognized, would impact the effective tax rate. During the three months ended March 31, 2017, the Company's gross unrecognized tax benefits decreased by $4.0 million. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, the Company does not anticipate this change will have a material impact on the results of operations or the financial position of the Company.

14. DERIVATIVE INSTRUMENTS

We utilize an overall risk management strategy that incorporates the use of derivative instruments to reduce both interest rate risk (relating to mortgage loan commitments and planned sales of loans) and foreign currency risk (relating 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 client-related and other end-user derivatives, noted in the table below, were designated as hedging instruments for accounting purposes at March 31, 2017, and December 31, 2016.

Notional Amounts and Fair Value of Derivative Instruments

(Amounts in thousands)



	Asset Derivatives										Liability Derivatives
	March 31, 2017					December 31, 2016					March 31, 2017					December 31, 2016
	Notional		Fair Value			Notional		Fair Value			Notional		Fair Value			Notional		Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts	$	225,000	$	202		$	350,000	$	1,873		$	75,000	$	42		$	—	$	—
Derivatives not designated as hedging instruments:
Client-related derivatives:
Interest rate contracts	$	4,780,591	$	22,502		$	4,490,888	$	31,871		$	4,780,591	$	16,735		$	4,490,888	$	32,058
Foreign exchange contracts	134,497		4,268			126,447		6,579			120,012		3,619			124,598		5,901
Risk participation agreements ⁽¹⁾	60,721		9			61,001		10			94,073		10			93,561		11
Total client-related derivatives			$	26,779				$	38,460				$	20,364				$	37,970
Other end-user derivatives:
Foreign exchange contracts	$	37,531	$	1,400		$	19,155	$	1,518		$	37,928	$	188		$	29,943	$	201
Mortgage banking derivatives			159					1,033					137					350
Warrants			261					263					—					—
Total other end-user derivatives			$	1,820				$	2,814				$	325				$	551
Total derivatives not designated as hedging instruments			$	28,599				$	41,274				$	20,689				$	38,521
Netting adjustments ⁽²⁾			(7,290		)			(15,182		)			(5,311		)			(20,399		)
Total derivatives			$	21,511				$	27,965				$	15,420				$	18,122


⁽¹⁾	The remaining average notional amounts are shown for risk participation agreements.


⁽²⁾	Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Refer to Note 15 for additional information regarding master netting agreements.

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

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risk is managed through the use of collateral, netting agreements, and the establishment of internal concentration limits by financial institution.

Certain of our derivative contracts contain embedded credit risk contingent features that if triggered 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 such requirements were met at March 31, 2017. The fair value of the derivatives with credit contingency features in a net liability position at March 31, 2017 totaled $1.4 million and $1.3 million of collateral was posted for these transactions. If the credit risk contingency features were triggered at March 31, 2017, no additional collateral would be required to be posted to derivative counterparties and $1.4 million in outstanding derivative instruments would be immediately settled.

Derivatives Designated in Hedge Relationships

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

Cash Flow Hedges – Under our cash flow hedging program, we enter into receive fixed/pay variable interest rate swaps to convert certain floating-rate commercial loan cash flows 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 three months ended March 31, 2017, 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 AOCI and are subsequently reclassified to interest income on loans in the period that the hedged interest cash flows affect earnings. As of March 31, 2017, the maximum length of time over which forecasted interest cash flows are hedged is approximately four years. As of March 31, 2017, $1.7 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 March 31, 2017. There are no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to our cash flow hedge strategy.

During the three months ended March 31, 2017, 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. Refer to Note 11 for additional information regarding the changes in AOCI related to the interest rate swaps designated as cash flow hedges.

Derivatives Not Designated in Hedge Relationships

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, interest rate options (also 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 (“RPAs”) 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 the clients under their loan agreement.

The current payment/performance risk of written RPAs is assessed using internal risk ratings which range from 2 to 7 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.

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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)



	March 31, 2017			December 31, 2016
Fair value of written RPAs	$	10		$	11
Range of remaining terms to maturity (in years)	Less than 1 to 5			Less than 1 to 5
Range of assigned internal risk ratings	2 to 7			2 to 7
Maximum potential amount of future undiscounted payments	$	4,276		$	4,107
Percent of maximum potential amount of future undiscounted payments covered by proceeds from liquidation of pledged collateral	70		%	65		%

Other End-User Derivatives – We use forward commitments to sell to-be-announced securities and other commitments to sell residential mortgage loans at specified prices to economically hedge the change in fair value of customer interest rate lock commitments and residential mortgage loans held-for-sale. The forward commitments to sell and the interest rate lock commitments are considered derivatives. At March 31, 2017, the par value of our residential mortgage loans held-for-sale totaled $10.2 million, the notional value of our interest rate lock commitments totaled $40.4 million, and the notional value of our forward commitments to sell totaled $57.8 million.

We are also exposed at times to foreign exchange risk as a result of originating loans in which the principal and interest are settled in a currency other than U.S. dollars. As of March 31, 2017, our exposure was to the Euro, Canadian dollar, Danish kroner, British pound and Australian dollar on $48.8 million of loans. We manage this risk using forward currency derivatives.

Additionally, in connection with certain negotiated credit facilities, we receive warrants to acquire stock in privately-held client companies, which are considered derivatives under current accounting standards. As of March 31, 2017, warrants totaled $261,000.

Gain (Loss) Recognized on Derivative Instruments

Not Designated in Hedging Relationship

(Amounts in thousands)



	Location in Consolidated Statement of Income	Three Months Ended March 31,
		2017			2016
Gain on client-related derivatives:
Interest rate contracts	Capital markets income	$	4,817		$	3,531
Foreign exchange contracts	Capital markets income	2,089			1,660
RPAs	Capital markets income	18			8
Total client-related derivatives		$	6,924		$	5,199
Gain (loss) on end-user derivatives:
Foreign exchange contracts	Other income, service and charges income	$	(556	)	$	(504	)
Mortgage banking derivatives	Mortgage banking income	(241		)	(513		)
Warrants	Other income, service and charges income	(15		)	146
Total end-user derivatives		$	(812	)	$	(871	)
Total net gain recognized on derivatives not designated in hedging relationship		$	6,112		$	4,328

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15. BALANCE SHEET OFFSETTING

Master Netting Agreements

Certain financial instruments, including repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to enforceable master netting or similar agreements. Authoritative accounting guidance permits the netting of financial assets and liabilities when a legally enforceable master netting agreement exists between us and a counterparty. A master netting agreement is an agreement between two counterparties who have multiple financial contracts with each other that provide 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. For those financial instruments subject to enforceable master netting agreements, assets and liabilities, and related cash collateral, with the same counterparty are reported on a net basis within the assets and liabilities on the consolidated statements of financial condition.

Derivative contracts may require us to provide or receive cash or financial instrument collateral. Cash collateral associated with derivative assets and liabilities subject to enforceable master netting agreements with the same counterparty is posted on a net basis. We have pledged cash or financial collateral in accordance with each counterparty’s collateral posting requirements for all of the Company’s derivative assets and liabilities in a net liability position as of March 31, 2017 and December 31, 2016. Certain collateral posting requirements are subject to posting thresholds and minimum transfer amounts, such that we are 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 March 31, 2017, $2.0 million of cash collateral received was netted with the related financial assets on the consolidated statements of financial condition, compared to $5.2 million of cash collateral pledged that was netted with the related financial liabilities at December 31, 2016. To the extent not netted against fair values under a master netting agreement, the excess collateral received or pledged is included in other short-term borrowings or other investments, respectively. There was no excess cash collateral received at March 31, 2017 and no excess cash collateral pledged at December 31, 2016. Any securities pledged to counterparties as financial instrument collateral remain on the consolidated statements of financial condition as long as we do not default.

Certain of the Company’s over-the-counter derivative assets and liabilities are cleared through a central counterparty. The parties in a centrally cleared derivative transaction exchange daily payments that reflect the daily change in value of the derivative. These payments are referred to as “variation margin.” Beginning in January 2017, the Company began treating variation margin payments as settlement payments rather than as collateral payments. As such, the variation margin payments directly reduce derivative assets and liabilities for balance sheet and disclosure presentation purposes.

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The following table presents information about our financial assets and liabilities and the related collateral by derivative type (e.g., interest rate contracts). As we post collateral with counterparties on the basis of our net position in all financial contracts with a given counterparty, the information presented below aggregates the financial contracts entered into with the same counterparty.

Offsetting of Financial Assets and Liabilities

(Amounts in thousands)



	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset⁽²⁾			Net Amount Presented on the Statement of Financial Condition		Gross Amounts Not Offset on the Statement of Financial Condition⁽³⁾					Net Amount
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset⁽²⁾					Financial Instruments ⁽⁴⁾			Cash Collateral		Net Amount
As of March 31, 2017
Financial assets:
Derivatives⁽¹⁾:
Interest rate contracts	$	22,704	$	(3,010	)	$	19,694	$	(404	)	$	—	$	19,290
Foreign exchange contracts	4,843		(4,260		)	583		—			—		583
RPAs	9		—			9		—			—		9
Mortgage banking derivatives	20		(20		)	—		—			—		—
Total derivatives subject to a master netting agreement	27,576		(7,290		)	20,286		(404		)	—		19,882
Total derivatives not subject to a master netting agreement	1,225		—			1,225		—			—		1,225
Total derivatives	$	28,801	$	(7,290	)	$	21,511	$	(404	)	$	—	$	21,107
Financial liabilities:
Derivatives⁽¹⁾:
Interest rate contracts	$	16,777	$	(4,477	)	$	12,300	$	(1,766	)	$	—	$	10,534
Foreign exchange contracts	1,758		(814		)	944		—			—		944
RPAs	10		—			10		—			—		10
Mortgage banking derivatives	59		(20		)	39		—			—		39
Total derivatives subject to a master netting agreement	18,604		(5,311		)	13,293		(1,766		)	—		11,527
Total derivatives not subject to a master netting agreement	2,127		—			2,127		—			—		2,127
Total derivatives	$	20,731	$	(5,311	)	$	15,420	$	(1,766	)	$	—	$	13,654


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


⁽²⁾	Represents financial instrument 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 financial instrument.


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

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Offsetting of Financial Assets and Liabilities (Continued) (Amounts in thousands)

	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset⁽²⁾			Net Amount Presented on the Statement of Financial Condition		Gross Amounts Not Offset on the Statement of Financial Condition⁽³⁾					Net Amount
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset⁽²⁾					Financial Instruments ⁽⁴⁾			Cash Collateral		Net Amount
As of December 31, 2016
Financial assets:
Derivatives⁽¹⁾:
Interest rate contracts	$	33,744	$	(11,828	)	$	21,916	$	(2,424	)	$	—	$	19,492
Foreign exchange contracts	6,296		(3,321		)	2,975		—			—		2,975
RPAs	10		—			10		—			—		10
Mortgage banking derivatives	449		(33		)	416		—			—		416
Total derivatives subject to a master netting agreement	40,499		(15,182		)	25,317		(2,424		)	—		22,893
Total derivatives not subject to a master netting agreement	2,648		—			2,648		—			—		2,648
Total derivatives	$	43,147	$	(15,182	)	$	27,965	$	(2,424	)	$	—	$	25,541
Financial liabilities:
Derivatives⁽¹⁾:
Interest rate contracts	$	32,058	$	(18,719	)	$	13,339	$	(1,229	)	$	—	$	12,110
Foreign exchange contracts	2,983		(1,647		)	1,336		(123		)	—		1,213
RPAs	11		—			11		(1		)	—		10
Mortgage banking derivatives	33		(33		)	—		—			—		—
Total derivatives subject to a master netting agreement	35,085		(20,399		)	14,686		(1,353		)	—		13,333
Total derivatives not subject to a master netting agreement	3,436		—			3,436		—			—		3,436
Total derivatives	$	38,521	$	(20,399	)	$	18,122	$	(1,353	)	$	—	$	16,769


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


⁽²⁾	Represents financial instrument 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 financial instrument.


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

16. 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.

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Contractual or Notional Amounts of Financial Instruments ⁽¹⁾

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Commitments to extend credit:
Home equity lines	$	13,821	$	14,880
Credit card lines	7,594		6,314
Residential 1-4 family construction	85,991		89,787
Commercial real estate, other construction, and land development	1,382,470		1,387,823
Commercial and industrial	3,843,733		3,889,323
All other commitments	1,117,435		1,052,254
Total commitments to extend credit	$	6,451,044	$	6,440,381
Letters of credit:
Financial standby	$	359,986	$	330,350
Performance standby	37,930		39,068
Commercial letters of credit	2,324		3,627
Total letters of credit	$	400,240	$	373,045


⁽¹⁾	Includes covered loan commitments of $7.9 million and $9.0 million as of March 31, 2017 and December 31, 2016, respectively.

Commitments to extend credit are agreements to lend funds to, or issue letters of credit for the account of, a client as long as there is no violation of any condition established in the credit 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 unfunded commitments require regulatory capital support, except for unfunded commitments of less than one year that are 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 March 31, 2017, we had a reserve for unfunded commitments of $17.9 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 upon 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 underlying collateral, which could include CRE, 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 $2.8 million as of March 31, 2017. We amortize these amounts into income over the commitment period. As of March 31, 2017, standby letters of credit had a remaining weighted-average term of approximately 14 months, with remaining actual lives ranging from less than 1 year to 5 years.

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Other Commitments

The Company has unfunded commitments to CRA investments and other investment partnerships totaling $68.1 million at March 31, 2017. Of these commitments, $45.4 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 provider 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 provider. However, in certain circumstances, we may enter into a recourse agreement, which transfers the credit risk from the third-party provider 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 $20.9 million at March 31, 2017.

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 March 31, 2017, we had no recorded 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 in the secondary market have limited recourse provisions. The losses for the three months ended March 31, 2017 and 2016, 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

Following the original announcement of the Company's proposed merger with CIBC in June 2016, three putative class actions were filed on behalf of our public stockholders in the Circuit Court of Cook County, Illinois. The three actions were consolidated and styled In re PrivateBancorp, Inc. Shareholder Litigation, 2016-CH-08949. All of the actions named as defendants the Company and each of its directors individually, and asserted that the directors breached their fiduciary duties in connection with the proposed transaction. Two of the complaints were also brought against CIBC and asserted that the Company and CIBC aided and abetted the directors’ alleged breaches. The actions broadly alleged that the transaction was the result of a flawed process, that the price is unfair, and that certain provisions of the merger agreement might dissuade a potential suitor from making a competing offer, among other things. The plaintiffs later filed a consolidated amended class action complaint adding the allegation that the Company’s directors had failed to disclose material information regarding the merger in the proxy statement/prospectus.

The plaintiffs in the action agreed in principle not to pursue the action as a result of the inclusion of certain additional disclosures (the "Supplemental Disclosures") in the proxy statement/prospectus contained in the registration statement filed by CIBC on October 31, 2016. On March 6, 2017, the parties executed a stipulation of settlement (the "Settlement Agreement"), and on March 7, 2017 the plaintiffs dismissed the action. Pursuant to the Settlement Agreement, the three plaintiffs agreed to voluntarily dismiss the Action, without affecting the claims of the putative class, with leave to reinstate the action if the merger is not consummated on or before June 29, 2017. Defendants in turn agreed to settle plaintiffs' demand for a mootness fee for $185,000, but only upon consummation of the merger. If the merger is not consummated on or before June 29, 2017 and the action is reinstated, the Settlement Agreement will be null and void, and plaintiffs may apply to the court for a mootness fee award, which defendants may oppose, in whole or in part. The Company continues to believe the complaints are without merit, there are substantial legal and factual defenses to the claims asserted, and that proxy statement/prospectus contained in the registration statement first filed by CIBC on August 15, 2016 disclosed all material information prior to the inclusion of the Supplemental Disclosures.

As of March 31, 2017, and in the ordinary course of business, there were various other legal proceedings pending against the Company and our subsidiaries that are incidental to our regular business operations. Management does not believe that the outcome of any of these proceedings will have, individually or in the aggregate, a material adverse effect on our business, results of operations, financial condition or cash flows.

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17. 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 nonrecurring 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.

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, U.S. Agencies, collateralized mortgage obligations, residential mortgage-backed securities, and state and municipal securities. 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 generally classified in level 2 of the valuation hierarchy. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as level 3. 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.

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.

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Residential Real Estate Loans Fair Value Option – Residential real estate loans fair value option represent residential real estate loans that originated as held-for-sale and subsequently transferred to loans held-for-investment. Similar to the mortgage loans held-for-sale, we have elected the fair value option for these loans. These residential real estate 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 these residential real estate loans 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. Residential real estate loans fair value option 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 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 appraisal. If the most recent appraisal is greater than one-year old, a new appraisal of the underlying collateral is obtained. For collateral-dependent impaired loans that are secured by real estate, we generally obtain “as is” appraisal values to evaluate impairment. When a collateral-dependent loan is secured by non-real estate collateral such as receivables, inventory, or equipment, the fair value is generally determined based on appraisals, field exams, or receivable reports. The valuation techniques and inputs are reviewed internally by workout and/or asset-based specialists for reasonableness of estimated liquidation costs, collectability probabilities, and other market data. Appraisals for real estate 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 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 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. Accordingly, these fair value estimates are classified in level 3 of the valuation hierarchy.

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, we measure nonperformance risk on the basis of each 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, or based on quoted market prices obtained from external pricing services. 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

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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, RPAs, interest rate lock commitments and warrants, 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 parties based on our validation procedures, during the three months ended March 31, 2017 and 2016, we did not alter the fair values ultimately provided by the third-party advisors.

Level 3 derivatives include RPAs, derivatives associated with clients whose loans are risk rated 6 or higher (“watch list derivative”), interest rate lock commitments and warrants. Refer to “Credit Quality Indicators” in Note 4 for further discussion of risk ratings.

For the level 3 RPAs, watch list 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 RPAs 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 RPAs 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.

For the interest rate lock commitments on mortgage loans, the fair value is based on prices obtained for loans with similar characteristics from third-party sources, adjusted for the probability that the interest rate lock commitment will fund (the “pull-through” rate). The significant unobservable input that causes these derivatives to be classified in level 3 of the fair value hierarchy is the pull-through rate. Pull-through rates are derived using the Company’s historical data and reflect the Company’s best estimate of the likelihood that a committed loan will ultimately fund. Significant increases in this input in isolation would result in a significantly higher fair value measurement and significant decreases would result in a significantly lower fair value measurement.

The fair value of our warrants to acquire stock in privately-held client companies is based on a Black-Scholes option pricing model that estimates the asset value by using stated strike prices, estimated stock prices, option expiration dates, risk-free interest rates based on a duration-matched U.S. Treasury rate, and option volatility assumptions. The significant unobservable inputs that cause these derivatives to be classified in level 3 of the fair value hierarchy are the estimated stock prices, adjustments to the option expiration dates, and option volatility assumptions. The estimated stock prices are based on the most recent valuation of the privately-held client company, adjusted as deemed appropriate for changes in relevant market conditions. Option expiration dates are modified to account for the estimated actual remaining life relative to the stated expiration of the warrants. The option volatility assumptions are based on the volatility of publicly-traded companies that operate in similar industries as the privately-held client companies. Significant increases in these inputs in isolation would result in a significantly higher fair value measurement and significant decreases would result in a significantly lower fair value measurement.

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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 March 31, 2017, and December 31, 2016 on a recurring basis.

Fair Value Measurements on a Recurring Basis

(Amounts in thousands)



	March 31, 2017										December 31, 2016
	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	$	592,897	$	—		$	—	$	592,897		$	542,295	$	—		$	—	$	542,295
U.S. Agencies	—		45,821			—		45,821			—		45,940			—		45,940
Collateralized mortgage obligations	—		69,335			—		69,335			—		75,345			—		75,345
Residential mortgage-backed securities	—		937,386			—		937,386			—		886,550			—		886,550
State and municipal securities	—		466,726			—		466,726			—		463,395			—		463,395
Total securities available-for-sale	592,897		1,519,268			—		2,112,165			542,295		1,471,230			—		2,013,525
Mortgage loans held-for-sale	—		10,219			—		10,219			—		24,934			—		24,934
Residential real estate loans ⁽¹⁾	—		1,022			—		1,022			—		1,029			—		1,029
Derivative assets:
Interest rate contract derivatives designated as hedging instruments	—		202			—		202			—		1,873			—		1,873
Client-related derivatives	—		26,027			752		26,779			—		37,612			848		38,460
Other end-user derivatives	—		1,420			400		1,820			—		1,967			847		2,814
Netting adjustments	—		(7,290		)	—		(7,290		)	—		(15,182		)	—		(15,182		)
Total derivative assets	—		20,359			1,152		21,511			—		26,270			1,695		27,965
Total assets	$	592,897	$	1,550,868		$	1,152	$	2,144,917		$	542,295	$	1,523,463		$	1,695	$	2,067,453
Liabilities:
Derivative liabilities:
Interest rate contract derivatives designated as hedging instruments	$	—	$	42		$	—	$	42		$	—	$	—		$	—	$	—
Client-related derivatives	—		20,354			10		20,364			—		37,959			11		37,970
Other end-user derivatives	—		247			78		325			—		234			317		551
Netting adjustments	—		(5,311		)	—		(5,311		)	—		(20,399		)	—		(20,399		)
Total derivative liabilities	$	—	$	15,332		$	88	$	15,420		$	—	$	17,794		$	328	$	18,122


⁽¹⁾	Represents loans accounted for under the fair value option.

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, 2016 and March 31, 2017.

There have been no other changes in the valuation techniques we used for assets and liabilities measured at fair value on a recurring basis from December 31, 2016 to March 31, 2017.

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Reconciliation of Beginning and Ending Fair Value for Those

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) ⁽¹⁾

(Amounts in thousands)



	Three Months Ended March 31,
	2017						2016
	Derivative Assets			Derivative (Liabilities)			Available- for-Sale Securities			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	1,695		$	(328	)	$	630		$	891		$	(265	)
Total gains (losses) included in earnings ⁽²⁾	57			(84		)	30			409			(286		)
Purchases, issuances, sales and settlements:
Issuances	102			—			—			420			—
Settlements	(860		)	324			(660		)	(903		)	325
Transfers into Level 3 (out of Level 2) ⁽³⁾	162			—			—			26			—
Transfers out of Level 3 (into Level 2) ⁽³⁾	(4		)	—			—			(7		)	—
Balance at end of period	$	1,152		$	(88	)	$	—		$	836		$	(226	)
Change in unrealized gains in earnings relating to assets and liabilities still held at end of period	$	(23	)	$	3		$	—		$	147		$	16


⁽¹⁾	Fair value is presented prior to giving effect to netting adjustments.


⁽²⁾	Amounts disclosed in this line are included in the consolidated statements of income as capital markets products income for derivatives and mortgage banking income for interest rate lock commitments.

⁽³⁾

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.

Financial Instruments Recorded Using the Fair Value Option

Difference Between Aggregate Fair Value and Aggregate Remaining Principal Balance

for Loans Elected to be Carried at Fair Value

(Amounts in thousands)



	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference ⁽¹⁾
March 31, 2017
Mortgage loans held-for-sale	$	10,219	$	10,212	$	7
Residential real estate loans fair value option	1,022		986		36

December 31, 2016
Mortgage loans held-for-sale	$	24,934	$	25,424	$	(490	)
Residential real estate loans fair value option	$	1,029	$	991	$	38


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

As of March 31, 2017 and December 31, 2016, none of the mortgage loans held-for-sale or residential real estate loans fair value option 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 three months ended March 31, 2017, were not material.

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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 three months ended March 31, 2017 and 2016, and still held at March 31, 2017 and 2016, 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 (Gains) Losses
	March 31,				Three Months Ended March 31,
	2017		2016		2017			2016
Collateral-dependent impaired loans ⁽¹⁾	$	36,302	$	22,968	$	(7,861	)	$	(1,377	)
OREO ⁽²⁾	8,337		2,838		480			588
Total	$	44,639	$	25,806	$	(7,381	)	$	(789	)


⁽¹⁾	Represents the fair value of loans adjusted to the appraised value of the collateral with a change in specific reserves during the respective period. These fair value adjustments are recorded against the allowance for loan losses.


⁽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 property expenses in the consolidated statements of income.

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, 2016, to March 31, 2017.

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 March 31, 2017				Valuation Technique(s)	Unobservable Input	Range		Weighted Average
Watch list derivatives	$	742			Discounted cash flow	Loss factors	13.3% to 29.4%		17.7		%
RPAs	(1		)	⁽¹⁾	Discounted cash flow	Loss factors	0.1% to 19.7%		1.0		%
Interest rate lock commitments	85				Discounted cash flow	Pull-through rate	71.0% to 100.0%		81.4		%
OREO	8,337				Sales comparison, income capitalization and/or cost approach	Property specific adjustment	-18.8	%	-18.8		%
Warrants	261				Black-Scholes option pricing model	Estimated stock price	$0.59 to $13.97		$	9.31
						Remaining life assumption	9 to 10 years		9.1 years
						Volatility	26.0% to 61.0%		50.2		%


⁽¹⁾	Represents fair value of underlying swap.

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The significant unobservable inputs used in the fair value measurement of the watch list derivatives and RPAs 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 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 our asset management 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.

Other loans held-for-sale - Included in loans held-for sale at March 31, 2017 and December 31, 2016 are $32.1 million and $78.4 million, respectively, of loans carried at the lower of aggregate cost or fair value. Fair value estimates are based on the actual agreed upon price in the agreement.

Securities held-to-maturity – Securities held-to-maturity include collateralized mortgage obligations, residential mortgage-backed securities, 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, and can only be sold to the FHLB or another member institution at par.

Loans – Other than certain residential real estate loans accounted for under the fair value option, 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 share 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.

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Community reinvestment investments - The fair values of these instruments were estimated using an income approach (discounted cash flow) that incorporates current market rates.

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 certificates of deposit and 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 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 the repurchase obligation is considered to be equal to the carrying value because of its short-term nature. The fair value of secured borrowings and other 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.

FHLB advances with remaining maturities greater than one year and the Company’s variable-rate junior subordinated debentures are 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 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.

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Financial Instruments

(Amounts in thousands)



	As of March 31, 2017
	Carrying Amount				Fair Value Measurements Using
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	166,012	$	166,012	$	166,012	$	—	$	—
Federal funds sold and interest-bearing deposits in banks	335,943		335,943		—		335,943		—
Loans held-for-sale	42,276		42,276		—		42,276		—
Securities available-for-sale	2,112,165		2,112,165		592,897		1,519,268		—
Securities held-to-maturity	1,801,973		1,782,604		—		1,782,604		—
FHLB stock	38,163		38,163		—		38,163		—
Loans, net of allowance for loan losses and unearned fees	15,397,041		15,342,966		—		1,022		15,341,944
Covered assets, net of allowance for covered loan losses	16,250		21,067		—		—		21,067
Accrued interest receivable	57,316		57,316		—		—		57,316
Investment in BOLI	58,449		58,449		—		—		58,449
Derivative assets	21,511		21,511		—		20,359		1,152
Community reinvestment investments	10,871		8,861		—		8,861		—
Financial Liabilities:
Deposits	$	16,708,715	$	16,701,830	$	—	$	14,164,581	$	2,537,249
Short-term borrowings	1,195,318		1,194,883		—		1,189,664		5,219
Long-term debt	338,335		322,342		198,404		52,499		71,439
Accrued interest payable	9,590		9,590		—		—		9,590
Derivative liabilities	15,420		15,420		—		15,332		88

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Financial Instruments (Continued)

(Amounts in thousands)



	As of December 31, 2016
	Carrying Amount				Fair Value Measurements Using
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	161,168	$	161,168	$	161,168	$	—	$	—
Federal funds sold and interest-bearing deposits in banks	587,563		587,563		—		587,563		—
Loans held-for-sale	103,284		103,284		—		103,284		—
Securities available-for-sale	2,013,525		2,013,525		542,295		1,471,230		—
Securities held-to-maturity	1,738,123		1,714,770		—		1,714,770		—
FHLB stock	54,163		54,163		—		54,163		—
Loans, net of allowance for loan losses and unearned fees	14,870,476		14,805,811		—		1,029		14,804,782
Covered assets, net of allowance for covered loan losses	17,297		21,928		—		—		21,928
Accrued interest receivable	57,986		57,986		—		—		57,986
Investment in BOLI	58,115		58,115		—		—		58,115
Derivative assets	27,965		27,965		—		26,270		1,695
Community reinvestment investments	7,060		8,522		—		8,522		—
Financial Liabilities:
Deposits	$	16,065,229	$	16,060,784	$	—	$	13,724,218	$	2,336,566
Short-term borrowings	1,544,746		1,544,128		—		1,539,384		4,744
Long-term debt	338,310		319,199		197,599		52,770		68,830
Accrued interest payable	9,063		9,063		—		—		9,063
Derivative liabilities	18,122		18,122		—		17,794		328

18. OPERATING SEGMENTS

We have three primary operating segments: Banking, Asset Management and the Holding Company. With respect to the Banking and Asset Management segments, each is delineated by the products and services that it 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 Asset Management segment includes certain activities of our PrivateWealth group, including investment management, personal trust and estate administration, custodial and escrow, retirement plans 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.

The accounting policies of the individual operating segments are the same as those of the Company as described in Note 1. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated from consolidated results of operations.

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Financial results for each segment are presented below. For segment reporting purposes, the statement of financial condition of Asset Management is included with the Banking segment.

Operating Segments Performance

(Amounts in thousands)



	Three Months Ended March 31,
	Banking				Asset Management				Holding Company and Other Adjustments						Consolidated
	2017		2016		2017		2016		2017			2016			2017		2016
Net interest income (expense)	$	165,721	$	144,107	$	1,164	$	1,248	$	(5,867	)	$	(5,837	)	$	161,018	$	139,518
Provision for loan and covered loan losses	8,408		6,402		—		—		—			—			8,408		6,402
Non-interest income	31,671		28,861		5,591		4,724		21			17			37,283		33,602
Non-interest expense	99,187		83,025		4,876		4,642		6,346			2,826			110,409		90,493
Income (loss) before taxes	89,797		83,541		1,879		1,330		(12,192		)	(8,646		)	79,484		76,225
Income tax provision (benefit)	26,321		29,412		723		515		(5,512		)	(3,254		)	21,532		26,673
Net income (loss)	$	63,476	$	54,129	$	1,156	$	815	$	(6,680	)	$	(5,392	)	$	57,952	$	49,552



	Banking				Holding Company and Other Adjustments⁽¹⁾						Consolidated
	3/31/2017		12/31/2016		3/31/2017			12/31/2016			3/31/2017		12/31/2016
Selected Balances
Assets	$	18,175,369	$	17,893,329	$	2,240,849		$	2,160,444		$	20,416,218	$	20,053,773
Total loans	15,591,656		15,056,241		—			—			15,591,656		15,056,241
Deposits	16,753,235		16,118,043		(44,520		)	(52,814		)	16,708,715		16,065,229


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

19. VARIABLE INTEREST ENTITIES

The Company is required to consolidate VIEs in which it has a controlling financial interest. The following table summarizes the carrying amounts of the consolidated VIEs’ assets included in the Company’s statements of financial condition as adjusted for intercompany eliminations at March 31, 2017 and December 31, 2016.

Consolidated VIEs

(Amounts in thousands)



	March 31, 2017		December 31, 2016
Assets:
Loans	$	21,440	$	17,774
Accrued interest receivable	88		66
Total assets	$	21,528	$	17,840

The Company sponsors and consolidates certain VIEs that invest in community development projects designed primarily to promote community welfare, such as economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. These VIEs invest in community development projects through the extension of below-market loans that generate a return primarily through the realization of federal new markets tax credits. The consolidated VIEs’ loans are recognized within loans on the Company’s consolidated statements of financial condition. The federal new markets tax credits earned from equity investments in VIEs are recognized as a component of income tax expense, and interest income received on the loans is recognized within interest income on the Company’s consolidated statements of income. The assets of the consolidated VIEs are the primary source of funds to settle their respective obligations. The creditors of the VIEs do not have recourse to the general credit of the

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Company. The Company’s exposure to each consolidated VIE is limited to the amount of equity invested by the Company in the VIE.

The table below presents our interests in VIEs that are not consolidated in our financial statements at March 31, 2017, and December 31, 2016.

Nonconsolidated VIEs

(Amounts in thousands)



	March 31, 2017				December 31, 2016
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Trust preferred capital securities issuances⁽¹⁾	$	167,661	$	—	$	167,651	$	—
Community reinvestment investments and loans ⁽²⁾	69,358		91,633		55,560		64,668
Restructured loans to commercial clients ⁽²⁾:
Outstanding loan balance	123,870		138,885		102,709		116,134
Related derivative asset	18		18		74		74
Warrants	28		28		35		35
Total	$	360,935	$	230,564	$	326,029	$	180,911


⁽¹⁾	Net of deferred financing costs of $2.1 million at March 31, 2017 and December 31, 2016.


⁽²⁾	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 therefrom in debentures issued by the Company. The trusts’ only assets are 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.

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

A portion of our CRA investments are investments in limited liability entities that invest in affordable housing projects that qualify for low-income housing tax credits. These investments entitle the Company to tax credits through 2030. Any new investments in qualified affordable housing projects entered into on or after January 1, 2014, that meet certain conditions are accounted for using the proportional amortization method. Prior to January 1, 2014, the Company accounted for all of its investments in qualified affordable housing projects using the effective yield method and has elected to continue accounting for preexisting tax credit investments using the effective yield method as permitted under the accounting standards.

The carrying value of the Company’s tax credit investments in affordable housing projects totaled $56.3 million at March 31, 2017 and $42.9 million at December 31, 2016. Commitments to provide future capital contributions totaling $45.4 million as of March 31, 2017, are expected to be paid through 2031. These investments are reviewed periodically for impairment. No impairment losses were recorded for the three months ended March 31, 2017 and 2016. The following table summarizes the impact on the consolidated statement of income for the periods presented.

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Affordable Housing Tax Credit Investments

(Amounts in thousands)



	Three Months Ended March 31,
	2017		2016
Tax credits	$	972	$	430
Tax benefits from operating losses	$	525	$	147
Amortization of principal investment	$	1,154	$	443

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 restructuring, the borrower entity typically meets the definition of a VIE, 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.

Warrants – In connection with certain negotiated credit facilities, we receive warrants to acquire stock in privately-held client companies. We have no contractual requirement to provide financial support to the borrowing entities beyond the funding commitments established at origination of the credit facilities. As we do not have the power to direct the activities that most significantly impact the client companies’ operations, we are not considered the primary beneficiary of these companies.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

PrivateBancorp, Inc. (“PrivateBancorp,” the “Company,” we, our or us), is a Delaware corporation and bank holding company headquartered in Chicago, Illinois. The PrivateBank and Trust Company (the “Bank” or “PrivateBank”), our bank subsidiary, provides customized business and personal financial services to middle market companies, as well as business owners, executives, entrepreneurs and families in all the markets and communities we serve. As of March 31, 2017, we had 36 offices located in 13 states, including 22 full-service banking branches in four states. Our full-service bank branches are located principally in the greater Chicago metropolitan area, with additional branches in the St. Louis, Milwaukee and Detroit metropolitan areas. We have non-depository commercial banking offices strategically located in major commercial centers to further our reach with our core client base of middle market companies.

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 and asset management 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Results of operations for the three months ended March 31, 2017, are not necessarily indicative of results to be expected for the year ending December 31, 2017. 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 the federal securities laws. Forward-looking statements represent management’s current beliefs and expectations regarding future events, such as our anticipated future financial results, credit quality, liquidity, revenues, expenses, or other financial items, and

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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 comparable terminology.

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

•

the possibility that the transaction with CIBC does not close when expected or at all because required regulatory, stockholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; or the possibility that, as a result of the announcement and pendency of the proposed transaction, we experience difficulties in employee retention and/or clients or vendors seek to change their existing business relationships with us, or competitors change their strategies to compete against us, any of which may have a negative impact on our business or operations;


•	unanticipated changes in monetary policies of the Federal Reserve or significant adjustments in the pace of, or market expectations for, future interest rate changes;


•	uncertainty regarding U.S. regulatory reform proposals, geopolitical developments and the U.S. and global economic outlook that may continue to impact market conditions or affect demand for certain banking products and services;


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


•	competitive pressures in the financial services industry relating to both pricing and loan structures, which may impact our growth rate;


•	unforeseen credit quality problems or changing economic conditions that could result in charge-offs greater than we have anticipated in our allowance for loan losses or changes in value of our investments;


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


•	unanticipated losses of one or more large depositor relationships, or other significant deposit outflows;


•	loss of key personnel or an inability to recruit appropriate talent cost-effectively;


•	greater-than-anticipated costs to support the growth of our business, including investments in technology, process improvements or other infrastructure enhancements, or greater-than-anticipated compliance or regulatory costs and burdens; or


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

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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q, as well as those set forth in our subsequent periodic and current reports filed with the Securities and Exchange Commission (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.

PENDING TRANSACTION WITH CANADIAN IMPERIAL BANK OF COMMERCE

On June 29, 2016, the Company entered into a definitive merger agreement (the “Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”), a Canadian chartered bank, and CIBC Holdco Inc. (“Holdco”), a newly-formed Delaware corporation and a direct, wholly owned subsidiary of CIBC, which contemplates that the Company will merge with and into Holdco, with Holdco surviving the merger. Following the merger, the Bank will be headquartered in Chicago, Illinois, retain its Illinois state banking charter and be an indirect, wholly owned subsidiary of CIBC. As described in the Current Report on Form 8-K filed with the SEC on July 6, 2016, the original Agreement had provided that, at the effective time of the merger, each share of common stock, without par value, of PrivateBancorp was to be converted into the right to receive 0.3657 of a CIBC common share and $18.80 in cash.

On March 30, 2017, the Company entered into an amendment to the original Agreement, which, as described in the Current Report on Form 8-K filed with the SEC on such date, increased the per share merger consideration to 0.4176 of a CIBC common share and $24.20 in cash. On May 4, 2017, the Agreement was further amended, as described in the Current Report on Form 8-K filed with the SEC on such date, to increase the per share cash consideration to $27.20. The per share stock consideration of 0.4176 of a CIBC common share was unchanged. As of May 3, 2017, the last trading day before public announcement of the transaction, total consideration for the transaction was valued at approximately $4.9 billion, or $60.43 per share of common stock of the Company, based on CIBC’s closing stock price on such date of $79.58. The actual transaction value will be based on the number of shares of common stock of the Company outstanding at the closing and the price of CIBC common stock as of the closing.

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OVERVIEW OF RECENT FINANCIAL RESULTS

Net income available to common stockholders was $58.0 million for first quarter 2017, increasing $8.4 million, or 17%, from first quarter 2016. Compared to fourth quarter 2016, net income available to common stockholders declined $1.6 million, or 3%. Net income for the first quarter 2017 was impacted by higher compensation expense and a lower effective tax rate, both at levels which are not expected to recur in the remainder of 2017. Results for first quarter 2017 also included $1.6 million of costs related to the pending CIBC transaction. Diluted earnings per share were $0.70 for the first quarter 2017, an increase of 13% compared to $0.62 per diluted share for the first quarter 2016. Annualized return on average assets was 1.17% and our annualized return on average common equity was 12.0% for the first quarter 2017, compared with 1.15% and 11.4%, respectively, for the year ago quarter.

Net interest income increased $21.5 million, or 15%, compared to first quarter 2016, reflecting higher interest income from $2.8 billion of growth in average interest-earning assets and higher short-term rates and was partially offset by $1.7 million in lower loan fees. Net interest margin was 3.30% for first quarter 2017, consistent with first quarter 2016. Yields on interest-earning assets increased nine basis points compared to first quarter 2016, largely reflecting the repricing of the variable rate loan portfolio to higher short-term rates. Our cost of funds increased 14 basis points from the year ago quarter, primarily reflecting higher rates paid on deposits, including deposits repriced to a higher Fed funds effective or target rate. The impact of higher deposit costs on net interest margin was somewhat reduced by the value of noninterest-bearing funds in a higher rate environment.

Non-interest income for first quarter 2017 increased $3.7 million from the prior year quarter with contributions from all major fee categories, excluding mortgage banking. As a result of the growth in net interest income and non-interest income, net revenue increased $25.2 million, or 14%, from first quarter 2016 to $199.5 million. Non-interest expense increased $19.9 million, or 22%, from the prior year quarter, primarily due to the required accelerated expense recognition related to a portion of the annual time-vested equity awards granted in the first quarter 2017 granted as part of our annual incentive compensation program.

Growth in earning assets continued to benefit operating profit, which increased 6% from first quarter 2016 to $89.1 million for first quarter 2017. The efficiency ratio was 55.3% for first quarter 2017, compared to 51.9% for first quarter 2016 and was impacted by the aforementioned higher share-based compensation costs.

Total loans of $15.6 billion at March 31, 2017, grew $535.4 million, or 4%, from year end 2016 and $2.1 billion, or 16%, from March 31, 2016, driven primarily by growth in commercial and industrial loans and commercial real estate loans (“CRE”). Continued client development efforts generated new loans to new clients of $607.6 million for the first quarter 2017. At March 31, 2017, commercial loans represented 64% of total loans, and CRE and construction loans represented 30% of total loans, largely comparable with December 31, 2016 and March 31, 2016.

Asset quality remained strong, with nonperforming loans representing 0.55% of total loans at March 31, 2017, compared to 0.56% at December 31, 2016. The provision for loan losses, excluding covered assets, was $8.4 million in first quarter 2017, compared to $6.4 million for first quarter 2016. Specific reserve levels increased $8.2 million, resulting from impaired loan development and higher reserves required on impaired loans from prior periods. The provision for loan loss will fluctuate from period to period depending on the level of loan growth and unevenness in credit quality due to the size of individual credits. At March 31, 2017, our allowance for loan losses as a percentage of total loans was 1.25%, compared to 1.23% at December 31, 2016. Nonperforming assets to total assets were 0.46% at March 31, 2017, compared to 0.47% at December 31, 2016.

Total deposits of $16.7 billion at March 31, 2017, increased $643.5 million, or 4%, from year end 2016, and $2.2 billion, or 16% from March 31, 2016. Total brokered deposits, as defined for regulatory reporting purposes, increased $481.4 million from year-end, including a $275.4 million increase in traditional brokered deposits and CDARS. Our deposit base is predominately comprised of commercial client balances, which will fluctuate from time to time based on our clients’ business and liquidity needs. The loan-to-deposit ratio was 93% at March 31, 2017 compared to 94% at December 31, 2016. During first quarter 2017, we reduced FHLB borrowing by $350.0 million.

Please refer to the remaining sections of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for greater discussion of the various components of our first quarter 2017 performance, statement of financial condition and liquidity.

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RESULTS OF OPERATIONS

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

Table 1

Consolidated Financial Highlights

(Dollars in thousands, except per share data)



	As of and for the Three Months Ended
	2017			2016
	March 31			December 31			September 30			June 30			March 31
Selected Operating Statistics
Net income	$	57,952		$	59,548		$	48,892		$	50,365		$	49,552
Effective tax rate	27.1		%	35.9		%	35.3		%	36.5		%	35.0		%
Net interest income	$	161,018		$	155,381		$	145,510		$	142,017		$	139,518
Fee revenue ⁽¹⁾	37,226			39,412			37,614			36,550			33,071
Net revenue ⁽²⁾	199,546			196,027			184,331			180,341			174,337
Operating profit ⁽²⁾	89,137			100,183			92,411			86,125			83,844
Provision for loan losses ⁽³⁾	8,378			6,073			15,875			5,570			6,436
Per Share Data
Basic earnings per share	$	0.72		$	0.75		$	0.61		$	0.63		$	0.63
Diluted earnings per share	0.70			0.73			0.6			0.62			0.62
Tangible book value at period end ⁽²⁾⁽⁴⁾	$	23.75		$	22.85		$	22.43		$	21.83		$	21.07
Dividend payout ratio	1.39		%	1.33		%	1.64		%	1.59		%	1.60		%
Performance Ratios
Return on average common equity	11.95		%	12.40		%	10.40		%	11.20		%	11.40		%
Return on average assets	1.17		%	1.21		%	1.04		%	1.14		%	1.15		%
Return on average tangible common equity⁽²⁾	12.63		%	13.12		%	11.04		%	11.91		%	12.16		%
Net interest margin ⁽²⁾	3.30		%	3.23		%	3.18		%	3.28		%	3.30		%
Efficiency ratio ⁽²⁾⁽⁵⁾	55.33		%	48.89		%	49.87		%	52.24		%	51.91		%
Credit Quality ⁽³⁾
Total nonperforming loans to total loans	0.55		%	0.56		%	0.60		%	0.47		%	0.44		%
Total nonperforming assets to total assets	0.46		%	0.47		%	0.52		%	0.44		%	0.42		%
Allowance for loan losses to total loans	1.25		%	1.23		%	1.23		%	1.20		%	1.23		%
Balance Sheet Highlights
Total assets	$	20,416,218		$	20,053,773		$	19,105,560		$	18,169,191		$	17,667,372
Average interest-earning assets	19,651,322			19,032,922			18,084,391			17,285,351			16,865,659
Loans ⁽³⁾	15,591,656			15,056,241			14,654,570			14,035,808			13,457,665
Allowance for loan losses ⁽³⁾	(194,615		)	(185,765		)	(180,268		)	(168,615		)	(165,356		)
Deposits	16,708,715			16,065,229			15,488,854			14,557,394			14,464,869
Noninterest-bearing demand deposits	5,258,941			5,196,587			4,857,470			4,511,893			4,338,177
Loans to deposits ⁽³⁾	93.31		%	93.72		%	94.61		%	96.42		%	93.04		%

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	As of
	2017		2016
	March 31		December 31		September 30		June 30		March 31
Capital Ratios
Total risk-based capital	12.59	%	12.49	%	12.41	%	12.42	%	12.56	%
Tier 1 risk-based capital	10.83	%	10.73	%	10.64	%	10.66	%	10.76	%
Tier 1 leverage ratio	10.33	%	10.28	%	10.43	%	10.56	%	10.50	%
Common equity Tier 1 ratio	9.95	%	9.83	%	9.71	%	9.70	%	9.76	%
Tangible common equity to tangible assets ⁽²⁾⁽⁶⁾	9.35	%	9.14	%	9.40	%	9.60	%	9.51	%


⁽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 23 for a reconciliation of non-U.S. GAAP measures to comparable U.S. GAAP measures.


⁽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⁾	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.

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 (1) the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities; (2) the volume and value of noninterest-bearing sources of funds, such as noninterest-bearing deposits and equity; (3) the use of derivative instruments to manage interest rate risk; (4) the sensitivity of the balance sheet to fluctuations in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies; (5) loan repayment behavior, which affects timing of recognition of certain loan fees as well as penalties; and (6) 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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 three months ended March 31, 2017 and 2016. The table also presents the trend in net interest margin on a quarterly basis for 2017 and 2016, 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 versus yield/rate changes.

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Three months ended March 31, 2017 compared to three month ended March 31, 2016

Table 2

Net Interest Income and Margin Analysis

(Dollars in thousands)



	Three Months Ended March 31,														Attribution of Change in Net Interest Income ⁽¹⁾
	2017							2016							Attribution of Change in 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	$	285,700		$	549	0.77	%	$	277,624		$	340	0.49	%	$	10		$	199		$	209
Securities:
Taxable	3,375,709			18,436		2.19	%	2,696,568			15,210		2.26	%	3,723			(497		)	3,226
Tax-exempt ⁽³⁾	472,999			3,657		3.09	%	445,677			3,550		3.19	%	213			(106		)	107
Total securities	3,848,708			22,093		2.30	%	3,142,245			18,760		2.39	%	3,936			(603		)	3,333
FHLB stock	40,150			290		2.88	%	27,076			150		2.19	%	85			55			140
Loans, excluding covered assets:
Commercial	9,931,370			111,444		4.49	%	8,653,066			95,193		4.35	%	14,310			1,941			16,251
Commercial real estate	4,230,936			41,718		3.94	%	3,378,391			32,368		3.79	%	8,381			969			9,350
Construction	422,203			4,435		4.20	%	574,879			5,634		3.88	%	(1,581		)	382			(1,199		)
Residential	611,790			5,237		3.42	%	492,031			4,501		3.66	%	1,040			(304		)	736
Personal and home equity	259,698			2,189		3.42	%	294,415			2,261		3.09	%	(281		)	209			(72		)
Total loans, excluding covered assets⁽⁴⁾	15,455,997			165,023		4.27	%	13,392,782			139,957		4.14	%	21,869			3,197			25,066
Covered assets ⁽⁵⁾	20,767			157		3.06	%	25,932			110		1.71	%	(25		)	72			47
Total interest-earning assets ⁽³⁾	19,651,322			$	188,112	3.83	%	16,865,659			$	159,317	3.74	%	$	25,875		$	2,920		$	28,795
Cash and due from banks	189,138							174,649
Allowance for loan and covered loan losses	(195,314		)					(169,243		)
Other assets	499,093							521,724
Total assets	$	20,144,239						$	17,392,789
Liabilities and Equity:
Interest-bearing demand deposits	$	1,781,267		$	2,076	0.47	%	$	1,487,752		$	1,107	0.30	%	$	250		$	719		$	969
Savings deposits	442,712			543		0.50	%	393,042			466		0.48	%	61			16			77
Money market accounts	6,474,938			8,580		0.54	%	5,999,516			5,896		0.39	%	497			2,187			2,684
Time deposits	2,418,762			7,206		1.21	%	2,157,421			5,672		1.05	%	727			807			1,534
Total interest-bearing deposits	11,117,679			18,405		0.67	%	10,037,731			13,141		0.52	%	1,535			3,729			5,264
Short-term borrowings	1,282,196			2,324		0.73	%	251,088			230		0.36	%	1,691			403			2,094
Long-term debt	338,323			5,120		6.05	%	688,227			5,211		3.02	%	(3,542		)	3,451			(91		)
Total interest-bearing liabilities	12,738,198			25,849		0.82	%	10,977,046			18,582		0.68	%	(316		)	7,583			7,267
Noninterest-bearing demand deposits	5,224,326							4,469,405
Other liabilities	214,935							198,807
Equity	1,966,780							1,747,531
Total liabilities and equity	$	20,144,239						$	17,392,789
Net interest spread ⁽³⁾						3.01	%						3.06	%
Contribution of noninterest-bearing sources of funds						0.29	%						0.24	%
Net interest income/margin ⁽³⁾				$	162,263	3.30	%				$	140,735	3.30	%	$	26,191		$	(4,663	)	$	21,528
Less: tax equivalent adjustment				1,245							1,217
Net interest income, as reported				$	161,018						$	139,518

(footnotes on following page)

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Table 2

Net Interest Income and Margin Analysis (Continued)

(Dollars in thousands)



	Quarterly Net Interest Margin Trend
	2017		2016
	First		Fourth		Third		Second		First
Yield on interest-earning assets ⁽³⁾	3.83	%	3.70	%	3.65	%	3.74	%	3.74	%
Cost of interest-bearing liabilities	0.82	%	0.73	%	0.72	%	0.70	%	0.68	%
Net interest spread ⁽³⁾	3.01	%	2.97	%	2.93	%	3.04	%	3.06	%
Contribution of noninterest-bearing sources of funds	0.29	%	0.26	%	0.25	%	0.24	%	0.24	%
Net interest margin ⁽³⁾	3.30	%	3.23	%	3.18	%	3.28	%	3.30	%


⁽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 $6.2 million and $7.9 million in net loan fees for the quarters ended March 31, 2017 and 2016, respectively.


⁽³⁾	Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. This is a non-U.S. GAAP measure. Refer to Table 23, “Non-U.S. GAAP Financial Measures,” for a reconciliation of the effect of the tax-equivalent adjustment.

⁽⁴⁾

Includes loans held-for-sale and nonaccrual loans. Average loans on a nonaccrual basis for the recognition of interest income totaled $82.5 million and $53.7 million for the quarters ended March 31, 2017 and 2016, respectively. Interest foregone on impaired loans was estimated to be approximately $895,000 and $546,000 for the quarters ended March 31, 2017 and 2016, respectively, calculated 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 below entitled “Covered Assets” for a detailed discussion.

Net interest income on a tax-equivalent basis increased by $21.5 million, or 15%, to $162.3 million for first quarter 2017, compared to $140.7 million for first quarter 2016. Tax-equivalent interest income increased by $28.8 million from the prior year quarter, largely driven by $2.1 billion in average loan growth, which contributed $21.9 million to interest income on a comparative basis as well as the repricing of our largely variable rate loan portfolio to higher short-term interest rates, which was partially offset by a $1.7 million decline in loan fees from first quarter 2016 due in part to a lower level of fees tied to early loan repayments. Securities interest income on a tax-equivalent basis increased $3.3 million from first quarter 2016, primarily due to growth in the portfolio. Interest expense increased by $7.3 million compared to the prior year quarter, largely related to higher rates paid on deposits, including deposits indexed to a higher Fed funds effective or target rate, and $1.1 billion growth in average interest-bearing deposits. Interest expense on short-term borrowings increased by $2.1 million from the first quarter 2016, reflecting higher average short-term FHLB advances during 2017.

Average interest-earning assets growth of $2.8 billion from the prior year period was primarily driven by higher average loan balances of $2.1 billion, with $1.3 billion of the growth related to commercial and industrial loans and $699.9 million related to CRE and construction loans. In addition, average securities balances increased by $706.5 million from first quarter 2016. Average interest-bearing liabilities grew $1.8 billion from the prior year period, reflecting $1.1 billion in higher average deposit balances, as well as $1.0 billion in higher average short-term and secured borrowings, due to an increased use of short-term FHLB advances.

Net interest margin was 3.30% for first quarter 2017, comparable to first quarter 2016. Yields on interest-earning assets increased by nine basis points compared to the prior year. Overall loan yields increased by 13 basis points from the first quarter 2016, reflecting the repricing of our variable rate portfolio as a result of the upward movement in short-term rates. Approximately 70% of the loan portfolio at March 31, 2017 was tied to one-month LIBOR, which was 98 basis points at March 31, 2017, compared to 44 basis points a year ago and 77 basis points at December 31, 2016. Loan fees tied to early loan repayments were seven basis points lower compared to the first quarter 2016. Our overall loan yields continue to be aided by our hedging program, although at a reduced level as compared to the first quarter 2016 due to higher short-term rates and a decline in the notional value of the active hedge program.

Our cost of funds for first quarter 2017 increased by 14 basis points from first quarter 2016, driven primarily by higher rates paid on deposits. Deposit costs increased by 15 basis points from the prior year period, reflecting the repricing of deposits, including deposits tied to a higher Fed funds effective or target rate. Deposits tied to the Fed funds effective rate totaled $1.7 billion at March 31, 2017. Average noninterest-bearing deposits and average equity, our principal sources of net noninterest-bearing funds,

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increased in aggregate by $771.0 million from the comparative period, adding five basis points of value to net interest margin due to higher volume and the increased value of noninterest-bearing liabilities in a higher rate environment.

In the prolonged low interest rate environment, competition remains strong, which has influenced loan pricing and structure. As a result, we have experienced pricing compression on new loans, including within certain of our specialty businesses, and, to a lesser extent, on loan renewals in the current environment. Future loan yields may be impacted by fluctuations in loan fees driven by acceleration of unamortized origination fees upon early payoff or refinancing, and prepayment and other fees received on certain event-driven actions in accordance with the loan agreement, as well as interest income recognized upon recovery of interest on nonaccrual loans. The short-term interest rate moves during March 2017 are expected to be more impactful to loan yields during the second quarter 2017.

The impact of increases in short-term interest rates on deposit costs for our indexed deposits has greater predictability than our non-indexed deposits. During first quarter 2017, indexed deposits added four basis points to our deposit costs, while the residual four basis points increase in first quarter 2017 deposit costs related primarily to customized pricing arrangements for rate-sensitive non-indexed accounts. Deposit costs will depend on various factors including client behavior, competitive pricing pressure within the bank marketplace and from non-bank alternatives, the mix of our funding sources, and prices for wholesale sources of funding. Our deposit accounts are more concentrated in corporate and commercial clients with potential access to alternative deposit investment options that could place added pricing pressure on non-indexed deposits. The impact on our deposit costs from a rise in interest rates will be dependent on not only the pace, but the timing of such rate increases. The full impact on interest expense may be subject to a lag when rate rises occur close to period ends. For example, during 2016 deposit costs increased six basis points from first quarter 2016 through the fourth quarter with no corresponding increase in relevant indices. As the velocity of rate rises increases, the potential for deposit costs to rise faster also increases.

Non-interest Income

Non-interest income is derived from a number of sources including fees from our various commercial products and services such as the sale of derivative products through our capital markets group, treasury management services, lending and servicing and syndication activities, our asset management business, our mortgage banking business and deposit services to our retail clients.

The following table presents a break-out of these multiple sources of revenue for the periods presented.

Table 3

Non-Interest Income Analysis

(Dollars in thousands)



	Three Months Ended March 31,
	2017		2016		% Change
Asset management income:
Managed fee income	$	4,958	$	4,146	20
Custodian fee income	632		579		9
Total asset management income	5,590		4,725		18
Mortgage banking	2,450		2,969		-17
Capital markets products	6,924		5,199		33
Treasury management	9,247		8,186		13
Loan, letter of credit and commitment fees	5,551		5,200		7
Syndication fees	5,962		5,434		10
Deposit service charges and fees and other income	1,502		1,358		11
Subtotal fee income	37,226		33,071		13
Net securities gains	57		531		-89
Total non-interest income	$	37,283	$	33,602	11

Non-interest income for first quarter 2017 totaled $37.3 million, compared to $33.6 million for first quarter 2016, with increases in all core fee income categories except for mortgage banking. Certain income sources, such as mortgage banking, capital markets products and syndication fees, are transactional in nature and are significantly impacted by market forces (e.g., interest rates have

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a significant impact on mortgage banking volume and interest rate derivative products), and accordingly, tend to generate uneven income from period to period.

Assets under management and administration (“AUMA”) are impacted by the general performance in equity and fixed income markets. The pricing on asset management accounts varies depending on the type of services provided. Custody and escrow services involve safeguarding and administering client assets but do not involve investment management services. These assets are considered to be “non-managed” AUMA and have a significantly lower fee structure than “managed” AUMA. Managed AUMA are assets for which we provide investment management services, and fees from these assets are generally based on the market value of the assets on the last day of the prior quarter or month, which subject these fees to market volatility.

For first quarter 2017, asset management fee income increased by $865,000, or 18%, compared to first quarter 2016, with the increase primarily attributable to the growth in personal managed assets and the addition of a single $2.4 billion corporate trust account (shown below in custody assets) late in first quarter 2016, and, to a lesser extent, $120,000 in estate settlement fees collected during the first quarter 2017. As previously disclosed, the funds in the large corporate trust account have been gradually disbursed or redeployed, and we expect this to continue over the next several quarters, with the account fully disbursed or redeployed by the end of 2017. Accordingly, the contribution to our asset management fee income from this account each quarter is declining and is expected to continue declining. Aggregate AUMA at March 31, 2017 increased by $172.2 million from March 31, 2016 largely attributable to changes in the previously mentioned sizeable corporate trust account, a $1.0 billion single corporate retirement account added during second quarter 2016, and growth in personal managed assets. The $128.9 million growth in AUMA from December 31, 2016 is attributable to an improved market, growth across all managed asset lines, including $67.9 million additions in retirement plans.

The following table presents the composition of AUMA as of the dates shown.



(Dollars in thousands)	As of						% Change
AUMA	3/31/2017		12/31/2016		3/31/2016		3/31-12/31	3/31-3/31
Personal managed	$	2,134,372	$	2,046,758	$	1,867,572	4	14
Corporate and institutional managed	2,765,198		2,643,041		1,592,394		5	74
Total managed assets	4,899,570		4,689,799		3,459,966		4	42
Custody assets ⁽¹⁾	4,894,402		4,975,269		6,161,827		-2	-21
Total AUMA	$	9,793,972	$	9,665,068	$	9,621,793	1	2


⁽¹⁾	March 31, 2017, December 31, 2016, and March 31, 2016 includes $673.9 million, $791.6 million, and $2.4 billion, respectively, of a corporate trust account for which we do not provide investment management services, but do serve as trustee.

Income from our mortgage banking business, which includes gains on loans sold and certain mortgage related loan fees, decreased $519,000, or 17%, to $2.5 million in first quarter 2017 compared to $3.0 million for first quarter 2016 due to a lower volume of loans sold during the current quarter compared to the prior year quarter. We sold $76.4 million of mortgage loans in the secondary market, generating gains of $2.0 million in first quarter 2017, compared to $95.8 million of mortgage loans sold, generating gains of $2.2 million, in the prior year quarter. During first quarter 2017, both refinance activity and new home purchases were lower than in first quarter 2016.

The following table presents the composition of capital markets income for the past five quarters.



	Three Months Ended
	2017		2016
(Dollars in thousands)	March 31		December 31		September 30		June 30			March 31
Interest rate contracts	$	4,833	$	3,795	$	2,718	$	4,942		$	5,418
Foreign exchange contracts	2,073		1,917		1,820		1,943			1,685
Risk participation agreements	18		—		—		—			—
Total capital markets income, excluding credit valuation adjustment (“CVA”)	$	6,924	$	5,712	$	4,538	$	6,885		$	7,103
CVA	—		3,112		910		(1,033		)	(1,904		)
Total capital markets income	$	6,924	$	8,824	$	5,448	$	5,852		$	5,199

Capital markets income was $6.9 million in first quarter 2017, increasing $1.7 million from first quarter 2016, largely attributable to the absence of the negative CVA at March 31, 2016. The CVA represents the credit component of fair value with regard to both

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client-based derivatives and the related matched derivatives with interbank dealer counterparties. Exclusive of CVA, capital markets products income declined $179,000, or 3%, from first quarter 2016, coming off a record first quarter 2016, but reflecting higher interest rate derivative activity after the March 2017 interest rate hike. Meaningful interest rate movements in the last six months and changing expectations about the timing and extent of future interest rate movements has created potential for increased opportunities in the interest rate derivatives business in 2017. Foreign exchange transactions generally provide a more stable source of fee income compared to the transactional nature of interest rate contracts, which are significantly influenced by clients’ views on the extent and timing of future interest rate movements.

Treasury management income increased $1.1 million, or 13%, from first quarter 2016 due to higher volume across our treasury management platforms. The current quarter increase reflects the ongoing success in cross-selling our treasury management services to new commercial clients as we continue to build client relationships, with approximately 72% of our commercial clients using treasury management services at March 31, 2017, as well as some price adjustments on certain services. Cross-sell and implementation of treasury management services may lag the closing of a credit facility by three to six months on average.

Loan, letter of credit, and commitment fees increased $351,000, or 7%, from first quarter 2016, driven by higher unused commitment fees, partially offset by lower commercial letter of credit fees. The majority of our unused commitment fees related to revolving facilities, which at March 31, 2017 totaled $11.1 billion, of which $6.1 billion were unused. In comparison, at March 31, 2016, commitments related to revolving facilities totaled $9.9 billion, of which $5.3 billion were unused.

Syndication fees of $6.0 million in first quarter 2017 were up $528,000, or 10%, from first quarter 2016. During first quarter 2017, we were the lead or co-lead in 45 syndicated loan transactions, totaling $877.3 million in commitments, of which we retained $456.3 million in commitments. In the prior year period, we were the lead or co-lead in 22 syndicated loan transactions, totaling $888.5 million in commitments, while retaining $282.9 million in commitments. Syndication fees per transaction typically vary depending on, among other factors, market conditions and the size and structure of the transaction, so the aggregate level of syndication fees earned by us in a given period is not entirely correlated with our volume of syndications and our syndication fees can be expected to fluctuate from quarter to quarter. While we generally expect increased syndication opportunities as we grow our loan portfolio and client relationships, our volume of syndication transactions depends on a number of factors, including portfolio management decisions, the mix of loans originated, and liquidity and demand by other institutions for syndicated loans. In addition, macroeconomic conditions, such as market expectations about economic growth and interest rate movements, and regulatory developments, such as enhanced regulatory focus on leveraged lending and CRE concentrations, generally impact market demand for syndicated loans, and could affect our level of syndication fees in future periods.

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Non-interest Expense

Table 4

Non-Interest Expense Analysis

(Dollars in thousands)



	Three Months Ended March 31,
	2017			2016			% Change
Compensation expense:
Salaries and wages	$	31,886		$	28,963		10
Share-based costs	16,317			6,357			157
Incentive compensation and commissions	14,348			13,307			8
Payroll taxes, insurance and retirement costs	10,588			9,712			9
Total compensation expense	73,139			58,339			25
Net occupancy and equipment expense	8,037			7,215			11
Technology and related costs	6,680			5,293			26
Marketing	4,770			4,404			8
Professional services	4,851			2,994			62
Outsourced servicing costs	994			1,840			-46
Net foreclosed property expense	(189		)	566			-133
Postage, telephone, and delivery	852			840			1
Insurance	4,178			3,820			9
Loan and collection:
Loan origination and servicing expense	1,241			1,297			-4
Loan remediation expense	727			235			209
Total loan and collection expense	1,968			1,532			28
Other operating expense:
Supplies and printing	90			111			-19
Subscriptions and dues	814			383			113
Education and training	321			293			10
Internal travel and entertainment	653			473			38
Investment manager expense	471			541			-13
Bank charges	325			318			2
Intangibles amortization	521			540			-4
Provision for unfunded commitments	753			595			27
Other expenses	1,181			396			198
Total other operating expenses	5,129			3,650			41
Total non-interest expense	$	110,409		$	90,493		22
Full-time equivalent (“FTE”) employees at period end	1,329			1,229			8
Operating efficiency ratios:
Non-interest expense to average assets	2.22		%	2.09		%
Net overhead ratio ⁽¹⁾	1.47		%	1.32		%
Efficiency ratio ⁽²⁾	55.33		%	51.91		%


⁽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 23, “Non-U.S. GAAP Financial Measures,” for a reconciliation of the effect of the tax-equivalent adjustment.

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Three months ended March 31, 2017 compared to three months ended March 31, 2016

Non-interest expense increased by $19.9 million, or 22%, compared to first quarter 2016. Higher compensation expense largely contributed to the current quarter increase compared to the prior year period.

Compensation expense, which is comprised of salary and wages, share-based costs, incentive compensation and payroll taxes, insurance and retirement costs, increased $14.8 million, or 25%, from first quarter 2016 primarily due to the required accelerated expense recognition related to a portion of the annual time-vested equity awards granted in the first quarter 2017. The terms of these awards differed from prior year annual equity grants as contemplated by the terms of the CIBC merger agreement, which resulted in a greater portion of the share-based expense being recognized at the time of grant rather than over the vesting period. Salary and wages were up $2.9 million, or 10%, primarily reflecting additional hires over the last year and annual salary adjustments made during the first quarter 2017. Approximately $17 million of compensation expense recorded in the first quarter will not recur for the remainder of 2017. Second quarter 2017 compensation will also be influenced by incentive compensation plans tied to company performance and merit increases made in March.

Net occupancy costs increased $822,000, or 11% from first quarter 2016 and included $836,000 in leasehold improvement impairment charges in connection with a plan to remodel and redesign certain existing office space, partially offset by lower depreciation expense.

Technology and related costs increased $1.4 million, or 26%, from first quarter 2016 and included higher costs to third party service providers and amortization costs related to several large projects as we continue investing in our business.

Professional services expense, which includes fees paid for legal services in connection with corporate activities, accounting, and consulting services, increased $1.9 million, or 62%, from first quarter 2016. First quarter 2017 included $1.3 million in transaction-related costs associated with the pending merger with CIBC, which were comprised largely of financial advisor costs and other professional services fees.

Insurance costs increased $358,000 or 9%, from first quarter 2016, primarily related to larger FDIC deposit insurance premiums in the current quarter, reflecting overall asset growth and to a lesser extent, an increased rate paid due to changes in the overall composition of our balance sheet.

Loan and collection expense, which consists of certain non-reimbursable costs associated with loan origination and servicing, as well as loan remediation costs for problem and nonperforming loans, increased $436,000 from first quarter 2016 largely due to costs associated with loan remediation activities.

Other operating expenses increased $1.5 million, or 41%, from first quarter 2016. Other expenses include bank charges, costs associated with the CDARS^®deposit product offering, intangible asset amortization, education-related costs, subscriptions, provision for unfunded commitments, and miscellaneous losses and expenses. The increase was attributable to higher subscriptions and dues, an $899,000 fair value adjustment on non-mortgage loans held-for-sale and a comparatively lower market value adjustments on various partnership interests in various CRA investments non-marketable investments. These increases were partially offset by various lower miscellaneous operational losses during the current quarter.

Our efficiency ratio was 55.3% for first quarter 2017, compared to 51.9% for first quarter 2016 and included the higher compensation costs discussed above with approximately $17 million not expected to recur for the remainder of 2017.

Income Taxes

Our provision for income taxes includes federal, state and local income tax expense. For the quarter ended March 31, 2017, we recorded an income tax provision of $21.5 million on pre-tax income of $79.5 million (equal to a 27.1% effective tax rate) compared to an income tax provision of $33.4 million on pre-tax income of $92.9 million for the three months ended December 31, 2016 (equal to a 35.9% effective tax rate), and an income tax provision of $26.7 million on pre-tax income of $76.2 million for the three months ended March 31, 2016 (equal to a 35.0% effective tax rate). The lower tax rate in the first quarter 2017 was primarily attributable to net tax benefits from the exercise and vesting of share-based compensation. Such tax benefits totaled $4.9 million, compared to $2.1 million in the first quarter 2016 and $854,000 in the fourth quarter 2016. Most of the Company’s restricted stock awards vest annually in the first quarter. Additionally, the effective tax rate in the first quarter 2017 was impacted by the completion of tax examinations, which added tax benefits of $2.7 million to the current quarter’s results and is expected not to recur.

Net deferred tax assets totaled $128.6 million at March 31, 2017. We have concluded that it is more likely than not that the deferred tax assets will be realized and, accordingly, no valuation allowance was recorded during the quarter. This conclusion was based

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on the Company’s recent earnings history, on both a book and tax basis, and our outlook for earnings and taxable income in future periods.

Operating Segments Results

We have three primary operating segments: Banking, Asset Management, and Holding Company Activities.

Banking

The Banking operating segment is comprised of commercial and personal banking services. 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.

Our Banking segment is the Company’s most significant segment, representing 89% of consolidated total assets and generating nearly all of our net income. The profitability of our Banking segment is dependent on net interest income, provision for loan and covered loan losses, non-interest income (exclusive of asset management fees), and non-interest expense (exclusive of such expenses attributable to our asset management business). The net income for the Banking segment for first quarter 2017 was $63.5 million, an increase of $9.3 million from net income of $54.1 million for the prior year period. The increase in net income for the Banking segment was primarily due to a $21.6 million increase in net interest income resulting from $2.1 billion, or 15%, in average loan growth since the prior year period coupled with higher short-term rates. The provision for loan losses was up $2.0 million from the first quarter 2016, reflecting loan growth and some credit migration. Non-interest expense for the Banking segment increased by $16.2 million from the prior year period, mainly resulting from an increase in compensation expense primarily due to the required accelerated expense recognition related to a portion of the annual time-vested equity awards granted in the first quarter 2017, along with an increase in salary and wages reflecting an increase in staffing and annual salary adjustments.

Total loans for the Banking segment increased $535.4 million to $15.6 billion at March 31, 2017, from $15.1 billion at December 31, 2016. Total deposits were $16.8 billion and $16.1 billion at March 31, 2017 and December 31, 2016, respectively.

Asset Management

The Asset Management segment includes certain activities of our Private Wealth group, including investment management, personal trust and estate administration, custodial and escrow services, retirement account administration, and brokerage services. The private banking activities of our Private Wealth group are included with the Banking segment.

Net income from Asset Management increased to $1.2 million for first quarter 2017 from $815,000 for the prior year period, primarily reflecting the growth in personal managed assets along with the benefit of adding a single $2.4 billion corporate trust account late in the first quarter 2016, and, to a lesser extent, estate settlement fees of $120,000 collected during the current quarter. AUMA totaled $9.8 billion at March 31, 2017, compared to $9.6 billion at March 31, 2016, primarily reflecting the sizeable corporate trust addition noted above, $1.1 billion addition in retirement plan accounts and growth in personal managed assets, partially offset by expected disbursements from the sizeable corporate trust account.

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 the Bank. 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. For the first quarter 2017, the net loss for the Holding Company Activities segment was $6.7 million, compared to a net loss of $5.4 million for the first quarter 2016 and included $1.6 million in merger related costs in connection with the pending CIBC transaction. The Holding Company had $44.5 million in cash at March 31, 2017, compared to $52.8 million at December 31, 2016.

Additional information about our operating segments are also discussed in Note 18 of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q.

FINANCIAL CONDITION

Total assets were $20.4 billion at March 31, 2017, increasing 2% from $20.1 billion at December 31, 2016. Total loans were $15.6 billion at March 31, 2017, compared to $15.1 billion at December 31, 2016. Our total deposits increased to $16.7 billion at

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March 31, 2017 from $16.1 billion at December 31, 2016. Total stockholders’ equity increased 4% from $1.9 billion at December 31, 2016 to $2.0 billion at March 31, 2017.

Investment Portfolio Management

We manage our investment securities portfolio to maximize the return on invested funds within acceptable risk guidelines, meet pledging and liquidity requirements, and adjust balance sheet interest rate sensitivity in an effort to protect net interest income levels against the impact of changes in interest rates. Investments in the portfolio are comprised of debt securities, primarily residential mortgage-backed securities and, to a lesser extent, state and municipal securities.

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.

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 aggregate 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 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.

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

Table 5

Investment Securities Portfolio Valuation Summary

(Dollars in thousands)



	As of March 31, 2017					As of December 31, 2016
	Fair Value		Amortized Cost		% of Total	Fair Value		Amortized Cost		% of Total
Available-for-Sale
U.S. Treasury	$	592,897	$	598,573	15	$	542,295	$	548,894	15
U.S. Agencies	45,821		45,927		1	45,940		46,043		1
Collateralized mortgage obligations	69,335		67,260		2	75,345		73,228		2
Residential mortgage-backed securities	937,386		935,346		24	886,550		884,176		24
State and municipal securities	466,726		466,152		12	463,395		466,651		12
Total available-for-sale	2,112,165		2,113,258		54	2,013,525		2,018,992		54
Held-to-Maturity
Collateralized mortgage obligations	37,337		38,556		1	39,273		40,568		1
Residential mortgage-backed securities	1,403,051		1,417,781		36	1,360,921		1,378,610		37
Commercial mortgage-backed securities	334,556		338,396		9	310,161		314,622		8
State and municipal securities	204		204		*	204		204		*
Foreign sovereign debt	498		500		*	500		500		*
Other securities	6,958		6,536		*	3,711		3,619		*
Total held-to-maturity	1,782,604		1,801,973		46	1,714,770		1,738,123		46
Total securities	$	3,894,769	$	3,915,231	100	$	3,728,295	$	3,757,115	100


*	Less than 1%

As of March 31, 2017, our securities portfolio totaled $3.9 billion, increasing 4% compared to December 31, 2016. During the three months ended March 31, 2017, purchases of securities totaled $291.3 million, with $167.4 million in the available-for-sale portfolio and $123.8 million in the held-to-maturity portfolio. The current year purchases in the investment portfolio primarily represented the reinvestment of proceeds from sales, maturities and paydowns in largely similar agency guaranteed residential

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mortgage-backed securities and state and municipal securities as well as purchases of U.S. Treasury securities, state and municipal securities and agency guaranteed residential and commercial mortgage-backed securities.

In conjunction with ongoing portfolio management and rebalancing activities, during the three months ended March 31, 2017, we sold $18.0 million in state and municipal securities, resulting in a net securities gain of $57,000.

Investments in collateralized mortgage obligations and residential and commercial mortgage-backed securities comprised 71% of the total portfolio at March 31, 2017. All of the mortgage-backed securities are backed by U.S. Government agencies or issued by U.S. Government-sponsored enterprises. All residential mortgage-backed 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 12% of the total portfolio at March 31, 2017. This type of security has historically experienced very low default rates and provided a predictable cash flow because it generally is not subject to significant prepayment. For a portion of our state and local municipality debt instruments, insurance companies and state programs provide credit enhancement to improve the credit rating and liquidity of the issuance. Management considers underlying municipality credit strength and any credit enhancement when evaluating a purchase or sale decision.

We do not hold direct exposure to the obligations of the State of Illinois. We hold some bonds from municipalities in Illinois, but the finances of these municipalities are not primarily dependent on the finances of the State of Illinois.

At March 31, 2017, our reported equity reflected unrealized net securities losses on available-for-sale securities, net of tax, of $773,000, compared to a $3.5 million unrealized net securities losses at December 31, 2016. The increase in the value of the securities primarily relates to the tightening of the credit spreads and decrease in relatively longer term treasury rates. We continue to add, as needed, to the held-to-maturity portfolio to mitigate the potential future market 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 2017. There were no transfers of securities between investment categories during the year.

Table 6

Investment Portfolio Activity

(Dollars in thousands)



	Three Months Ended March 31, 2017
	Available-for-Sale			Held-to-Maturity
Balance at beginning of period	$	2,013,525		$	1,738,123
Additions:
Purchases	167,434			123,842
Reductions:
Sales proceeds	(18,029		)	—
Net gains on sale	57			—
Principal maturities, prepayments and calls	(51,717		)	(57,478		)
Amortization of premiums and accretion of discounts	(3,479		)	(2,514		)
Total reductions	(73,168		)	(59,992		)
Increase in market value	4,374			—			⁽¹⁾
Balance at end of period	$	2,112,165		$	1,801,973


⁽¹⁾	The held-to-maturity portfolio is recorded at cost, with no adjustment for the $23.4 million unrealized loss in the portfolio at the beginning of 2017 or the increase in market value of $4.0 million for the three months ended March 31, 2017, respectively.

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The following table presents the maturities of the different types of investments that we owned at March 31, 2017, and the corresponding interest rates.

Table 7

Maturity Distribution and Portfolio Yields

(Dollars in thousands)



	As of March 31, 2017
	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
Securities Available-for-Sale
U.S. Treasury	$	100,466	0.89	%	$	296,533	1.34	%	$	201,574	1.67	%	$	—	—	%
U.S. Agencies	—		—	%	45,927		1.30	%	—		—	%	—		—	%
Collateralized mortgage obligations ⁽¹⁾	3,108		3.70	%	64,152		3.18	%	—		—	%	—		—	%
Residential mortgage-backed securities ⁽¹⁾	1,972		4.62	%	331,720		3.23	%	536,146		2.33	%	65,508		2.82	%
State and municipal securities ⁽²⁾	30,262		2.10	%	175,286		1.97	%	255,494		2.13	%	5,110		2.23	%
Total available-for-sale	135,808		1.28	%	913,618		2.27	%	993,214		2.14	%	70,618		2.78	%
Securities Held-to-Maturity
Collateralized mortgage obligations ⁽¹⁾	—		—	%	38,556		1.40	%	—		—	%	—		—	%
Residential mortgage-backed securities ⁽¹⁾	—		—	%	297,936		2.49	%	397,460		2.54	%	722,385		2.78	%
Commercial mortgage-backed securities ⁽¹⁾	5,851		1.42	%	149,685		1.95	%	182,860		2.47	%	—		—	%
State and municipal securities ⁽²⁾	204		3.49	%	—		—	%	—		—	%	—		—	%
Foreign sovereign debt	—		—	%	500		1.76	%	—		—	%	—		—	%
Other securities	—		—	%	3,436		8.03	%	3,100		8.09	%	—		—	%
Total held-to-maturity	6,055		1.49	%	490,113		2.18	%	583,420		2.55	%	722,385		2.78	%
Total securities	$	141,863	1.29	%	$	1,403,731	2.27	%	$	1,576,634	2.29	%	$	793,003	2.78	%


⁽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)

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” below in this “Management’s Discussion and Analysis.”

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Portfolio Composition

Table 8

Loan Portfolio

(Dollars in thousands)



	March 31, 2017		% of Total	December 31, 2016		% of Total	% Change in Balances
Commercial and industrial	$	7,865,161	50	$	7,506,977	50	5
Commercial – owner-occupied real estate	2,246,424		14	2,142,068		14	5
Total commercial	10,111,585		64	9,649,045		64	5
Commercial real estate	3,218,566		21	3,127,373		21	3
Commercial real estate – multi-family	1,059,403		7	993,352		6	7
Total commercial real estate	4,277,969		28	4,120,725		27	4
Construction	330,775		2	417,955		3	-21
Total commercial real estate and construction	4,608,744		30	4,538,680		30	2
Residential real estate	618,658		4	581,757		4	6
Home equity	112,954		1	119,049		1	-5
Personal	139,715		1	167,710		1	-17
Total loans	$	15,591,656	100	$	15,056,241	100	4

Total loans increased $535.4 million during the three months ended March 31, 2017 to $15.6 billion at March 31, 2017, compared to $15.1 billion at December 31, 2016, primarily reflecting growth in commercial and commercial real estate loans. During the three months ended March 31, 2017, new loans to new clients totaled $607.6 million, and growth in existing clients, net of paydowns, totaled $401.4 million. Payoffs were $473.6 million for the three months ended March 31, 2017. Our five-quarter trailing average loan growth was approximately $465.0 million at March 31, 2017, increasing $151.9 million compared to $313.1 million a year ago. Revolving line usage on the overall loan portfolio increased slightly to 45% at March 31, 2017, from 44% at December 31, 2016.

Our loan growth was primarily driven by growth in the commercial and CRE loan portfolios, which increased $462.5 million and $157.2 million, respectively, from December 31, 2016 to March 31, 2017. Within the commercial portfolio, we saw growth in multiple industry segments, with the largest being the finance and insurance segment, which increased $178.8 million from year end, and manufacturing, which increased $129.7 million. We also saw growth across multiple asset classes in the CRE portfolio. Multi-family is the largest asset class in the CRE portfolio, representing 25% of the total CRE portfolio at March 31, 2017, compared to 24% at December 31, 2016.

Heightened competition from both bank and non-bank lenders has affected, and continues to affect, borrowers’ expectations regarding both pricing and loan structure, which may impact our growth rate due to increasing availability in the market of financing alternatives offering terms outside our pricing and risk tolerances. Our primary strategy is focused on developing new relationships that generate opportunities to provide comprehensive banking services to our clients and, accordingly, we seek to maintain a disciplined approach when pricing and structuring new credit opportunities.

We generally earn higher yields on our commercial and industrial portfolio particularly related to our specialized lending products, such as healthcare and security alarm financing, than other segments of our loan portfolio. We also have greater potential to cross-sell other products and services, such as treasury management services, to our commercial and industrial lending clients.

In the normal course of our business, we participate in loan transactions that involve a number of banks in an effort to maintain and build client relationships while managing portfolio risk, with a view to cross-selling products and originating loans for the borrowers in the future. Although we often strive to lead or co-lead the arrangement, we also participate in transactions led by other banks when we have a relationship with, or seek to develop a relationship with, the borrower. Loan syndications assist us with decreasing credit exposure linked to individual client relationships or loan concentrations by industry, type or size. Of our $15.6 billion in total loans at March 31, 2017, we were party to $5.7 billion of loans with other financial institutions, consisting of $2.7 billion in retained balances in syndicated loans that were led or co-led by us and $3.0 billion for which we were a non-lead participant in the syndicated loan. Within this $5.7 billion portfolio, $3.4 billion of loans, or 60%, were shared national credits (“SNCs”), of which we were the lead or co-lead in $1.2 billion and the non-lead participant for $2.2 billion. SNCs are defined as loan commitments of at least $20 million that are shared by three or more federally supervised institutions. Of the $607.6 million

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of new loans to new clients during the first three months of 2017, approximately $77 million, or 13%, related to SNCs. To the extent financing opportunities we pursue exceed our risk appetite for larger credit exposures and we are not able to syndicate the loan transactions, our loan growth may be impacted.

The following table summarizes the composition of our commercial loan portfolio at March 31, 2017, and December 31, 2016 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. To the extent that a client’s underlying business activity changes, classification differences between periods will arise.

Table 9

Commercial Loan Portfolio Composition by Industry Segment

(Dollars in thousands)



	March 31, 2017			December 31, 2016
	Amount		% of Total	Amount		% of Total
Healthcare	$	2,079,774	21	$	2,016,041	21
Manufacturing	1,973,573		19	1,843,901		19
Finance and insurance	1,848,267		18	1,669,453		17
Wholesale trade	967,257		10	860,657		9
Professional, scientific and technical services	625,507		6	617,264		6
Real estate, rental and leasing	599,313		6	583,701		6
Administrative, support, waste management and remediation services	521,305		5	537,491		6
Architecture, engineering and construction	311,808		3	298,191		3
Telecommunication and publishing	265,485		3	250,941		3
Retail	241,004		2	231,739		2
All other ⁽¹⁾	678,292		7	739,666		8
Total commercial ⁽²⁾	$	10,111,585	100	$	9,649,045	100


⁽¹⁾	All other consists of numerous smaller balances across a variety of industries with no category greater than 2% of total loans.


⁽²⁾	Includes owner-occupied commercial real estate of $2.2 billion at March 31, 2017 and $2.1 billion at December 31, 2016.

Our healthcare portfolio within our commercial portfolio totaled $2.1 billion at March 31, 2017, compared to $2.0 billion at December 31, 2016. We have a specialized niche in the skilled nursing, assisted living, and residential care segment of the healthcare industry. Loan relationships to these providers tend to be larger extensions of credit with borrowers primarily represented by for-profit businesses. At March 31, 2017, 21% of our commercial loan portfolio and 13% of our 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. Accordingly, our clients and their ability to service this 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 government entities are taking longer to reimburse providers. For example, in the State of Illinois, the Medicaid reimbursement rate was reduced and the budget impasse, which has resulted in the state operating without a budget since June 30, 2015, has contributed to reduced Medicaid payments to healthcare providers. Although our healthcare commercial loan portfolio is well diversified across 28 states, loans to borrowers in the State of Illinois represented our highest geographic concentration of healthcare loans at 21% of the healthcare commercial loan portfolio, or $443.7 million, as of March 31, 2017. The challenged financial condition of the State of Illinois has had some adverse effects on the cash flow position of some of our Illinois-based healthcare borrowers. Despite this impact on client cash flows, to date, the healthcare loan portfolio has experienced minimal defaults and losses. We are actively monitoring the Illinois budget situation and its potential impact on our borrowers to manage the risks presented by the state’s budget problems and overall challenged financial condition. In addition, across the broader healthcare industry, structural changes to government reimbursements may negatively impact performance for managed care facilities as borrowers adapt to the changes, particularly higher cost operators with thinner margins.

Our manufacturing portfolio, representing 19% of our commercial lending portfolio and 13% of the total portfolio at March 31, 2017, is well diversified among sub-industry and product types. The manufacturing industry classification is a key component of our core business. During the second half of 2015 and into 2016, the U.S. manufacturing sector experienced a significant slowdown,

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as evidenced by declines or slowing rates of growth in a number of key indicators, due in part to the economic headwinds of lower commodity prices (including oil and gas prices) and a strong U.S. dollar, with particular stress faced by durable goods manufacturing. Although the U.S. manufacturing sector began to rebound toward the end of 2016 and into the first quarter 2017, the sector’s performance may continue to experience volatility due to the impact of commodity prices, currency exchange rates, possible U.S. corporate tax reform, U.S. political developments, and broader geopolitical developments on this sector. Stress or volatility experienced by the U.S. manufacturing sector specifically could adversely impact our existing loan portfolio and/or our future loan growth rate.

The third largest segment of our commercial loan portfolio is the finance and insurance portfolio, which increased $178.8 million since December 31, 2016 and now represents 18% of our commercial lending portfolio at March 31, 2017 compared to 17% at December 31, 2016. Specialty finance loans totaled $493.5 million as of March 31, 2017, compared to $496.1 million at December 31, 2016. Specialty finance lending represents loans to nonbank specialty finance lenders that provide various types of financing to their customers, such as consumer financing, auto financing, equipment financing or other types of asset-based lending. During the three months ended March 31, 2017, amounts outstanding under bridge lines to private equity funds, which provide liquidity as a bridge to the next capital call from their investors, increased by $57.6 million to $298.2 million at March 31, 2017. The draw repayment terms of such loans are generally between 90 and 120 days and, given their purpose, these draws generally remain outstanding for a short period of time. Amounts outstanding under these lines generally will fluctuate from quarter to quarter given their transactional nature.

The following table summarizes our CRE and construction loan portfolios by collateral type at March 31, 2017, and December 31, 2016.

Table 10

Commercial Real Estate and Construction Loan Portfolios by Collateral Type

(Dollars in thousands)



	March 31, 2017			December 31, 2016
	Amount		% of Total	Amount		% of Total
Commercial Real Estate
Multi-family	$	1,059,403	25	$	993,352	24
Retail	861,577		20	822,811		20
Office	719,125		17	716,775		17
Healthcare	395,321		9	371,961		9
Industrial/warehouse	577,544		13	493,257		12
Land	204,198		5	232,756		6
Residential 1-4 family	39,582		1	56,730		1
Mixed use/other	421,219		10	433,083		11
Total commercial real estate	$	4,277,969	100	$	4,120,725	100
Construction
Multi-family	$	64,079	19	$	121,983	29
Healthcare	24,067		7	22,027		5
Retail	44,698		14	61,791		15
Office	15,118		5	18,800		4
Condominiums	37,039		11	36,846		9
Industrial/warehouse	43,813		13	77,079		18
Residential 1-4 family	37,008		11	26,013		6
Mixed use/other	64,953		20	53,416		14
Total construction	$	330,775	100	$	417,955	100

* Less than 0.1%

Of the combined CRE and construction portfolios, the three largest categories at March 31, 2017, were multi-family, retail and office, which represented 24%, 20% and 16% of the combined portfolios, respectively. Generally, we are a short-to-intermediate

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term real estate lender, and our CRE and construction portfolio strategies focus on core real estate classes in the markets in which we operate and established sponsors and developers with which we have prior experience, other banking relationships, or the opportunity to offer comprehensive banking relationships. The multi-family asset type is diversified with a combination of stabilization of prior construction projects, existing property improvements, and stable assets with recurring cash flows. Payoffs during the three months ended March 31, 2017 included property sales and refinancing into the long-term market.

Portfolio Risk Management

In conjunction with our commercial middle market focus, our lending activities sometimes involve larger credit relationships. Due to the larger size of these loans, the unexpected occurrence of an event or development with respect to one or more of these loans that adversely impacts the value of collateral securing the loan, the success of a workout strategy or our ability to return the loan to performing status could materially and adversely affect our results of operations and financial condition.

The following table summarizes our credit relationships with commitments greater than $25 million as of March 31, 2017, and December 31, 2016.

Table 11

Client Relationships with Commitments Greater Than $25 Million

(Dollars in thousands)



	March 31, 2017			December 31, 2016
Commitments greater than $25 million
Number of client relationships	182			182
Percentage that are commercial and industrial businesses	86		%	84		%
Aggregate amount of commitments	$	6,200,586		$	6,153,929
Funded loan balances	$	3,707,572		$	3,620,321
Funded loan balances as a percent of total loan portfolio	24		%	24		%

As part of the risk-based deposit insurance assessment framework, the FDIC has established a regulatory classification of “higher-risk assets,” which include higher-risk commercial and industrial loans (funded and unfunded), construction and development loans (funded and unfunded), non-traditional mortgages, and higher-risk consumer loans. As part of our overall portfolio risk management, we have developed a plan to manage our level of higher-risk assets relative to our capital position and within our overall risk appetite and generally have focused in recent periods on being selective in originating loans that are classified as higher-risk assets. The following table summarizes our higher-risk assets as of March 31, 2017, and December 31, 2016.

Table 12 ⁽¹⁾

Higher-Risk Assets

(Amounts in thousands)



	March 31, 2017						December 31, 2016
	Outstanding			Unfunded Commitment			Outstanding			Unfunded Commitment
Commercial and industrial	$	1,884,247		$	594,181		$	1,665,123		$	611,301
Construction and development	493,745			647,848			619,201			539,166
Non-traditional mortgages	766			—			774			—
Consumer	6,808			—			8,770			—
Total	$	2,385,566		$	1,242,029		$	2,293,868		$	1,150,467
As a percentage of total loans/unfunded commitments	15		%	19		%	15		%	18		%


⁽¹⁾	Loan category classification is based on the FDIC’s regulatory definitions.

Higher-risk commercial and industrial loans include a majority of our total leveraged loan portfolio and are primarily underwritten on the recurring earnings of the borrower, where the ratio of debt-to-earnings is elevated compared to other commercial loans that are not characterized as higher-risk. Our higher-risk commercial and industrial loans are spread across multiple industries, generally

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command higher loan yields as a premium for underwriting the additional risk attributable to the leveraged position of the underlying borrower, and typically have lower collateral coverage than similar commercial and industrial loans that are not classified by the FDIC as higher-risk assets. Based on our historical experience, the loss factors and the probability of default for loans underwritten with such characteristics have generally been higher than our commercial and industrial loan portfolio as a whole and we take this into account in establishing our allowance for loan losses.

Maturity and Interest Rate Sensitivity of Loan Portfolio

The following table summarizes the maturity distribution of our loan portfolio as of March 31, 2017, by category, as well as the interest rate sensitivity of loans in these categories that have maturities in excess of one year.

Table 13

Maturities and Sensitivities of Loans to Changes in Interest Rates ⁽¹⁾

(Amounts in thousands)



	As of March 31, 2017
	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years		Total
Commercial	$	2,471,023	$	7,411,736	$	228,826	$	10,111,585
Commercial real estate	1,451,388		2,447,928		378,653		4,277,969
Construction	124,724		186,441		19,610		330,775
Residential real estate	8,066		83		610,509		618,658
Home equity	9,181		62,977		40,796		112,954
Personal	101,269		38,271		175		139,715
Total	$	4,165,651	$	10,147,436	$	1,278,569	$	15,591,656
Loans maturing after one year:
Predetermined (fixed) interest rates			$	136,525	$	391,652
Floating interest rates			10,010,911		886,917
Total			$	10,147,436	$	1,278,569


⁽¹⁾	Maturities are based on contractual maturity date. Actual timing of repayment may differ from those reflected in the table as clients may choose to pre-pay their outstanding balance prior to the contractual maturity date.

Of the $10.9 billion in loans maturing after one year with a floating interest rate, $1.2 billion are subject to interest rate floors, of which $218.3 million, or 18%, had such floors in effect at March 31, 2017. For further analysis and information related to interest rate sensitivity, see Item 3 “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

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 during 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 remaining principal amount, the loan may become delinquent in connection with its maturity.

Loans considered special mention loans are performing in accordance with the contractual terms, but demonstrate potential weakness that, if left unresolved, may result in deterioration in our 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 loans, 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 ultimate collection 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 value of the collateral pledged. These

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loans generally have a well-defined weakness that may jeopardize collection of the debt and are characterized by the distinct possibility that we may sustain some loss if the deficiencies are not resolved. Although potential problem loans require additional attention by management, they may not become nonperforming.

Nonperforming assets include nonperforming loans and OREO that has been acquired primarily through foreclosure proceedings and are awaiting disposition. Nonperforming loans consist of nonaccrual loans, including restructured loans that remain on nonaccrual. We specifically exclude 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 principal or interest to be in question prior to the loans becoming 90 days past due. Classification of a loan as nonaccrual does not necessarily preclude the ultimate collection of principal and/or interest.

As part of our ongoing risk management practices and in certain circumstances, we may extend or modify the terms of a loan in an attempt to maximize the collection of amounts due when a borrower is experiencing financial difficulties. The modification may consist of reducing the interest rate, extending the maturity date, reducing 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 troubled debt restructurings (“TDRs”) 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 restructured loan 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. Loans classified as accruing TDRs typically do not require a specific reserve charge, which is a key component in keeping a loan on accrual status. 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).

A discussion of our accounting policies for “Delinquent Loans, Special Mention and Potential Problem Loans, Restructured Loans and Nonperforming Assets” can be found in Note 1, “Summary of Significant Accounting Policies,” and Note 4, “Loans and Credit Quality” in the “Notes to Consolidated Financial Statements” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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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 quarters.

Table 14

Nonperforming Assets and Restructured and Past Due Loans

(Dollars in thousands)



	2017			2016
	March 31			December 31			September 30			June 30			March 31
Nonaccrual loans:
Commercial	$	67,547		$	69,453		$	72,277		$	48,502		$	41,374
Commercial real estate	9,649			6,316			6,007			7,733			8,242
Residential real estate	4,763			4,591			4,124			3,993			3,900
Personal and home equity	3,080			3,328			4,964			5,196			5,554
Total nonaccrual loans	85,039			83,688			87,372			65,424			59,070
90 days past due loans (still accruing interest)	—			—			—			—			—
Total nonperforming loans	85,039			83,688			87,372			65,424			59,070
OREO	8,888			10,203			12,035			14,532			14,806
Total nonperforming assets	$	93,927		$	93,891		$	99,407		$	79,956		$	73,876
Nonaccrual troubled debt restructured loans (included in nonaccrual loans):
Commercial	$	32,795		$	33,141		$	29,805		$	35,838		$	20,285
Commercial real estate	5,101			5,857			5,980			7,331			7,854
Residential real estate	1,227			1,534			1,212			—			—
Personal and home equity	2,604			3,081			4,226			5,737			5,763
Total nonaccrual troubled debt restructured loans	$	41,727		$	43,613		$	41,223		$	48,906		$	33,902
Restructured loans accruing interest:
Commercial	$	85,974		$	63,711		$	61,764		$	40,512		$	26,830
Construction	—			—			—			143			—
Personal and home equity	1,934			2,291			2,501			2,522			2,005
Total restructured loans accruing interest	$	87,908		$	66,002		$	64,265		$	43,177		$	28,835
Special mention loans	$	100,660		$	179,611		$	145,204		$	154,691		$	121,239
Potential problem loans	$	198,669		$	123,345		$	133,533		$	98,817		$	136,322
30-89 days past due loans	$	14,934		$	10,588		$	5,374		$	14,522		$	15,732
Nonperforming loans to total loans	0.55		%	0.56		%	0.60		%	0.47		%	0.44		%
Nonperforming loans to total assets	0.42		%	0.42		%	0.46		%	0.36		%	0.33		%
Nonperforming assets to total assets	0.46		%	0.47		%	0.52		%	0.44		%	0.42		%
Allowance for loan losses as a percent of nonperforming loans	229		%	222		%	206		%	258		%	280		%

Nonperforming loans totaled $85.0 million at March 31, 2017, compared to $83.7 million at December 31, 2016, and $59.1 million at March 31, 2016. Nonperforming loan inflows, which are primarily composed of potential problem loans moving through the workout process (i.e., moving from potential problem to nonperforming status), were $14.8 million for the three months ended March 31, 2017, with two credit relationships representing 73% of total inflows for the period. Nonperforming loans as a percent of total loans were 0.55% at March 31, 2017, compared to 0.56% at December 31, 2016, and 0.44% at March 31, 2016.

OREO declined $1.3 million, or 13% to $8.9 million from $10.2 million at December 31, 2016, as inflows to OREO were more than offset by sales of OREO and valuation adjustments as we continue to dispose and settle properties.

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As a result of the activity described above for nonperforming loans and OREO, nonperforming assets remained consistent to year end 2016, and increased 27% from March 31, 2016. Nonperforming assets as a percentage of total assets were 0.46% at March 31, 2017, compared to 0.47% at December 31, 2016 and 0.42% at March 31, 2016.

As of March 31, 2017, special mention and potential problem loans in aggregate totaled $299.3 million, decreasing $3.6 million from December 31, 2016. As a percentage of total loans, special mention and potential problem loans were 1.9% at March 31, 2017, compared to 2.0% at year end. At March 31, 2017, commercial loans comprised $190.2 million, or 96% of total potential problems loan, with six credit relationships representing over 60% of the total. Restructured loans accruing interest increased $21.9 million from December 31, 2016, primarily related to three credits. Because our loan portfolio contains loans that may be larger in size, changes in the performance of larger credits may from time to time create fluctuations in our credit quality metrics, including nonperforming, special mention, and potential problem loans.

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

Table 15

Nonperforming Loans Rollforward

(Amounts in thousands)



	Three Months Ended
	2017			2016
	March 31			December 31			September 30			June 30			March 31
Nonperforming loans:
Balance at beginning of period	$	83,688		$	87,372		$	65,424		$	59,070		$	53,749
Additions:
New nonaccrual loans ⁽¹⁾	14,797			5,388			40,513			17,076			24,720
Reductions:
Return to performing status	(3,883		)	—			(1,161		)	—			(907		)
Paydowns and payoffs, net of advances	(9,271		)	(7,832		)	(11,720		)	(7,185		)	(6,920		)
Net sales	—			(377		)	(450		)	(8		)	—
Transfer to OREO	(13		)	(76		)	(130		)	(674		)	(9,294		)
Transfer to loans held-for-sale	—			—			—			—			—
Charge-offs	(279		)	(787		)	(5,104		)	(2,855		)	(2,278		)
Total reductions	(13,446		)	(9,072		)	(18,565		)	(10,722		)	(19,399		)
Balance at end of period	$	85,039		$	83,688		$	87,372		$	65,424		$	59,070
Nonaccruing troubled debt restructured loans (included in nonperforming loans):
Balance at beginning of period	$	43,613		$	41,223		$	48,906		$	33,902		$	39,171
Additions:
New nonaccrual troubled debt restructured loans ⁽¹⁾	7,876			5,103			73			16,972			1,353
Reductions:
Return to performing status	(3,883		)	—			(882		)	—			(339		)
Paydowns and payoffs, net of advances	(5,879		)	(2,546		)	(6,205		)	18			(5,549		)
Net sales	—			—			(450		)	—			—
Transfer to OREO	—			—			(95		)	(322		)	(681		)
Charge-offs	—			(167		)	(124		)	(1,664		)	(53		)
Total reductions	(9,762		)	(2,713		)	(7,756		)	(1,968		)	(6,622		)
Balance at end of period	$	41,727		$	43,613		$	41,223		$	48,906		$	33,902


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

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Credit Quality Management and Allowance for Credit Losses

We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio at the consolidated statements of financial condition date. 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 contains reserves for identified probable losses relating to specific borrowing relationships that are considered to be impaired (the “specific component” of the allowance) and for probable losses inherent in the loan portfolio that have not been specifically identified (the “general allocated component” of the allowance). The general allocated component 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 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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

Table 16

Allocation of Allowance for Loan Losses

(Dollars in thousands)



	March 31, 2017		% of Total	December 31, 2016		% of Total
Commercial	$	151,293	78	$	141,047	76
Commercial real estate	29,832		15	30,626		17
Construction	5,644		3	6,087		3
Residential real estate	5,314		3	3,734		2
Home equity	1,721		1	2,300		1
Personal	811		*	1,971		1
Total	$	194,615	100	$	185,765	100
Specific reserve	$	20,175	10	$	11,938	6
General reserve	$	174,440	90	$	173,827	94
Recorded Investment in Loans:
Ending balance, specific reserve	$	172,947		$	149,690
Ending balance, general allocated reserve	15,418,709			14,906,551
Total loans at period end	$	15,591,656		$	15,056,241


*	Less than 1%

Specific Component of the Allowance

The specific reserve requirement is the summation of individual reserves related to impaired loans that are analyzed on a loan-by-loan basis at the balance sheet date. At March 31, 2017, the specific reserve component of the allowance totaled $20.2 million, up from $11.9 million at December 31, 2016. Specific reserves levels increased $8.2 million from year-end, resulting from impaired loan development and higher reserves required on impaired loans. Of the $172.9 million in impaired loans at March 31, 2017, and the $149.7 million in impaired loans at December 31, 2016, 41% and 25%, respectively, required a specific reserve.

General Allocated Component of the Allowance

The general allocated component of the allowance is determined using a methodology that is a function of quantitative and qualitative factors and considerations applied to segments of our loan portfolio. Our methodology applies a historical loss model that takes into account at a product level (e.g., commercial, CRE, construction, etc.) the default and loss history of similar products or sub-products using a look-back period that begins in 2010 and is updated with monthly data on a lagged quarter to the most recent period.

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Our methodology uses our default and loss history over the look-back period to establish a probability of default (“PD”) for each product type (and, in some cases, sub-segments within a product type) and risk rating, as well as an expected loss given default (“LGD”) for each product type. For our consumer portfolio, we assign a PD to each delinquency stratification and LGD to collateral position or size of credit for personal loans instead of product type. Our methodology applies the PD and LGD to the applicable loan balances and produces a loss estimate by product that is inclusive of the loss emergence period.

We assess the appropriate balance of the general allocated component of the reserve at the model loss emergence period based on a variety of internal and external quantitative and qualitative factors giving consideration to conditions that we believe are not fully reflected in the model-generated loss estimates. Topics considered in this assessment include changes in lending practices and procedures (e.g., underwriting standards) internally and in our industry, changes in business or economic conditions, changes in the nature and volume of loans, changes in staffing or management in our lending teams, changes in the quality of our results from loan reviews (which includes credit quality trends and risk rating accuracy), changes in underlying collateral values, recent portfolio performance, 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 differs from the amount determined through the model-driven quantitative framework, with respect to a given product type. In determining the amount of any qualitative adjustment to be made to the quantitative model output, management may adjust the PD and/or LGD for a product type (or a sub-segment within a product type) to reflect conditions that it does not believe are reflected in historical loss rates and apply those adjusted PDs and LGDs to determine the impact on the model output, with the result used to inform management’s determination of the appropriate qualitative adjustment to be made to the general allocated component for the product type. Such adjustments are typically informed through industry reports and statistics and other available source material.

In our evaluation of the quantitatively-determined amount and the adequacy of the allowance at March 31, 2017, we considered a number of factors for each product consistent with the considerations discussed in the prior paragraph. The following describes the primary management qualitative adjustments made to each product type in determining our reserve levels at March 31, 2017:

•

Commercial - Management increased the model output for this product type to reflect: the overall slowdown in the U.S. manufacturing industry by considering our own PD versus industry-wide default rates, increased leverage metrics on existing borrowers within the portfolio, competitive loan structures in the industry, and healthcare as influenced by some credit migration within the portfolio. Management increased LGDs used for the general commercial and industrial segment to reduce the impact of recoveries relating to loans charged off in older periods. Management also increased the LGDs used for the asset-based lending sub-segment based on industry data because we do not have meaningful loss experience in our current look-back period for this sub-segment.

•

Commercial Real Estate - Management increased the model output to reflect: industry level default rate experience in portfolios where we lack loss experience; compression of capitalization rates in the industry; and competitive loan structures in the industry. Management increased LGDs to reduce the impact of recoveries relating to loans charged off in older periods. Management also adjusted PD rates in instances where calculations using historical loss experience are not expected to be representative of management’s estimated losses at the consolidated statements of financial condition date.

•

Construction - Management increased the model output to reflect: industry level default rate experience in portfolios where we lack loss experience; compression of capitalization rates in the industry; and competition in the market and less stringent loan structures. Management also adjusted PD rates in instances where calculations using historical loss experience are not expected to be representative of management’s estimated losses at the consolidated statements of financial condition date.


•	Consumer - Management increased the model output to reflect idiosyncratic performance of certain sub-portfolios within the residential portfolio.

Management also considers a pro-rated amount and characteristics of the accruing TDRs that occurred during the period from the general reserve formulas as a proxy for potentially heightened risk in the portfolio when establishing final reserve requirements. For the quarter ended March 31, 2017, the net impact on the general reserve due to the increase in accruing TDRs was a reduction of $2.3 million.

In determining our reserve levels at March 31, 2017, we established a general reserve that includes management’s qualitative assessment discussed above, which increased the reserve to a higher output than the model’s quantitative output, in total. This judgment was influenced primarily by recent indicators in our commercial portfolio, such as the increasing leverage metrics for some existing borrowers, impact of commodity prices in certain sectors of the manufacturing portfolio, changes in underwriting standards, and volume and nature of loan growth, which have not yet been fully incorporated into the model output.

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The general allocated component of the allowance increased by $613,000, from $173.8 million at December 31, 2016, to $174.4 million at March 31, 2017. The increase in the general allocated reserve primarily reflects the $535.4 million growth in the loan portfolio in the first three months of 2017 and changes in the credit quality of the existing portfolio for certain sectors in the commercial portfolio, which was partially offset by the impact from the restructuring of certain loans during the quarter, as reflected in the change in restructured loans accruing interest from year end.

The establishment of the allowance for loan losses involves a high degree of judgment and estimation which includes an inherent level of imprecision given the difficulty of identifying all the factors impacting loan repayment and the timing of when losses will actually occur. While management utilizes its best judgment and available information, 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 is available to absorb losses across the entire loan portfolio.

Management evaluates the adequacy of the allowance for loan losses and reviews the underlying methodology with the Audit Committee of the Board of Directors quarterly. As of March 31, 2017, 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 for those loans where the loss is 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.

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

Table 17

Allowance for Credit Losses and Summary of Loan Loss Experience

(Dollars in thousands)



	Three Months Ended
	2017			2016
	March 31			December 31			September 30			June 30			March 31
Change in allowance for loan losses:
Balance at beginning of period	$	185,765		$	180,268		$	168,615		$	165,356		$	160,736
Loans charged-off:
Commercial	(211		)	(641		)	(4,870		)	(2,838		)	(78		)
Commercial real estate	(111		)	—			—			(13		)	(1,497		)
Construction	(21		)	—			—			—			—
Residential real estate	(60		)	(102		)	(240		)	(33		)	(484		)
Home equity	—			—			—			(34		)	(192		)
Personal	(12		)	(48		)	(10		)	(17		)	(150		)
Total charge-offs	(415		)	(791		)	(5,120		)	(2,935		)	(2,401		)
Recoveries on loans previously charged-off:
Commercial	455			102			727			66			187
Commercial real estate	331			38			12			449			296
Construction	7			20			67			13			19
Residential real estate	28			17			43			20			19
Home equity	31			27			39			65			34
Personal	35			11			10			11			30
Total recoveries	887			215			898			624			585
Net recoveries (charge-offs)	472			(576		)	(4,222		)	(2,311		)	(1,816		)
Provisions charged to operating expense	8,378			6,073			15,875			5,570			6,436
Balance at end of period	$	194,615		$	185,765		$	180,268		$	168,615		$	165,356
Reserve for unfunded commitments⁽¹⁾	$	17,893		$	17,140		$	15,647		$	13,729		$	12,354
Allowance as a percent of loans at period end	1.25		%	1.23		%	1.23		%	1.20		%	1.23		%
Average loans, excluding covered assets	$	15,380,536		$	14,049,715		$	14,297,229		$	13,693,824		$	13,311,733
Ratio of net (recoveries) charge-offs (annualized) to average loans outstanding for the period	-0.01		%	0.02		%	0.12		%	0.07		%	0.05		%
Allowance for loan losses as a percent of nonperforming loans	229		%	222		%	206		%	258		%	280		%


⁽¹⁾	Included in other liabilities on the consolidated statements of financial condition.

Activity in the Allowance for Loan Losses

The allowance for loan losses increased $8.9 million to $194.6 million at March 31, 2017, from $185.8 million at December 31, 2016, and was largely reflective of impaired loan development and higher reserves required on impaired loan that drove an increase in the specific reserve. The allowance for loan losses to total loans ratio was 1.25% at March 31, 2017, compared to 1.23% at December 31, 2016.

Gross charge-offs were $415,000 for first quarter 2017, compared to $2.4 million for the year ago period and $791,000 for fourth quarter 2016. Commercial loans comprised 51% of total charge-offs in first quarter 2017.

The provision for loan losses is the expense recognized in the consolidated statements of income to adjust the allowance for loan losses to the level deemed appropriate by management, as determined through application of our allowance methodology. The provision for loan losses for the three months ended March 31, 2017 was $8.4 million, up from $6.1 million for the prior quarter

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and $6.4 million for first quarter 2016. The provision will fluctuate from period to period depending on the level of loan growth and unevenness in credit quality due to the size of individual credits, and we expect our provision expense going forward to be driven by changes to the general allocated reserve component due to overall loan growth and credit performance and, if necessary, any new specific reserves that may be required.

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 three months ended March 31, 2017, our reserve for unfunded commitments increased $753,000 from $17.1 million at December 31, 2016, to $17.9 million and was largely comprised of general reserves at March 31, 2017. 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 $6.8 billion at March 31, 2017 and December 31, 2016. At March 31, 2017, unfunded commitments with maturities of less than one year approximated $1.8 billion. For further information on our unfunded commitments, refer to Note 16 of “Notes to Consolidated Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q.

COVERED ASSETS

At March 31, 2017 and December 31, 2016, covered assets represent acquired residential mortgage loans and foreclosed loan collateral covered under a loss share 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 covered assets. The loss share agreement will expire on September 30, 2019.

Total covered assets, net of allowance for covered loan losses, declined by $1.0 million, or 6%, from $17.3 million at December 31, 2016 to $16.3 million at March 31, 2017. The reduction was primarily attributable to $657,000 in principal paydowns, net of advances. At March 31, 2017, the indemnification receivable totaled $917,000, compared to $939,000 at December 31, 2016. Because the remaining covered assets largely represent single-family mortgages, we do not expect a significant change in balances from period to period. Total delinquent and nonperforming covered loans totaled $2.2 million at March 31, 2017, and $3.6 million at December 31, 2016.

FUNDING AND LIQUIDITY MANAGEMENT

We manage our liquidity position in order to meet our cash flow requirements, maintain sufficient capacity to meet our clients’ needs and accommodate fluctuations in asset and liability levels due to changes in our business operations. We also have 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.

We maintain liquidity at levels we believe sufficient to meet anticipated client liquidity needs, fund anticipated loan growth, and selectively purchase securities and investments. Liquid assets refer to cash on hand, Federal funds (“Fed funds”) sold and securities. Net liquid assets represent liquid assets less the amount of such assets pledged to secure deposits, repurchase agreements, FHLB advances and FRB borrowings that require collateral and to satisfy contractual obligations. Net liquid assets at the Bank were $3.9 billion and $4.0 billion at March 31, 2017 and December 31, 2016, respectively.

The Bank’s principal sources of funds are commercial deposits, some of which are large institutional deposits and deposits that are classified for regulatory purposes as brokered deposits, and retail deposits. In addition to deposits, we utilize FHLB advances and other sources of funding to support our balance sheet and liquidity needs. Cash from operations is also a source of funds. The Bank’s principal uses of funds include funding growth in the loan portfolio and, to a lesser extent, our investment portfolio, which is designed to be highly liquid to serve collateral needs and support liquidity risk management. In managing our levels of cash on-hand, we consider factors such as deposit movement trends (which can be influenced by changing economic conditions, client specific needs to support their businesses, including transactions such as acquisitions and divestitures, and the overall composition of our deposit base) and other needs of the Bank.

The primary sources of funding for the Holding Company include dividends received from the Bank, intercompany tax reimbursements from the Bank, and proceeds from the issuance of senior and subordinated debt and equity. As an additional source of funding, the Holding Company has a 364-day revolving line of credit with a group of commercial banks allowing borrowings of up to $60.0 million in total. As of March 31, 2017, no amounts were drawn on the facility. The Holding Company had $44.5 million in cash at March 31, 2017, compared to $52.8 million at December 31, 2016.

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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 $33.9 million from the prior year period to $146.5 million for the three months ended March 31, 2017. Cash flows from investing activities reflect the impact of growth in loans and investments acquired for our interest-earning asset portfolios, as well as asset maturities and sales. For the three months ended March 31, 2017, net cash used in investing activities was $686.7 million, compared to $370.8 million for the prior year period, largely reflecting a net increase in loans during the comparative 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 provided by financing activities for the three months ended March 31, 2017, was $293.4 million, compared to $345.0 million for the prior year period. The current period reflected net decreases in FHLB advances of $350.0 million and a net increase in deposit accounts of $643.5 million.

Deposits

Our deposit base is predominately composed of middle market commercial client relationships from a diversified industry base. We offer a suite of deposit and cash management products and services that support our efforts to attract and retain commercial clients. These deposits are generated principally through the development of long-term relationships with clients. Approximately 69% of our deposits at March 31, 2017, were accounts managed by our commercial business groups.

Through our community banking and private wealth groups, we offer a variety of small business and personal banking products, including checking, savings and money market accounts and certificates of deposit (“CDs”). Approximately 26% of our deposits at March 31, 2017, were accounts managed by our community banking and private wealth groups.

Public fund balances, denoting the funds held on account for municipalities and other public entities, are included as part of our total deposits. We enter into specific agreements with certain public clients to pledge collateral, primarily securities, in support of their balances on deposit. At March 31, 2017, we had public funds on deposit totaling $770.6 million, or approximately 5% of our deposits. Changes in public fund balances are influenced by the tax collection activities of the various municipalities as well as the general level of interest rates.

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

Table 18

Deposits

(Dollars in thousands)



	March 31, 2017		% of Total	December 31, 2016		% of Total	% Change in Balances
Noninterest-bearing demand deposits	$	5,258,941	31	$	5,196,587	32	1
Interest-bearing demand deposits	2,176,619		13	1,942,992		12	12
Savings deposits	443,934		3	439,689		3	1
Money market accounts	6,285,087		38	6,144,950		38	2
Time deposits	2,544,134		15	2,341,011		15	9
Total deposits	$	16,708,715	100	$	16,065,229	100	4

Total deposits at March 31, 2017, increased $643.5 million, or 4%, to $16.7 billion from year end 2016. Total average deposit growth since year end 2016 was $245.5 million. Given the predominantly commercial nature of our client base, we experience fluctuations in our deposit base from time to time due to large deposit movements in certain client accounts, such as in connection with client-specific corporate acquisitions and divestitures. In addition to the quarter-to-quarter fluctuations in deposit balances that we sometimes experience given client-specific events, the nature of our commercial client base has historically led to gradually increasing deposit balances in the second half of the year compared to the first half, although there is no assurance that this historical trend will continue. Our loan to deposit ratio was 93% at March 31, 2017, compared to 94% at December 31, 2016.

Since December 31, 2016, we have added $449.0 million in new deposits from clients in the financial services industry, such as securities broker-dealers (“BDs”) for which we serve as a program bank in their cash sweep programs (as discussed in more detail below under “Brokered Deposits”), hedge funds and fund administrators and futures commission merchants (“FCMs”). Financial services clients have a higher propensity to generate larger transactional flows than our typical commercial client, which can result

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in temporary deposits, especially around period ends. Furthermore, some of these deposits, particularly from hedge funds, fund administrators and FCMs, may exhibit elevated volatility due to the more complex liquidity and cash flow needs of the depositors given the nature of their businesses. This volatility can further contribute to the quarter-to-quarter fluctuations in our deposit base. Notwithstanding the larger transactional flows and potential for elevated volatility, we intend to continue utilizing deposits from financial services firms to meet our funding requirements from client needs, such as loan growth. In light of our loan-to-deposit levels and loan growth over the past several periods, our continuing growth of our loan portfolio may be influenced in part by our ability to continue attracting deposits, including those from financial services clients.

Because of the predominantly commercial nature of our deposit base, including from the financial services industry, we historically have had larger average deposit balances per deposit relationship than a retail-focused bank. Furthermore, a meaningful portion of our deposit base is comprised of large commercial deposit relationships, some of which are classified as brokered deposits for regulatory purposes (as discussed in more detail below under “Brokered Deposits”). The following table presents a comparison of our large deposit relationships as of the dates shown. Of our large deposit relationships of $75 million or more shown in the table below, over half of the deposits are from financial services-related businesses.

Table 19

Large Deposit Relationships

(Dollars in thousands)



	2017			2016
	March 31			December 31			March 31
Ten largest depositors:
Deposit amounts	$	2,265,902		$	2,378,709		$	2,127,767
Percentage of total deposits	14		%	15		%	15		%
Classified as brokered deposits	$	1,676,215		$	1,399,271		$	1,251,484


Deposit Relationships of $75 Million or More:
Deposit amounts	$	4,258,027		$	4,383,939		$	3,133,630
Percentage of total deposits (all relationships)	25		%	27		%	22		%
Percentage of total deposits (financial services businesses only)	16		%	15		%	14		%
Number of deposit relationships	30			31			21
Classified as brokered deposits	$	2,382,704		$	2,284,536		$	1,788,892

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Brokered Deposits

Table 20

Brokered Deposit Composition

(Dollars in thousands)



	2017			2016
	March 31			December 31			March 31
Noninterest-bearing demand deposits	$	481,324		$	398,015		$	324,782
Interest-bearing demand deposits	769,667			651,997			250,123
Savings deposits	1,135			1,115			1,110
Money market accounts	1,720,255			1,706,459			1,824,525
Time deposits:
Traditional	615,763			505,817			437,391
CDARS ⁽¹⁾	316,106			150,656			197,198
Other	18,540			27,319			50,676
Total time deposits	950,409			683,792			685,265
Total brokered deposits	$	3,922,790		$	3,441,378		$	3,085,805
Brokered deposits as a % of total deposits	23		%	21		%	21		%


⁽¹⁾	The CDARS^® deposit program is a deposit services arrangement that effectively achieves FDIC deposit insurance for jumbo deposit relationships.

The regulatory definition of brokered deposits includes any non-proprietary funds deposited, or referred for deposit, with a depository institution by a third party. “Traditional” brokered time deposits primarily refer to CDs issued in wholesale amounts through a broker-dealer and held in book-entry form at The Depository Trust & Clearing Corporation as well as CDs issued through third-party auction services. The regulatory definition of brokered deposits also encompasses certain deposits that we generate through more direct relationships with third parties. Examples of these “non-traditional” brokered deposits include cash sweep programs operated by BDs with which we have entered into a contract to serve as a program bank (which are discussed in more detail below) and funds administered by service providers, such as escrow agents, title companies, mortgage servicers and property managers, on behalf of third parties. With respect to these third-party service providers, we may in some cases have additional banking relationships with them and their affiliates. Our non-traditional brokered deposits are maintained across various account types, including demand, money market and time deposits, based on the needs of our clients. We believe that many of these deposits, despite falling within the definition of brokered deposits for regulatory purposes, generally constitute a stable, cost-effective source of funding and, accordingly, from a liquidity risk management perspective, we view them differently from traditional brokered time deposits. We consider the non-traditional brokered deposits as an important component of our relationship-based commercial banking business, whereas we use traditional brokered time deposits as a source of longer-term funding to complement deposits generated through relationships with our clients. As part of our liquidity risk management program, we consider characteristics other than regulatory classification, such as pricing, volatility, duration and our relationship with the depositor, when assessing the stability and overall value of deposits to us.

Total brokered deposits, as defined for regulatory reporting purposes, represented 23% of total deposits at March 31, 2017, compared to 21% of total deposits at December 31, 2016. Traditional brokered time deposits represented 4% of total deposits at March 31, 2017 and 3% of total deposits at December 31, 2016. Traditional brokered deposits have a weighted average maturity date of approximately 2 years.

As noted above, a significant source of non-traditional brokered deposits are cash sweep programs operated by BDs. At March 31, 2017, and December 31, 2016, $1.6 billion, or approximately 42%, and $1.7 billion, or approximately 48%, respectively, of our total regulatory-defined brokered deposits consisted of indexed deposits from cash sweep programs operated by BDs for which we serve as a program bank. Cash sweep programs enable the BDs’ brokerage clients to “sweep” their cash balances into an omnibus bank deposit account established at a third-party depository institution by the BD as agent or custodian for the benefit of its clients. The contracts governing our participation as a program bank have a specified term, set forth the pricing terms for the deposits and generally provide for minimum and maximum deposit levels that the BDs will have with us at any given time.

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Unlike traditional brokered time deposits, cash sweep program deposits are typically maintained in money market accounts and may be eligible for FDIC pass-through insurance. As of March 31, 2017, approximately 85% of the cash sweep program deposit balances were attributable to BDs who have had a deposit relationship with us for more than four years. In Table 19, Large Deposit Relationships, above, $1.6 million of cash sweep program deposits (which are indexed to the Fed funds effective or target rate) were included in the deposit amounts attributable to deposit relationships of $75.0 million or more.

Borrowings

To supplement our deposit flows, we utilize a variety of wholesale funding sources and other borrowings both to fund our operations and serve as contingency funding. We maintain access to multiple external sources of funding to assist in the prudent management of funding costs, interest rate risk, and anticipated funding needs or other considerations. In addition, in constructing our overall mix of funding sources, we also factor in our desire to have a diversity of funding sources available to us. Some of our funding sources are accessible same-day, while others require advance notice, and some sources require the pledging of collateral, while others are unsecured. Our sources of additional funding liabilities are described below:


•	Fed Funds Counterparty Lines - Fed funds counterparty lines are immediately accessible uncommitted lines of credit from other financial institutions. The borrowing term is typically overnight. Availability of Fed funds lines fluctuates based on market conditions, counterparty relationship strength and the amount of excess reserve balances held by counterparties.

•

Federal Reserve Discount Window - The discount window at the Federal Reserve Bank (the “FRB”) is an additional source of overnight funding. We maintain access to the discount window primary credit program by pledging loans as collateral. Funding availability is uncommitted and primarily dictated by the amount of loans pledged and the advance rate applied by the FRB to the pledged loans. The amount of loans pledged to the FRB can fluctuate due to the availability of loans that are eligible under the FRB’s criteria, which include stipulations of documentation requirements, credit quality, payment status and other criteria.


•	Repurchase Agreements - Repurchase agreements are agreements to sell securities subject to an obligation to repurchase the same or similar securities at a specified maturity date, generally within 1 to 90 days from the transaction date.

•

FHLB Advances - As a member of the FHLB Chicago, we have access to borrowing capacity, which is uncommitted and subject to change based on the availability of acceptable collateral to pledge and the level of our investment in stock of the FHLB Chicago. FHLB advances can be either short-term or long-term borrowings. Short-term advances historically have had a term of one to three days. Of the total $1.2 billion in short-term FHLB advances outstanding at March 31, 2017, $840.0 million represented overnight funding and was repaid on April 3, 2017.

•

Revolving Line of Credit - The Company has a 364-day revolving line of credit with a group of commercial banks allowing us to borrow up to $60.0 million. The maturity date is the earlier of September 22, 2017 or the consummation of the Company’s merger with CIBC. The interest rate applied on the line of credit is, at our election, either 30-day or 90-day LIBOR plus 1.75% or Prime minus 0.50%. We have the option to elect to convert any amounts outstanding under the line of credit, whether at maturity or before, to an amortizing term loan, with the balance of such loan due September 22, 2019 (subject to earlier maturity upon consummation of the merger with CIBC, as previously noted). We maintain the line primarily as an additional source of funding and have not drawn on it since inception.

•

Long-Term Debt, excluding FHLB Advances - As of March 31, 2017, we had outstanding $167.7 million of variable and fixed rate unsecured junior subordinated debentures issued to four statutory trusts that issued Trust Preferred Securities, which currently qualify as Tier 1 capital and mature as follows: $8.2 million in 2034; $92.8 million in 2035 and $66.6 million in 2068. We also had outstanding $120.7 million of fixed rate unsecured subordinated debentures, which currently qualify as Tier 2 capital and mature in 2042.

In addition to the foregoing, we also have access to the brokered deposit market, through which we have numerous alternatives and significant capacity, if needed. The availability and access to the brokered deposit market is subject to market conditions, our capital levels, our counterparty strength and other factors.

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The following table summarizes information regarding our outstanding borrowings and additional borrowing capacity for the periods presented:

Table 21

Borrowings

(Dollars in thousands)



	March 31, 2017					December 31, 2016
	Amount		Rate			Amount		Rate
Outstanding:
Short-Term
Federal funds	$	—	—	%		$	—	—	%
FRB discount window	—		—	%		—		—	%
Repurchase agreements	—		—	%		—		—	%
FHLB advances	1,190,000		0.82	%		1,540,000		0.63	%
Revolving line of credit ^(a)	—		—	%		—		—	%
Other borrowings	1,877		—	%		1,773		0.18	%
Total short-term borrowings⁽¹⁾	$	1,191,877				$	1,541,773
Long-term
Junior subordinated debentures^(a)	$	167,661	5.68	%	⁽²⁾	$	167,651	5.58	%	⁽²⁾
Subordinated debentures^(a)	120,674		7.125	%		120,659		7.125	%
FHLB advances	50,000		3.75	%	⁽³⁾	50,000		3.75	%	⁽³⁾
Total long-term borrowings	$	338,335				$	338,310
Unused Availability:
Federal funds ⁽⁴⁾	$	660,500				$	620,500
FRB discount window ⁽⁵⁾	773,564					668,412
FHLB advances ⁽⁶⁾	1,329,832					648,199
Revolving line of credit	60,000					60,000


^(a)	Represents a borrowing at the holding company. The other borrowings are at the Bank.

⁽¹⁾

Also included in short-term borrowings on the Consolidated States of Financial Condition but not included in this table are amounts related to certain loan participation agreements for loans originated by us that were classified as secured borrowings because they did not qualify for sale accounting treatment. As of March 31, 2017, and December 31, 2016, these loan participation agreements totaled $3.4 million and $3.0 million, respectively. Corresponding amounts were recorded within the loan balance on the consolidated statements of financial condition as of each of these dates.


⁽²⁾	Represents a weighted-average interest rate as of such date for our four series of outstanding junior subordinated debentures.


⁽³⁾	Represents a weighted-average interest rate as of such date for our outstanding long-term FHLB advances.


⁽⁴⁾	Our total availability of overnight Fed funds borrowings is not a committed line of credit and is dependent upon lender availability.


⁽⁵⁾	Our borrowing capacity changes each quarter subject to available collateral and FRB discount factors.


⁽⁶⁾	Our FHLB borrowing availability is subject to change based on the availability of acceptable collateral for pledging (such as loans and securities) and the level of our investment in stock of the FHLB Chicago. We would be required to invest an additional $59.8 million in FHLB Chicago stock to obtain this level of borrowing capacity.

CAPITAL

Equity totaled $2.0 billion at March 31, 2017, increasing by $75.3 million compared to December 31, 2016, primarily attributable to $58.0 million of net income for the three months ended March 31, 2017 and $16.5 million in connection with various share-based compensation activity, including stock option exercises and expense in connection with annual awards issued during first quarter 2017.

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Shares Issued in Connection with Share-Based Compensation Plans and Stock Repurchases

We issue new shares to fulfill our obligation to issue shares granted pursuant to share-based compensation plans. For the three months ended March 31, 2017, we issued 280,100 shares of common stock in connection with such plans largely due to annual equity award grants and the exercise of stock options, net of forfeitures.

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. For the three months ended March 31, 2017, we repurchased 105,764 shares of common stock at an average price of $58.04 per share.

Dividends

We declared dividends of $0.01 per common share during first quarter 2017, unchanged from first quarter 2016. Based on our closing stock price on March 31, 2017, of $59.37 per share, the annualized dividend yield on our common stock was 0.07%. The dividend payout ratio, which represents the percentage of common dividends declared to stockholders to basic earnings per share, was 1.39% for first quarter 2017 compared to 1.60% for first quarter 2016. We have no current plans to raise the amount of dividends currently paid on our common stock. Furthermore, the merger agreement that we have entered into with CIBC restricts us from increasing our dividend prior to the merger without the prior consent of CIBC, which we would not expect to receive.

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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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 risk-based capital, common equity Tier 1 and the total risk-based capital ratios, which are calculated based on risk-weighted assets and off-balance sheet items that have been weighted according to broad risk categories.

In addition to the minimum risk-based capital requirements, we are required to maintain a minimum capital conservation buffer, in the form of common equity Tier 1 capital, in order to avoid restrictions on capital distributions (including dividends and stock repurchases) and discretionary bonuses to senior executive management. The required amount of the capital conservation buffer is being phased-in, beginning at 0.625% on January 1, 2016 and increasing by an additional 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. We have included the 0.625% increase for 2017 in our minimum capital adequacy ratios in the table below. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. As of March 31, 2017, the Company and the Bank would meet all capital adequacy requirements on a fully phased-in basis as if all such requirements were currently in effect.

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. 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.

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Table 22

Capital Measurements

(Dollars in thousands)



	Actual ⁽¹⁾				FRB Guidelines For Minimum Regulatory Capital Plus Capital Conservation Buffer				Regulatory Minimum For “Well-Capitalized” under FDICIA
	March 31, 2017		December 31, 2016		Ratio		Excess Over Regulatory Minimum at 3/31/17		Ratio		Excess Over “Well Capitalized” under FDICIA at 3/31/17
Regulatory capital ratios:
Total risk-based capital:
Consolidated	12.59	%	12.49	%	9.250	%	$	639,652	n/a		n/a
The PrivateBank	12.30		12.17		n/a		n/a		10.00	%	$	439,934
Tier 1 risk-based capital:
Consolidated	10.83		10.73		7.250	%	684,331		n/a		n/a
The PrivateBank	11.16		11.05		n/a		n/a		8.00	%	604,982
Tier 1 leverage:
Consolidated	10.33		10.28		4.000	%	1,269,571		n/a		n/a
The PrivateBank	10.65		10.59		n/a		n/a		5.00	%	1,132,749
Common equity Tier 1:
Consolidated	9.95		9.83		5.750	%	803,763		n/a		n/a
The PrivateBank	11.16		11.05		n/a		n/a		6.50	%	891,847
Other capital ratios (consolidated) ⁽²⁾:
Tangible common equity to tangible assets	9.35		9.14


⁽¹⁾	Computed in accordance with the applicable regulations of the FRB in effect as of the respective reporting periods.


⁽²⁾	Ratio is not subject to formal FRB regulatory guidance and is a non-U.S. GAAP financial measure. Refer to Table 23, “Non-U.S. GAAP Financial Measures” for a reconciliation from non-U.S. GAAP to U.S. GAAP presentation.

n/a Not applicable.

As of March 31, 2017, all of our $167.7 million of outstanding junior subordinated debentures held by trusts that issued Trust Preferred Securities are included in Tier 1 capital and all of our outstanding Trust Preferred Securities are redeemable by us at any time, subject to receipt of any required regulatory approvals and, in the case of the remaining $66.6 million of the 10% Trust Preferred Securities issued by PrivateBancorp Capital Trust IV, compliance with the terms of the replacement capital covenant. Our outstanding 7.125% subordinated debentures due 2042 are Tier 2 capital instruments and are redeemable on or after October 30, 2017.

Upon completion of our pending merger with CIBC, we expect the outstanding Trust Preferred Securities will no longer qualify as Tier 1 capital and would be treated as Tier 2 capital under current FRB regulations. Furthermore, we understand that the Trust Preferred Securities would not constitute regulatory capital for CIBC under capital adequacy guidelines in Canada. Although no definitive actions have yet been taken, we expect that, if the CIBC merger is consummated, the 10% Trust Preferred Securities and the 7.125% subordinated debentures would be delisted from NASDAQ and the NYSE, respectively, in connection with the closing of the transaction. The post-merger capital structure of the successor holding company remains under evaluation, and may include the redemption of all of the outstanding subordinated debentures and all or some of the Trust Preferred Securities.

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

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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, 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, 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 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 similar companies. However, because there are no standardized definitions for these ratios, our calculations may not be comparable with other companies.

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.

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

Table 23

Non-U.S. GAAP Financial Measures

(Dollars in thousands)

(Unaudited)



	Three Months Ended
	2017			2016
	March 31			December 31			September 30			June 30			March 31
Taxable-equivalent net interest income
U.S. GAAP net interest income	$	161,018		$	155,381		$	145,510		$	142,017		$	139,518
Taxable-equivalent adjustment	1,245			1,234			1,207			1,194			1,217
Taxable-equivalent net interest income (a)	$	162,263		$	156,615		$	146,717		$	143,211		$	140,735
Average Earning Assets (b)	$	19,651,322		$	19,032,922		$	18,084,391		$	17,285,351		$	16,865,659
Net Interest Margin ((a)annualized) / (b)	3.30		%	3.23		%	3.18		%	3.28		%	3.30		%
Net Revenue
Taxable-equivalent net interest income	$	162,263		$	156,615		$	146,717		$	143,211		$	140,735
U.S. GAAP non-interest income	37,283			39,412			37,614			37,130			33,602
Net revenue (c)	$	199,546		$	196,027		$	184,331		$	180,341		$	174,337
Operating Profit
U.S. GAAP income before income taxes	$	79,484		$	92,901		$	75,513		$	79,362		$	76,225
Provision for loan and covered loan losses	8,408			6,048			15,691			5,569			6,402
Taxable-equivalent adjustment	1,245			1,234			1,207			1,194			1,217
Operating profit	$	89,137		$	100,183		$	92,411		$	86,125		$	83,844
Efficiency Ratio
U.S. GAAP non-interest expense (d)	$	110,409		$	95,844		$	91,920		$	94,216		$	90,493
Net revenue	$	199,546		$	196,027		$	184,331		$	180,341		$	174,337
Efficiency ratio (d) / (c)	55.33		%	48.89		%	49.87		%	52.24		%	51.91		%
Adjusted Net Income
U.S. GAAP net income available to common stockholders	$	57,952		$	59,548		$	48,892		$	50,365		$	49,552
Amortization of intangibles, net of tax	320			333			332			332			331
Adjusted net income (e)	$	58,272		$	59,881		$	49,224		$	50,697		$	49,883
Average Tangible Common Equity
U.S. GAAP average total equity	$	1,966,780		$	1,910,977		$	1,870,109		$	1,809,203		$	1,747,531
Less: average goodwill	94,041			94,041			94,041			94,041			94,041
Less: average other intangibles	1,002			1,531			2,073			2,613			3,153
Average tangible common equity (f)	$	1,871,737		$	1,815,405		$	1,773,995		$	1,712,549		$	1,650,337
Return on average tangible common equity ((e) annualized) / (f)	12.63		%	13.12		%	11.04		%	11.91		%	12.16		%

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Table 23

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

(Dollars in thousands)

(Unaudited)



	As of
	2017			2016
	March 31			December 31			September 30			June 30			March 31
Tangible Common Equity
U.S. GAAP total equity	$	1,994,991		$	1,919,675		$	1,882,354		$	1,831,150		$	1,767,991
Less: goodwill	94,041			94,041			94,041			94,041			94,041
Less: other intangibles	748			1,269			1,809			2,349			2,890
Tangible common equity (g)	$	1,900,202		$	1,824,365		$	1,786,504		$	1,734,760		$	1,671,060
Tangible Assets
U.S. GAAP total assets	$	20,416,218		$	20,053,773		$	19,105,560		$	18,169,191		$	17,667,372
Less: goodwill	94,041			94,041			94,041			94,041			94,041
Less: other intangibles	748			1,269			1,809			2,349			2,890
Tangible assets (h)	$	20,321,429		$	19,958,463		$	19,009,710		$	18,072,801		$	17,570,441
Period-end Common Shares Outstanding (i)	80,024			79,849			79,640			79,464			79,322
Ratios:
Tangible common equity to tangible assets (g) / (h)	9.35		%	9.14		%	9.40		%	9.60		%	9.51		%
Tangible book value (g) / (i)	$	23.75		$	22.85		$	22.43		$	21.83		$	21.07

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. 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. For additional information regarding critical accounting policies, refer to “Summary of Significant Accounting Policies” presented in Note 1 of “Notes to Consolidated Financial Statements” and the section titled “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations both included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as well as the section titled “Credit Quality Management and Allowance for Credit Losses” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included earlier in this Form 10-Q. There have been no significant changes in our application of critical accounting policies since December 31, 2016.

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 use interest rate derivatives as part of our asset liability management strategy to hedge interest rate risk in our primarily floating-rate loan portfolio and, depending on market and other conditions, we may alter this program and enter into or terminate additional interest rate swaps.

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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 March 31, 2017, approximately 80% of the total loan portfolio is indexed to LIBOR, including 69% indexed to one month LIBOR, and 16% of the total loan portfolio is indexed to the prime rate. Of the $10.9 billion in loans maturing after one year with a floating interest rate, $1.2 billion are subject to interest rate floors, of which 18% were in effect at March 31, 2017, and are reflected in the interest sensitivity analysis below. In addition, commencing in 2016, we have included contractual language in loan agreements that establishes a floor of 0% for loans with LIBOR indices, protecting the Company in the event of negative LIBOR rates. 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 re-prices assets and liabilities based on the contractual terms and market rates in effect at the beginning of the measurement period assuming instantaneous parallel shifts in the applicable yield curves and instruments then remain at that new interest rate through the end of the twelve-month measurement period. The model analyzes changes in the portfolios based only on assets and liabilities at the beginning of the measurement period and does not assume any asset or liability growth over the following twelve months.

The sensitivity analysis is based on numerous assumptions including: the nature and timing of interest rate levels, the shape of the yield curve, prepayments on loans and securities, levels of excess deposits, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. While our assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how client preferences or competitor influences might change. 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 change 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. These assumptions are periodically reviewed and updated in the context of 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, all of which may occur in dynamic and non-linear fashion. We routinely conduct historical deposit re-pricing and deposit lifespan/retention analyses and adjust our forward-looking assumptions related to client and market behavior. Based on our analyses and judgments, we recently modified core deposit product repricing characteristics and retention periods, as well as average life estimates, used in our interest rate risk modeling which reflects higher interest rate sensitivity of our deposits.

Based on our current simulation modeling assumptions, the following table shows the estimated impact of an immediate change in interest rates as of March 31, 2017 and December 31, 2016.

Analysis of Net Interest Income Sensitivity

(Dollars in thousands)



	Immediate Change in Rates
	-50			+50			+100			+200			+300
March 31, 2017
Dollar change	$	(29,888	)	$	20,528		$	44,107		$	79,810		$	108,024
Percent change	-4.6		%	3.1		%	6.8		%	12.2		%	16.6		%
December 31, 2016
Dollar change	$	(33,101	)	$	22,413		$	44,924		$	82,320		$	112,094
Percent change	-5.5		%	3.6		%	7.4		%	13.6		%	18.5		%

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The table above illustrates the estimated impact to our net interest income over a one-year period reflected in dollar terms and percentage change. As an example, if there had been an instantaneous parallel shift in the yield curve of +100 basis points on March 31, 2017, net interest income would increase by $44.1 million, or 6.8%, over a twelve-month period, as compared to an increase in net interest income of $44.9 million, or 7.4%, if there had been an instantaneous parallel shift of +100 basis points at December 31, 2016. The decrease in the above interest rate sensitivity at March 31, 2017 compared to December 31, 2016, is due primarily to asset and liability compositional changes. These changes included a decrease in cash on deposit at the Federal Reserve, an increase in investment securities and higher levels of rate-sensitive deposits. The decrease in sensitivity was partially offset by continued growth in rate-sensitive loans during the three months ended March 31, 2017. Based on our modeling, the Company remains in an asset sensitive position and expects to benefit from a rise in interest rates. We note, however, that 80% of our loans are indexed to LIBOR, mostly one-month LIBOR, and there can be no guarantee that action by the Federal Reserve to change the target Fed funds rate will cause an immediate parallel shift in short-term LIBOR. We will continue to periodically review and refine, as appropriate, the assumptions used in our interest rate risk modeling.

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 three months ended March 31, 2017, 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

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ITEM 1A. RISK FACTORS

For a discussion of risk factors that could adversely affect our business, financial condition and/or results of operations, refer to Part I, “Item 1A. Risk Factors” of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016, regarding our business, financial condition and 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 three months ended March 31, 2017, 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	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
January 1 - January 31, 2017	425	$	53.71	—	—
February 1 - February 28, 2017	110	55.15		—	—
March 1 - March 31, 2017	105,229	58.06		—	—
Total	105,764	$	58.04	—	—

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.

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ITEM 6. EXHIBITS



Exhibit Number	Description of Documents
2.1	Agreement and Plan of Merger, dated as of June 29, 2016, by and among Canadian Imperial Bank of Commerce, PrivateBancorp, Inc. and CIBC Holdco Inc. is incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-34066) filed on July 7, 2016.

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.

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 March 31, 2017, filed on May 10, 2017, 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.

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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: May 10, 2017

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