Annual Report (10-k)

ITEM 1. BUSINESS

PrivateBancorp, Inc.

PrivateBancorp, Inc. ("PrivateBancorp," we or the "Company"), was incorporated in Delaware in 1989 and became a holding company registered under the Bank Holding Company Act of 1956, as amended. The PrivateBank and Trust Company (the "Bank" or the "PrivateBank"), the bank subsidiary of PrivateBancorp, was opened in Chicago in 1991. The Bank provides customized business and personal financial services to middle market companies and business owners, executives, entrepreneurs and families in all the markets and communities it serves.

Beginning in late 2007, we hired a team of experienced middle market bankers and, under the leadership of our current chief executive officer, initiated a strategic plan to transform the organization into a leading middle market commercial bank. Since then, we have added over 1,300 new client relationships, shifted the composition of our loan portfolio from 19% commercial and industrial and 66% commercial real estate and construction at December 31, 2007 to 67% commercial and industrial and 27% commercial real estate and construction at December 31, 2013. Over this period, total assets have grown from $5.0 billion at December 31, 2007 to $14.1 billion at December 31, 2013, with total loans up from $4.2 billion at December 31, 2007 to $10.6 billion at December 31, 2013. To support the growth and capital requirements of the organization, since December 31, 2007, we have issued $631.2 million of common stock (including the October 2012 common stock offering described below) and $143.8 million of trust preferred securities. In January 2009, the U.S. Department of the Treasury (the "U.S. Treasury") purchased $243.8 million of our preferred stock under the U.S. Treasury's Troubled Asset Relief Program ("TARP") Capital Purchase Program ("CPP"). After our return to profitability in 2011 and the continued strengthening of our balance sheet in 2012, we repurchased all of the preferred stock, and related warrants, held by the U.S. Treasury in October 2012 using net proceeds from underwritten public offerings of $75.0 million of common stock (4.8 million shares) and $125.0 million of our 7.125% subordinated debentures due 2042, together with existing cash resources.

Since we opened for business in Chicago in 1991, we have expanded into multiple geographic markets through the creation of new banks and banking offices and the acquisition of existing banks. Today, we operate through a single banking subsidiary and have 33 offices located in ten states, primarily in the Midwest, with a majority of our business conducted in the greater Chicago market. We employed 1,116 full-time equivalent employees at December 31, 2013.

Business Focus and Strategic Direction

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. Under the leadership of our current management team, our business model focuses on (1) building middle market commercial client relationships and selectively targeting clients, including clients outside our current market areas in specialized business niches, (2) commercial lending activities with diversification across industries, (3) a broad suite of fee generating products and services, including treasury management, capital markets, mortgage banking and syndications, (4) private banking and wealth management services and products, (5) a strong risk management infrastructure and (6) enhancing our community banking platform.

We leverage our model by introducing clients to a full range of lending, treasury management, and investment and capital markets products to meet their commercial needs, and private banking, trust and investment services and residential mortgage banking to meet their personal needs. Our goal is to be a trusted advisor to our clients so that we become one of their primary banks by building meaningful long-term relationships and delivering services across our entire product spectrum. Our growth strategy is primarily focused on organic growth across our lines of business. We have focused on developing new areas of specialization as part of our growth plans. We may also consider selective acquisitions from time to time to gain market share, augment our product offerings and expand our retail deposit gathering capabilities.

Commercial Banking

Our commercial banking group focuses on the specific needs of middle market companies both in the Midwest, and, to a lesser extent, nationally. Our commercial loan portfolio includes lines of credit to businesses for working capital needs, term loans, and letters of credit. Certain non-residential owner-occupied commercial real estate loans are included in our commercial loan portfolio where the cash flows from the owners' businesses serve as the primary source of loan repayment. With a focus on cross-selling our other products and services, our commercial bankers may refer commercial banking clients to our treasury management and

capital markets groups and refer the executives and owners of such clients to our private wealth group. These groups are discussed in detail below.

In the normal course of our business, we participate in loan transactions that involve a number of banks, primarily to maintain and build client relationships with a view to cross-selling products and originating loans for the borrowers in the future. Although we may strive to lead or co-lead the arrangement, we will also participate with other banks when we have a relationship with the borrower. Participations and syndications assist us with decreasing credit exposure linked to individual client relationships or loan concentrations by industry, type or size. Of our $10.6 billion in total loans at December 31, 2013 , we were party to $2.0 billion in shared national credits ("SNCs") which transactions are typically led by larger institutions. At December 31, 2013 , total syndications and participations outstanding were $3.4 billion, including SNCs, and of this total, we were the lead or co-lead on transactions with $1.4 billion outstanding at year end.

Illinois, Specialty and National Commercial Banking. The Illinois commercial banking group targets primarily Illinois-based middle market clients with $10 million to $2 billion in revenue, though the majority of our clients have $20 to $500 million in revenue. Closely related to this group are select specialty banking groups focused on healthcare, architecture, engineering and construction, asset-based lending, and security alarm finance. The healthcare industry is one of the largest segments within our commercial lending business and we have a specialized niche in the assisted living, skilled nursing, and residential care segment of this industry. Loan relationships to these providers tend to be larger extensions of credit and are primarily to for-profit businesses. The architecture and engineering and construction specialties focus on companies that manage large projects. These companies are a source of funding and liquidity support through escrow accounts but tend to be minimal borrowers. We provide working capital to security alarm companies, as this business requires sizeable capital outlays. We believe it is appropriate to provide more individualized assistance to these niche clients due to their specific needs, which may differ from the needs of more general commercial clients. The specialty groups employ bankers with many years of experience in these industries and market primarily to Illinois-based businesses, many of which have a national scope. The national commercial banking group manages middle market commercial banking teams in the markets outside of Illinois in which we have branch banking operations - Atlanta, Detroit, Kansas City, Milwaukee and St. Louis. In these areas, we serve clients with $10 million to $2 billion in revenue. In our business development markets - Cleveland, Denver, Des Moines, Stamford, Grand Rapids and Minneapolis - we focus on companies with $50 million to $2 billion in revenue. During 2013, commercial and industrial loans increased $635.1 million, of which approximately $320 million was originated within the Illinois commercial banking group.

Commercial Real Estate. Our commercial real estate business focuses on the needs of commercial real estate professionals including professional commercial and residential real estate developers and investors. The majority of our clients are based within our geographic footprint, though properties financed may be located in other regions. We provide funding for construction, acquisition, redevelopment, working capital, and refinancing of retail, industrial, office and multifamily properties and student housing. Our commercial real estate specialists are located in the Chicago, Denver, Detroit, Milwaukee, Minneapolis and St. Louis markets. Given the challenges in the commercial real estate industry during the past few years, we have reduced the size of our commercial real estate portfolio largely through selective exits and workouts/sales of commercial real estate credits in order to increase our commercial and industrial focus and to a lesser extent due to loan payoffs and credits moving to permanent financing. However, we recognize the long term value in serving commercial real estate clients and will continue to provide products and services to these clients, taking appropriate risk management into account. As of December 31, 2013, commercial real estate loans as a percentage of total loans were 24% , a decrease from 26% at December 31, 2012 and 30% at December 31, 2011.

Treasury Management. We provide comprehensive services for commercial clients to manage their cash and liquidity, including receivables and payables services, reporting, reconciliation and data integration solutions and demand deposit account and/or investment options for optimizing balances. During 2013, we earned treasury management fees of $24.7 million , representing an increase of 15% over the prior year. Our clients receive a credit against treasury management fees based on an earned credit rate we apply to their non-interest bearing deposit balances. We may change that rate from time to time and this, as well as interest rate changes, could impact the balances our clients maintain in non-interest bearing accounts as well as the size of the credit they may receive. Either of these factors could cause the amount of treasury management fees to vary.

Capital Markets. We assist clients with their unique financial markets and risk management objectives by providing interest rate and foreign exchange services. With respect to interest rate hedging, we offer clients interest rate swaps, rate caps, floors and collars, rate swaptions and cancellable interest rate swaps. To assist clients with their currency management, we help clients establish foreign exchange policy, budgeting, contract negotiation, risk management and research advisory services; foreign currency wire transfers, drafts, cash letter deposits and collections; and forwards, window forwards, swaps and options. Prior to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), these products were traded over-the-counter in a largely unregulated derivatives market. The Dodd-Frank Act significantly reformed the regulatory structure of this market and much of our capitals market business is now subject to regulatory requirements relating to mandatory clearing, trade execution, disclosure, client eligibility and reporting. See "Supervision and Regulation" for more information about

Dodd-Frank Act changes. The full impact of these regulatory changes on our capital markets activity is not yet certain, and it is possible that prospects for our capital markets business, and the potential demand for and pricing spreads on certain products we offer, may be diminished. During 2013, we earned capital market fees (including credit valuation adjustments) of $20.7 million , representing a decrease of 15% over the prior year. With clients demand for interest rate management products primarily driven by concern over interest rate changes, our capital markets transaction volume was impacted in 2013 by a stable interest rate environment.

Syndications . Our syndications team helps us to both generate fee revenue and strategically manage our loan portfolio. In larger transactions, we may underwrite loans on a best efforts basis (in which we commit to extend only a portion of the total loan commitment, pro-rata with other banks, and the borrower obtains the full credit request only if the syndications team arranges sufficient commitments from other banks) or we may fully underwrite loans (in which we lend the full amount to the client but then syndicate portions of that loan to other banks). As a result, syndications may assist us with decreasing credit exposure linked to individual client relationships and/or decreasing loan concentrations by industry, type or size. Whether syndicated on a fully underwritten or a best efforts basis, we receive an administrative agent and arranger's fee plus interest on the portion of the loan we retain.

Total syndication fee revenue was $13.4 million in 2013. While from time to time we may syndicate larger loans already on our balance sheet, syndication fees are primarily tied to loan origination activity and can therefore fluctuate from quarter to quarter. During 2013, we participated in 57 syndicated loan transactions, 51 of which we led or co-led, representing $2.5 billion in total commitments ($1.0 billion of which we retained). During 2013, our syndication fee revenue came primarily from loans originated in our Illinois Commercial Banking group (46%) and our National Commercial Banking group (29%).

Community Banking

Retail Banking. Through a network of 18 branch locations in and around Chicago, community banking provides personal and business banking and investment products and services including checking, savings, money market, certificates of deposit ("CDs"), home equity loans and lines of credit, business-specific banking and other tailored solutions. We also provide internet -based deposit services. Community banking typically targets individual clients with up to $250,000 in investable assets and lending needs of up to $3.5 million. Community banking relationship managers offer mortgage services to clients through the residential mortgage banking team. As of December 31, 2013, deposits from community banking clients comprised 14% of our total deposits compared to 12% as of December 31, 2012.

We plan to further develop our community banking platform as part of our strategy to attract core deposits, our primary funding source to support our commercial lending activities. In recent quarters, with significant liquidity in the banking system, our deposit mix has been comprised primarily of corporate accounts which tend to be considerably larger and where account balances may fluctuate significantly depending on client cash flows and investment opportunities. Our goal is to diversify our overall funding base over time in order to increase the granularity and stability of our core deposits. We may seek attractive opportunities to expand our branch network in an effort to increase retail deposits in selected markets in the greater Chicago area. Depending on market factors, we may also consider potential strategic acquisitions of bank branches or other financial institutions if we are able to negotiate transactions on financial terms acceptable to us. We also completed internet, mobile banking and website initiatives during 2013 to bolster our retail banking platform.

Residential Mortgage Banking. We offer a full range of residential mortgage loans for purchasing or refinancing 1-4 family residential properties. We generally use a correspondent model in which we originate loans, and sell the majority of these loans in the secondary market, based on the underwriting standards of investors who then service them. We make certain representations and warranties to the purchasers of the loans upon sale, many centering on the quality of our review of borrower information and underwriting processes. If we are found to have breached these representations (for example, if we did not correctly adhere to compliance requirements or the purchaser's underwriting standards), we could be required to repurchase the outstanding amount of the applicable loan. To mitigate this risk, we focus significant attention on the thoroughness of the origination processes. The losses arising from these limited recourse obligations in 2013, 2012 and 2011 were not material. We originate and retain some mortgages in our portfolio, primarily jumbo or nonconforming loans or a small number of loans which our investors ultimately decide not to purchase. We do not service loans for other entities at this time. At December 31, 2013, we employ 29 mortgage originators and we originated approximately $561.5 million of first mortgage loans during 2013. In addition, we employ nine mortgage originators who specialize in reverse mortgages and we broker reverse mortgages for sale to third parties.

The Consumer Financial Protection Bureau (the "CFPB"), which was created under Dodd-Frank Act and has broad rule-making authority for a wide range of consumer protection laws, promulgated certain rules imposing new requirements on mortgage origination, mortgage servicing, mortgage originator compensation, appraisals and disclosures which went into effect in January 2014. These new rules have significantly impacted the mortgage industry, have increased the cost of doing business, and have

limited the types of mortgage products we offer. We currently expect the majority of mortgages the Bank originates and sells will qualify for the regulatory safe harbor under the new ability to repay rules, although we do plan to offer mortgages under certain underwriting criteria to borrowers who the Bank has determined have the ability to repay those loans, but whose loans do not satisfy the safe harbor requirements. See "Supervision and Regulation" for additional information about the implications of Dodd-Frank Act changes.

Small-Business Banking. Small-business banking responds to the personal and corporate banking needs of small businesses, as well as their owners and executives, while targeting commercial clients with business revenue up to $10 million. This group offers commercial lending and treasury management services and products similar to those of our commercial banking group, but on a smaller scale, this group operates primarily through a Chicago-based team. We may consider further expansion in other regions. Our strategy for small-business banking includes using our branch networks and our team of business bankers to attract new small-business clients in order to diversify our loan portfolio and funding base. This client acquisition strategy includes targeted sales programs, marketing campaigns, community involvement and client referrals. To the extent such individuals have significant personal assets, we refer such clients to our private wealth group and its dedicated team of private bankers. Since 2010, we hired an experienced leader and increased the number of business bankers dedicated to small-business banking. As of December 31, 2013, small-business banking's loan portfolio was approximately $213 million (representing 2% of our total loan portfolio at that time), including approximately $43 million in covered loans, which continue to run off. During 2013, small-business banking added 130 new client relationships, effectively offsetting the run off in the covered loan portfolio.

Private Wealth

Our private wealth business offers high net-worth clients (those with more than $1 million in investable assets) private banking, investment management, trust, custody and escrow services. Most clients in this business are individuals, but we assist some corporate clients with liquidity management. We offer our private wealth services mostly in the Chicago market, and from our banking offices in St. Louis, Milwaukee and Michigan. As part of the Company's focus on cross selling, we focus on cross-selling private wealth services across our lines of business to executives and business owners who have a commercial banking relationship with us.

Private Banking. Our private banking services include residential secured loans and as well as lines of credit used for liquidity purposes that are primarily secured by marketable securities. Our private bankers work closely with our investment advisers and often introduce our investment advisory services to our private banking clients. The private banking portion of our private wealth group also had a significant deposit base of $947.0 million as of December 31, 2013 .

Trust and Investments. With respect to our trust and investment services, we act as fiduciary and investment manager for individual and corporate clients which includes creating asset allocation strategies tailored to each client's unique situation while using third-party investment managers to execute these strategies. For managed assets, we offer financial advice and act either in a trustee or agency capacity. Custody and escrow services are considered non-managed in which we administer and safeguard assets but do not provide financial advice. During 2012, regulatory changes required that certain companies utilize a "qualified custodian," such as the Bank, for the administration and custody of their clients' assets. However, fees earned on "qualified custodian" and escrow assets are typically a flat fee structure and are significantly lower than fees recognized on standard custody and managed assets, which are generally based on the market value of the assets on the last day of the prior quarter or month and are therefore subject to volatility. Total assets under management and administration ("AUMA") increased from $5.2 billion at December 31, 2012 to $5.7 billion at the end of 2013. Approximately 91% of our 2013 Trust and Investment fee revenue related to managed assets.

We also earn certain non-recurring fees such as tax preparation fees, estate settlement and court-appointed guardian fees.

On December 31, 2013, we sold Lodestar Investment Counsel, LLC ("Lodestar"), an investment management firm and previously a wholly-owned subsidiary of the Bank. At the time of the sale, Lodestar had assets of $290,000 and $316.3 million in AUMA, net of custodial assets we continue to service, which are not included in the Trust and Investment segment at December 31, 2013. The sale of Lodestar is not expected to have a material impact on future period's financial results.

Lending Activities

We provide a range of commercial, real estate and personal lending products and services to our clients. While the majority of our client relationships today are Chicago-based, many of our clients do business around the country.

We have adopted comprehensive loan policies that include disciplined credit underwriting standards. The goal of our lending program is to meet the credit needs of our diverse client base while using sound credit principles to protect our asset quality. We

strive to provide a reliable source of credit, a variety of lending alternatives, and sound financial advice to our clients. When extending credit, our decisions are based upon our client's ability to repay the loan, as well as the value of any collateral securing the loan. Our assessment of the quality and integrity of the borrower are also key considerations in the loan approval process. Our bankers monitor loan performance and maintain regular contact with our clients. Our credit risk management team actively manages and monitors the loan portfolio, including performing, nonperforming, and stressed credits, and provides workout and nonperforming asset disposition-related activities.

In conjunction with our middle market strategy, our lending activities may involve larger credit relationships. The Bank's legal lending limit at December 31, 2013 was approximately $247 million for any one borrowing relationship. However, the Bank has established in-house lending limits that are below the legal lending limit. At December 31, 2013 and 2012, we had 104 and 97 unique obligors, respectively, with credit commitments of $25 million or more totaling $3.3 billion and $3.1 billion, respectively. Of this total commitment at December 31, 2013 and December 31, 2012, we had $1.8 billion and $1.7 billion in loans outstanding, respectively, or 17% of our loan portfolio at both December 31, 2013 and 2012, to 90 unique obligors in amounts in excess of $25 million, compared to 81 at December 31, 2012. Some of these obligors may be related to other obligors as guarantors or share related ownership structures with other obligors. Approximately 85% of these large obligors are commercial and industrial businesses compared to 80% at December 31, 2012; the remaining exposure relates primarily to commercial real estate loans. Of our largest commitments, five unique obligors with commitments of $50 million or more represented $302.8 million in total commitments at December 31, 2013, compared to the same number of unique obligors at December 31, 2012 with $332.5 million in total commitments. As of December 31, 2013, $15.9 million of these largest commitments was outstanding, compared to $50.5 million at December 31, 2012. These credits are subject to increased scrutiny in our credit approval process. Depending on collateral values, success of a workout strategy or the ability of a borrower to return to performing status, the unexpected occurrence of an event or development adversely impacting one or more of our large clients could materially affect our results of operation and financial condition.

Commercial

At December 31, 2013 , commercial loans, excluding commercial real estate loans discussed below, comprised 67% of our loan portfolio, and include lines of credit, term loans, and letters of credit, which may have multi-year commitments. Average loan balances were $1.8 million for the years ended December 31, 2013 and 2012. Our commercial lines of credit typically are limited to a percentage of the value of the assets securing the line, and are typically priced by a floating-rate formula. In general, lines of credit are reviewed annually and are supported by accounts receivable, inventory and/or equipment. Depending on the risk profile of the borrower, we may require periodic aging of receivables, and inventory and equipment listings to verify the quality of the borrowing base prior to advancing funds. Our term loans are typically secured by the assets of our clients' businesses and have maturities between one to five years, with either floating or fixed-rates of interest. In certain circumstances, there may be an interest rate floor. We issue standby or performance letters of credit, and are able to service the international needs of our clients through correspondent banks. We use the same underwriting standards for letters of credit and other unfunded commitments that we would use for funded loans.

Commercial loans contain risks unique to the business and market of each borrower. In order to mitigate these risks, we seek to gain an understanding of the business and industry of each borrower; require appropriate reporting, financial, and/or operating covenants; and regularly evaluate our collateral position. Our commercial lending underwriting process includes an evaluation of the borrower's financial statements and projections with an emphasis on operating results, cash flow, liquidity and underwriting ratios, as well as the collateral value, to determine the level of creditworthiness of the borrower. These loans may be secured by a first priority security interest in the assets of the borrower and may require the support of a personal guarantee of one or more of the principals of the borrower. From a risk management standpoint, whether the commercial loans are originated within commercial banking or small-business banking, substantially the same credit policies are used.

Commercial Real Estate

At December 31, 2013 , commercial real estate loans comprised 24% of our loan portfolio. Average loan balances were $2.6 million and $2.1 million for the years ended December 31, 2013 and 2012, respectively. Our commercial real estate portfolio is comprised of loans secured by various types of collateral including 1-4 family non-owner occupied housing units located primarily in our target market areas, multi-family real estate, office buildings, warehouses, retail space, mixed use buildings, and vacant land, the bulk of which is held for long-term investment or development. Commercial real estate loans are typically floating-rate, with a term of one to five years, and are usually refinanced with outside permanent financing. Commercial real estate loan concentrations by collateral type are monitored as part of our credit risk management process.

Risks inherent in real estate lending are related to the market value of the property taken as collateral, the underlying cash flows and documentation and the general economic condition of the market in which the collateral is located. To mitigate these risks,

we obtain and review appraisals of the property and we assess (a) the ability of the cash flow generated from the collateral property to service debt, (b) the significance of any outside income of the borrower or income from other properties owned by the borrowers, and (c) the strength of guarantors, as applicable.

Our commercial real estate loan portfolio includes loans with large principal amounts and the repayment of these loans is generally dependent on the successful leasing or sale of the property, the successful operation of the business occupying the property, and the availability of permanent financing. The repayment of these loans is particularly influenced by general conditions in the real estate markets or in the local economy where the property is located. Many commercial real estate loans do not fully amortize the balance over the loan period, but have balloon payments due at maturity. The borrower's ability to make a balloon payment may depend on their ability to either refinance the loan or complete a timely sale of the underlying property. On a non-owner occupied commercial property, if the cash flow from a borrower's project is reduced due to leases not being obtained or renewed, that borrower's ability to repay the loan may be impaired.

Construction

At December 31, 2013 , construction loans comprised 3% of our loan portfolio. Average loan balances were $1.6 million and $1.5 million for the years ended December 31, 2013 and 2012, respectively. Our construction loan portfolio consists of single-family residential properties, multi-family properties, and commercial projects, and includes both investment properties and properties that will be owner-occupied. As with commercial real estate loans, we monitor our construction loan concentrations as part of our risk management program.

As a product segment, we believe construction loans have the highest inherent risk. We closely monitor the status of each construction loan throughout its term to mitigate these risks. We also seek to manage these risks by, among other things, ensuring that the collateral value of the property throughout the construction process does not fall below acceptable levels, ensuring that funds disbursed are within parameters set by the original construction budget, and properly documenting each construction draw. Typically, we require full investment of the borrower's equity in construction projects prior to injecting our funds. Generally, we do not allow borrowers to recoup their equity from the sale proceeds of a finished product, if applicable, until we have recovered our funds on the overall project.

Residential, Home Equity, and Personal

At December 31, 2013 , residential, home equity, and personal loans comprised 6% of our loan portfolio. Average loan balances were $691,000 and $728,000 for the years ended December 31, 2013 and 2012, respectively.

Residential Mortgage . We have purchase and refinancing mortgage sales teams in each of the Chicago, St. Louis, Milwaukee and Detroit markets. These residential mortgage loans are secured by 1-4 family residential properties generally located in the same markets as our mortgage sales centers; however, lending outside these areas can occur. We sell the majority of the residential mortgage loans we originate into the secondary market.

Other Consumer Loans . The majority of our other consumer loan portfolio is comprised of home equity loans and lines of credit, and, to a lesser extent, car loans (mostly for used cars) and secured and unsecured consumer loans, often used to fund educational costs or to consolidate debt. Home equity loans and lines of credit are generally secured by second mortgages on 1-4 family residential properties. Since we sell the majority of the residential mortgages we originate, we are often second lien holders on these properties. We do not sell the home equity loans or lines of credit to investors. Other consumer loans include secured and unsecured consumer loans, the majority of which are term loans. Consumer loans generally have shorter terms and lower balances with higher yields as compared to residential real estate loans. Our personal loan portfolio consists largely of loans for investment asset acquisition (which may be secured by marketable or nonmarketable investment securities) and for general liquidity purposes, including lines of credit which may be unsecured. Due to our client relationship focus, which includes lending to entrepreneurs, some of these loans can be sizeable. As of December 31, 2013 , the aggregate amount of such personal loans was approximately 2% of total loans.

For more information regarding the composition of our loan portfolio, see "Loan Portfolio and Credit Quality" of " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in Item 7 and Note 4 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K. For information regarding our unfunded commitments, see Note 19 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

Deposits

We rely on a relationship-driven approach to generate client deposits and we regard client deposits as our primary source of funding. During 2013, our total deposits remained relatively flat with $12.2 billion at December 31, 2012 and $12.0 billion at year-end 2013. Client deposits represented 97% of total deposits at December 31, 2013 and December 31, 2012. Given the commercial focus of our core business strategy, a majority of our deposit base is comprised of corporate accounts which are typically larger than retail accounts. We have built a suite of deposit and cash management products and services that support our efforts to attract and retain corporate client accounts. At December 31, 2013 , we had 16 client relationships in which each had more than $75 million in deposits, totaling $2.6 billion, or 22% of total deposits. In comparison, at December 31, 2012, we had 18 client relationships in which each had more than $75 million in deposits, totaling $3.1 billion, or 26% of total deposits. At both periods, over half of the deposits greater than $75 million were from financial services-related businesses, including omnibus accounts from broker-dealer and mortgage companies representing underlying accounts of their customers that may be eligible for pass-through deposit insurance limits. We had 27 client relationships at December 31, 2013 and December 31, 2012 in which each had more than $50 million in total deposits. These deposits totaled $3.3 billion, or 27% of total deposits and $3.6 billion, or 30% of total deposits at December 31, 2013 and 2012, respectively. Our ten largest depositor accounts totaled $2.1 billion, or 17% of total deposits, at December 31, 2013 . Commercial deposits are held in various deposit products we offer, including interest-bearing and non-interest bearing demand deposits, CDARS ^® , time deposits, savings and money market accounts. The CDARS ^® deposit program allows clients to obtain greater FDIC deposit insurance for time deposits in excess of the FDIC insurance limits. In addition to corporate deposits, through our community banking and private wealth groups, we offer a variety of personal banking products, including checking, savings and money market accounts and CDs, which serve as an additional source of client deposits.

We also maintain access to a number of wholesale funding sources including brokered time deposits, which we utilize to supplement our client deposits as needed to fund asset growth and manage liquidity. Brokered time deposits, excluding client-related CDARS ^® , were 3% of total deposits at both December 31, 2013 and 2012, respectively.

For information regarding our deposits, see "Funding and Liquidity Management" of " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in Item 7 and Note 9 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

Investment and Hedging Activities

We maintain a managed investment portfolio intended to provide liquidity, maximize risk-adjusted total return, and provide a means to modify our asset/liability position as deemed appropriate. We invest primarily in residential mortgage-backed securities and collateralized mortgage obligations backed by U.S. Government-owned agencies or issued by U.S. Government-sponsored enterprises and bank-qualified tax-exempt obligations of state and local political subdivisions. Under our investment policy, we also may invest in U.S. Treasury, U.S. Agency or other securities. The investment portfolio is one of the tools used to manage our net asset/liability position by countering the interest rate risk characteristics of the loan portfolio. For information regarding our investment portfolio, see "Investment Portfolio Management" of " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in Item 7 and Note 3 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

We also use interest rate derivatives as part of our asset liability management strategy to hedge interest rate risk in our primarily floating-rate loan portfolio to convert certain floating-rate commercial loans to fixed-rate to reduce the variability in forecasted interest cash flows due to market interest rate changes. Depending on market conditions, we may expand or reduce this program and enter into additional interest rate swaps. For more information regarding our use of these cash flow hedges, and their potential impact on interest income and other non-interest income on our Consolidated Statements of Income, see Note 18 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

Competition

We do business in the highly competitive financial services industry. In each of our geographic markets, we compete for loans, deposits, wealth management and other financial services and products with regional, national, and international commercial banks, thrifts, credit unions, investment banks, brokerage firms, money managers, and other providers of financial products and services. The greater Chicago market is particularly competitive as a number of financial services companies are attempting to capitalize on opportunities in the commercial middle market space that have arisen as a result the fragmented nature of the Chicago market and the dislocation of customers in the market as area banks have consolidated. Given current industry trends of flat loan demand, we face pressure on pricing and loan terms for favorable lending relationships including commercial relationships.

Many of the products within the financial services industry have become commoditized over the past few years and therefore competition is very strong. Given the changing nature of the banking industry, we could experience new deposit competition from

a variety of sources including investment banks and finance companies. For private wealth services, we compete with local, regional and national brokerage firms, wealth consulting firms and investment managers, any of which may be either standalone entities or part of larger financial services institutions. Also, because our private wealth division does not create or offer its own propriety investment products, we are not incentivized to encourage clients to purchase our products, thereby enhancing the independent nature of our advice. In mortgage banking, we compete not only with commercial banks, both large and small, that have operations in our locations, but also with mortgage brokers of various sizes. In all areas, we work to distinguish ourselves through consistent delivery of superior levels of personal service, customized solutions and responsiveness expected by our clients.

Some of our competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured state chartered banks, national banks and federal savings banks, and may be able to price loans, deposits and other products and services more aggressively. In addition, other competitors, because of their size or retail branch networks, may have greater access to lower cost capital and/or deposits and therefore may be able to compete more effectively on loan pricing or terms.

We face competition in attracting and retaining qualified employees. Our ability to continue to compete effectively will depend upon the ability to attract new employees and retain and motivate existing employees.

For more information on competition-related and other risks facing the Company, see " Risk Factors " in Item 1A of this Form 10-K.

Segments

For information regarding our business segments, which include Banking, (commercial banking, community banking and the private banking business within private wealth), Trust and Investments and Holding Company Activities, see "Operating Segments Results" of " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in Item 7 and Note 21 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

SUPERVISION AND REGULATION

General

Banking is a highly regulated industry. The following is a summary of certain aspects of various statutes and regulations applicable to PrivateBancorp and its subsidiaries. These summaries are not complete, however, and you should refer to the statutes and regulations for more information. These statutes and regulations may change, or additional statutes or regulations could be adopted, in the future and we cannot predict what effect (if any) these changes or new statutes or regulations, if any, could have on our business or revenues. The supervision, regulation and examination of banks and bank holding companies by bank regulatory agencies are intended primarily for the protection of customers and the banking system in the United States. As such, actions taken by bank regulatory agencies may conflict with or be adverse to the interests of the stockholders of banks and bank holding companies.

Bank Holding Company Regulation

PrivateBancorp is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the "FRB") pursuant to the Bank Holding Company Act of 1956, as amended (the Bank Holding Company Act of 1956, as amended, and the regulations issued thereunder are collectively referred to as the "BHC Act"), and we are subject to regulation, supervision and examination by the FRB.

Minimum Capital Requirements . The FRB adopted risk-based capital requirements for assessing bank holding company capital adequacy. These standards define capital and establish minimum capital ratios in relation to assets, both on an aggregate basis and as adjusted for credit risks and off-balance sheet exposures. Under the FRB's risk-based guidelines, capital is classified into two categories, Tier 1 and Tier 2 capital.

For bank holding companies, Tier 1 capital, or core capital, consists of the following items, all of which are subject to certain conditions and limitations: common stockholders' equity and retained earnings; qualifying noncumulative perpetual preferred stock including related surplus and senior perpetual preferred stock issued to the U.S. Treasury under its TARP including related surplus; qualifying cumulative perpetual preferred stock including related surplus subject to certain limitations; qualifying trust preferred securities; minority interests in the common equity accounts of consolidated subsidiaries; and is reduced by goodwill, specified intangible assets, and certain other assets. For bank holding companies, Tier 2 capital, or supplementary capital, consists of the following items, all of which are subject to certain conditions and limitations: the allowance for loan and lease losses;

perpetual preferred stock and related surplus; hybrid capital instruments, perpetual debt and mandatory convertible debt securities; unrealized holding gains on equity securities; and term subordinated debt and intermediate-term preferred stock.

Under the FRB's current capital guidelines, bank holding companies are required to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which at least 4% must be in the form of Tier 1 capital. The FRB has established a minimum leverage ratio of Tier 1 capital to total assets of 3% for strong bank holding companies (those rated a composite "1" under the FRB's rating system). For all other bank holding companies, the minimum leverage ratio of Tier 1 capital to total assets is 4%. In addition, the FRB continues to consider the Tier 1 leverage ratio (after deducting all intangibles) in evaluating proposals for expansion or other capital allocation activities.

Under its current capital adequacy guidelines, the FRB emphasizes that the foregoing standards are supervisory minimums and that banking organizations generally are expected to operate above the minimum ratios. These guidelines also state that banking organizations experiencing growth, whether internally or by making acquisitions, are expected to maintain strong capital positions substantially above the minimum levels. The FRB may also require a banking organization to maintain capital above the minimum levels based on factors such as the organization's financial condition or anticipated growth.

As of December 31, 2013 , under the FRB's current capital guidelines, our total risk-based capital ratio was 13.30% , our Tier 1 risk-based capital ratio was 11.08% and our leverage ratio was 10.37% . See the "Capital - Capital Management - Capital Measurements" section in Item 7 , " Management’s Discussion and Analysis of Financial Condition and Results of Operations " and Note 17 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K for more information regarding our capital ratios and the minimum regulatory guidelines.

In July 2013, the FRB and other U.S. banking regulators adopted final rules that revise and replace the agencies' current regulatory capital requirements to align with the Basel III international capital standards and to implement certain changes required by the Dodd-Frank Act. The new rules require U.S. banks to hold higher amounts of capital, especially common equity, against their risk-weighted assets. The new capital requirements are higher in both quantity and quality of capital, with compliance required beginning January 1, 2015 (subject to a phase-in period). See the "Dodd-Frank Wall Street Reform and Consumer Protection Act" and "New Regulatory Capital Rules" below for additional information regarding the changes to the regulatory capital requirements.

Source of Strength. Under a longstanding policy of the FRB, a bank holding company is expected to act as a source of financial and managerial strength to its banking subsidiaries and to commit resources to support them. The FRB takes the position that in implementing this policy, it may require a bank holding company to provide financial support to its subsidiaries at times it deems appropriate.

Acquisitions and Activities. The BHC Act requires prior FRB approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With limited exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities that the FRB has determined, by regulation or order, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto, such as owning and operating a savings association, performing functions or activities that may be performed by a trust company, owning a mortgage company, or acting as an investment or financial advisor. The FRB, as a matter of policy, may require a bank holding company to be well-capitalized at the time of filing an acquisition application and upon consummation of the acquisition and will consider the pro forma impact of the proposed transaction on capital adequacy stress testing.

The Gramm-Leach-Bliley Act allows bank holding companies that are in compliance with certain requirements to elect to become "financial holding companies." Financial holding companies may engage in a broader range of activities than is otherwise permitted for bank holding companies. At this time, PrivateBancorp has not elected to become a financial holding company.

Redemptions. Under the BHC Act, bank holding companies are required to provide the FRB with prior written notice of any purchase or redemption of their outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months is equal to 10% or more of their consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by or written agreement with the FRB. This prior notice requirement does not apply to any bank holding company that meets certain well-capitalized and well-managed standards and is not subject to any unresolved supervisory issues.

Tie-in Arrangements. Under the BHC Act and FRB regulations, we are prohibited from engaging in tie-in arrangements in connection with an extension of credit, lease, or sale of property or furnishing of services. Accordingly, we may not condition a client's purchase of one of our services on the purchase of another service, except with respect to traditional banking products.

Interstate Banking and Branching Legislation. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), bank holding companies that are well-capitalized and managed are allowed to acquire banks across state lines subject to certain limitations. States may prohibit interstate acquisitions of banks that have not been in existence for at least five years. The FRB is prohibited from approving an application for acquisition if the applicant controls more than 10% of the total amount of deposits of insured depository institutions nationwide. In addition, interstate acquisitions may also be subject to statewide concentration limits.

Furthermore, under the Interstate Banking Act, banks are permitted, under some circumstances, to merge with one another across state lines and thereby create a main bank with branches in separate states. Approval of interstate bank mergers is subject to certain conditions, including: well-capitalized and well-managed standards, CRA compliance and deposit concentration limits, compliance with federal and state antitrust laws and compliance with applicable state consumer protection laws. After establishing branches in a state through an interstate merger transaction, a bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger could have established or acquired branches under applicable federal and state law. In addition, the Interstate Banking Act, as amended by the Dodd-Frank Act, also now permits a bank, with the approval of the appropriate federal and state bank regulatory agencies, to establish a de novo branch in a state other than the bank's home state if the law of the state in which the branch is to be located would permit establishment of the branch if the out of state bank were a state bank chartered by such state.

Ownership Limitations. Under the Federal Change in Bank Control Act, a person may be required to obtain the prior regulatory approval of the FRB before acquiring the power to directly or indirectly control the management, operations or policies of PrivateBancorp or before acquiring control of 10% or more of any class of our outstanding voting stock. Under the Illinois Banking Act, any acquisition of PrivateBancorp stock that results in a change in control may require prior approval of the Illinois Department of Financial and Professional Regulation.

Dividends. The FRB has issued an updated policy statement on the payment of cash dividends by bank holding companies. In the policy statement, the FRB expressed its view that a bank holding company should inform the FRB and should eliminate, defer or severely limit the payment of dividends if (i) the bank holding company's net income for the past four quarters is not sufficient to fully fund the dividends; (ii) the bank holding company's prospective rate of earnings retention is not consistent with the bank holding company's capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The policy statement also provides that the FRB should be informed in advance prior to declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization's capital structure. Additionally, the FRB possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to prohibit or limit the payment of dividends.

 

In addition to the restrictions on dividends imposed by the FRB, Delaware law also places limitations on the ability of a corporation to pay dividends. Corporations may only pay dividends out of surplus or net profits in accordance with Delaware law. The ability of a holding company to pay dividends may also depend on the receipt of dividends from its banking subsidiaries. During 2011, 2012 and 2013, our subsidiary bank did not make any dividend payments to the holding company and we used the cash maintained at the holding company level to pay dividends.

Bank Regulation

Our subsidiary bank is subject to extensive supervision and regulation by various federal and state authorities. Additionally, as an affiliate of the Bank, PrivateBancorp is also subject, to some extent, to regulation by the Bank's supervisory and regulatory authorities. The Bank is an Illinois state-chartered bank and as such, is subject to supervision and examination by the Illinois Department of Financial and Professional Regulation, as a FRB non-member bank, its primary federal regulator, the FDIC and, as a depository institution with more than $10 billion in assets, the Consumer Financial Protection Bureau (the "CFPB") relative to consumer protection laws.

Regulatory Approvals and Enforcement. Federal and state laws require banks to seek approval by the appropriate federal or state banking agency (or agencies) for any merger and/or consolidation by or with another depository institution, as well as for the establishment or relocation of any bank or branch office and, in some cases to engage in new activities or form subsidiaries.

Federal and state statutes and regulations provide the appropriate bank regulatory agencies with great flexibility and powers to undertake enforcement actions against financial institutions, holding companies or persons regarded as "institution affiliated parties." Possible enforcement actions range from the imposition of a capital plan and capital directive to a cease and desist order, civil money penalties, receivership, conservatorship or the termination of deposit insurance.

Transactions with Affiliates. Federal and state statutes place certain restrictions and limitations on transactions between banks and their affiliates, which include holding companies. Among other provisions, these laws place restrictions upon:

Permissible Activities, Investments and Other Restrictions. Federal and state laws provide extensive limitations on the types of activities in which our subsidiary bank may engage and the types of investments it may make. For example, banks are subject to restrictions with respect to engaging in securities activities, real estate development activities and insurance activities and may invest only in certain types and amounts of securities and may invest only up to certain dollar amount thresholds in their premises.

Monetary Policy. The Bank is affected by the credit policies of the FRB, which regulate the national supply of bank credit. Such regulation influences overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans and paid on deposits. The FRB's monetary policies have had a significant effect on the operating results of commercial banks in the past and this trend is likely to continue in the future.

Dividends. Federal and state laws restrict and limit the dividends the Bank may pay. Under the Illinois Banking Act, the Bank, while continuing to operate a banking business, may not pay dividends of an amount greater than its net profits after deducting losses and bad debts. For the purpose of determining the amount of dividends that an Illinois bank may pay, bad debts are defined as debts upon which interest is past due and unpaid for a period of six months or more unless such debts are well secured and in the process of collection.

In addition to the foregoing, the ability of the Bank to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital standards established under the Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.

Reserve Requirements. The Bank is subject to FRB regulations requiring depository institutions to maintain non-interest-earning reserves against its transaction accounts. For net transaction accounts in 2013, the first $12.4 million of a bank's transaction accounts (subject to adjustments by the FRB) are exempt from the reserve requirements. The FRB regulations generally require 3% reserves on a bank's transaction accounts totaling between $12.4 million and $79.5 million. For transaction accounts totaling over $79.5 million, FRB regulations require reserves of $2.0 million plus 10% of the amount over $79.5 million.

Cross-Guaranty. Under the Federal Deposit Insurance Act ("FDI Act"), an insured institution that is commonly controlled with another insured institution shall generally be liable for losses incurred, or reasonably anticipated to be incurred, by the FDIC in connection with the default of such commonly controlled insured institution, or for any assistance provided by the FDIC to such commonly controlled institution, which is in danger of default.

Standards for Safety and Soundness. The FDI Act, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the FDIC, together with the other federal bank regulatory agencies, to prescribe standards of safety and soundness, by regulations or guidelines, relating generally to operations and management, asset growth, asset quality, earnings, stock valuation and compensation. The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards pursuant to FDICIA. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the federal bank regulatory agencies adopted regulations that authorize, but do not require, the agencies to order an institution that has been given notice that it is not satisfying the safety and soundness guidelines to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the agency

must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. If an institution fails to comply with such an order, the agency may seek to enforce its order in judicial proceedings and to impose civil money penalties. The federal bank regulatory agencies have also adopted guidelines for asset quality and earning standards. State-chartered banks may also be subject to state statutes, regulations and guidelines relating to safety and soundness, in addition the federal requirements.

Capital Requirements and Prompt Corrective Action. FDICIA currently defines five capital levels: "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized."

FDICIA requires the federal banking regulators to take prompt corrective action with respect to depository institutions that fall below minimum capital standards and prohibits any depository institution from making any capital distribution that would cause it to be undercapitalized. Institutions that are not adequately capitalized may be subject to a variety of supervisory actions, including restrictions on growth, investment activities, capital distributions and affiliate transactions, and will be required to submit a capital restoration plan which, to be accepted by the regulators, must be guaranteed in part by any company having control of the institution (for example, the company or a stockholder controlling the company). In other respects, FDICIA provides for enhanced supervisory authority, including greater authority for the appointment of a conservator or receiver for critically undercapitalized institutions. The capital-based prompt corrective action provisions of FDICIA and its implementing regulations apply to FDIC-insured depository institutions. However, federal banking agencies have indicated that, in regulating bank holding companies, the agencies may take appropriate action at the holding company level based on their assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository institutions pursuant to the prompt corrective action provisions of FDICIA. State-chartered banks may also be subject to similar supervisory actions by their respective state banking agencies.

The new capital rules revise the current prompt corrective action requirements. See the "New Regulatory Capital Rules" below.

Insurance of Deposit Accounts. Under FDICIA, the Bank, as a FDIC-insured institution, is required to pay deposit insurance premiums based on the risk it poses to the Deposit Insurance Fund ("DIF"). The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve required ratios in the insurance fund and to impose special additional assessments.

In February 2011, the FDIC approved final rules amending the deposit insurance assessment regulations. The rules implement a provision in the Dodd-Frank Act that broadens the assessment base from one based on domestic deposits to one based on total assets less average tangible equity. In addition to broadening the assessment base, the rules establish a separate risk-based assessment system for "large institutions" with more than $10 billion in assets and for other large, highly complex institutions. Prior to the rules taking effect, the deposit insurance assessment rate for insured institutions was assessed based primarily on capital and supervisory information, including examination ratings and certain other factors. The rules adopted in 2011 eliminated the risk categories for large institutions and made the assessment rate a function of examination ratings, a performance component (which is designed to assess the institution's financial performance and ability to withstand stress), a loss severity component (which is designed to assess the level of potential loss in a failure scenario), and other factors and considerations. Under these rules, large institutions are subject to different minimum and maximum total assessment rate ranges. The ranges are subject to certain adjustments by the FDIC without further rulemaking. The FDIC intends for the new large bank pricing system to result in higher assessments for banks with high-risk asset concentrations, less stable balance sheet liquidity, or potentially higher loss severity in the event of failure. The rules took effect April 1, 2011 and were used to calculate assessments beginning in the second quarter of 2011.

Pursuant to the 2008 Emergency Economic Stabilization Act and the American Recovery and Reinvestment Act of 2009 (each as described more fully below), the maximum deposit insurance on qualifying accounts was increased from $100,000 to $250,000 until December 31, 2013. The Dodd-Frank Act permanently increased the maximum deposit insurance on qualifying accounts to $250,000. Deposit insurance may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Such terminations can only occur, if contested, following judicial review through the federal courts. We do not know of any practice, condition or violation that might lead to termination of deposit insurance for the Bank.

The Dodd-Frank Act also raised the minimum reserve ratio of the DIF from 1.15% to 1.35% of estimated insured deposits, which ratio is required to be attained by September 30, 2020, eliminated the size limit of the DIF, and directed the FDIC to issue a rule establishing a new designated reserve ratio. Pursuant to this directive, the FDIC recently issued a rule setting a designated reserve ratio at 2.0% of insured deposits. These policies may result in increased assessments on certain institutions with more than $10 billion in assets.

Anti-Money Laundering & OFAC Sanctions Programs. The Bank Secrecy Act ("BSA"), as amended by the USA PATRIOT Act of 2001, imposes significant obligations on financial institutions to detect and deter money laundering and terrorist financing.

Financial institutions are required to establish programs designed to implement BSA requirements that include: verifying customer identification, reporting certain large cash transactions, responding to requests for information by law enforcement agencies, and monitoring, investigating and reporting suspicious transactions or activity. The U.S. Treasury's Office of Foreign Assets Control ("OFAC") enforces economic and trade sanctions based on U.S. foreign policy and national security goals against entities such as targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in the proliferation of weapons of mass destruction. We are subject to these rules and have implemented policies, procedures and controls to comply with the anti-money laundering regulations and the OFAC sanctions programs.

Community Reinvestment. Under the Community Reinvestment Act (the "CRA"), a financial institution has a continuing and affirmative obligation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, or limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. However, institutions are rated on their performance in meeting the needs of their communities. Performance is tested in three areas: (a) lending, to evaluate the institution's community lending performance, particularly to low- and moderate income individuals and neighborhoods and small businesses in its assessment areas, taking into account fair lending practices; (b) investment, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and small businesses; and (c) service, to evaluate the institution's delivery of products and services through its branches, and automated teller machines as well as its service to the community. The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions. Less than satisfactory CRA ratings could make it more difficult to obtain regulatory approval of applications and could limit an institution's growth and strategic opportunities.

The CRA requires that all institutions make public disclosure of their CRA ratings. The Bank was assigned a "satisfactory" rating at its most recent CRA examinations completed in 2010. The FDIC commenced its next CRA examination of the Bank in 2013; results of that exam have not yet been issued.

Compliance with Consumer Protection Laws. In addition to CRA, our Bank is subject to many state and federal statutes and regulations designed to protect consumers, such as, privacy laws, the Truth in Lending Act (Regulation Z), the Truth in Savings Act (Regulation DD), the fair lending laws including the Equal Credit Opportunity Act (Regulation B) and the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act (Regulation C) and the Fair and Accurate Credit Transactions Act. Among other things, these statutes and regulations:

As a result of the Dodd-Frank Act, the CFPB now has broad authority to amend existing federal consumer compliance regulations to implement new regulations and to enforce consumer protection laws through supervisory and enforcement actions. See "Dodd-Frank Wall Street Reform and Consumer Protection Act" below.

Real Estate Lending Concentrations. The FDIC, FRB and the Office of the Comptroller of the Currency have issued guidance on concentrations in commercial real estate lending. The guidance reinforces and enhances existing regulations and guidelines for safe and sound real estate lending. The guidance provides supervisory criteria, including numerical indicators to assist in identifying institutions with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny. The guidance focuses on institutions properly identifying whether they have a commercial real estate concentration and, if so, instituting the appropriate risk management procedures and increasing capital so that it is commensurate with the risk of having such a concentration.

Allowance for Loan and Lease Losses. In December 2006, the federal bank regulatory agencies issued an Interagency Policy Statement revising their previous policy on the Allowance for Loan and Lease Losses ("ALLL"), which was issued in 1993. The policy statement was updated to ensure consistency with U.S. generally accepted accounting principles ("U.S. GAAP") and post-1993 supervisory guidance. According to the revised policy statement, the ALLL represents one of the most significant estimates in an institution's financial statements and regulatory reports. Because of its significance, each institution has a responsibility for developing, maintaining and documenting a comprehensive, systematic, and consistently applied process appropriate to its size and the nature, scope, and risk of its lending activities for determining the amounts of the ALLL and the provision for loan and lease losses.

The policy statement provides that to fulfill this responsibility, each institution should ensure controls are in place to consistently determine the ALLL in accordance with U.S. GAAP, the institution's stated policies and procedures, management's best judgment and relevant supervisory guidance. Consistent with long-standing supervisory guidance, the policy states that institutions must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Estimates of credit losses should reflect consideration of all significant factors that affect the collectability of loans in the portfolio as of the evaluation date. Arriving at an appropriate allowance involves a high degree of management judgment and results in a range of estimated losses.

2008 Emergency Economic Stabilization Act and American Recovery and Reinvestment Act of 2009

On October 3, 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act ("EESA"). EESA authorized the Secretary of the U.S. Treasury to purchase up to $700 billion in troubled assets from qualifying financial institutions pursuant to the TARP. On October 14, 2008, the U.S. Treasury, pursuant to its authority under EESA, announced the CPP. Pursuant to the CPP, qualifying public financial institutions could issue senior preferred stock to the U.S. Treasury. The proceeds from the issuance of preferred stock were included in the financial institution's Tier 1 capital. Financial institutions participating in the CPP were required to comply with certain restrictions, including restrictions on redemption, dividends, repurchases and executive compensation as well as additional restrictions later imposed under the American Recovery and Reinvestment Act of 2009 (the "Recovery Act").

In January 2009, we closed a transaction with the U.S. Treasury in order to participate in the CPP and issued preferred stock to the U.S. Treasury equal to $243.8 million and a warrant to purchase shares of common stock at an exercise price of $28.35 per share. We repurchased all of the preferred stock held by the U.S. Treasury in October 2012 and we repurchased the warrant in November 2012. The following executive compensation provisions of the Recovery Act are still applicable to the Company:

Dodd-Frank Wall Street Reform and Consumer Protection Act

In July 2010, President Obama signed into law the Dodd-Frank Act which has already significantly changed the financial regulatory landscape and will continue to affect the operating activities of financial institutions and their holding companies, as well as others. Although the full impact of the Dodd-Frank Act reforms on our business and revenues remain uncertain, the expected burden of compliance with the Dodd-Frank Act and its implementing rules and regulations (some of which are final while others are pending issuance or not yet proposed) is expected to increase our operating costs and reduce revenues. The Dodd-Frank Act includes provisions that, among other things:

New Regulatory Capital Rules

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

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

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

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

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

In a change to existing capital treatment, unrealized gains and losses on certain debt and equity securities available-for-sale will be included as a component of Tier 1 capital unless the financial institution makes a one-time "opt out" election to continue to exclude these gains and losses from its regulatory capital.

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

Based on the grandfathering of our existing trust preferred securities, we do not currently anticipate significant changes to our business strategy in order to achieve compliance with these capital rules. In evaluating the potential impact of the final rules on us, we have focused primarily on the following:

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

We have conducted a pro forma analysis of the application of these new capital requirements as of December 31, 2013 and determined that the Company and Bank would meet all minimum capital requirements under the Basel III capital rules on a fully phased-in basis if such requirements were then in effect. Based on the pro forma analysis, the changes in the capital ratio calculations under the new framework did not have a material impact on our December 31, 2013 reported capital ratios.

 

Volcker Rule

On December 10, 2013, the federal banking agencies and the SEC adopted final rules implementing the "Volcker Rule" which is a part of Dodd-Frank, and generally prohibits (subject to limited exceptions) banking entities from (1) engaging in short-term proprietary trading for their own accounts, and (2) investing in and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The rule effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading and limits the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The regulations also impose numerous quantitative data reporting obligations for banking entities with significant trading activities and enhanced compliance requirements. Although the Volcker Rule provides some tiering of compliance and reporting obligations based on size and scope of activities, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Company and the Bank. The final rule becomes effective April 1, 2014 and generally requires full compliance with the new restrictions by July 21, 2015. We do not anticipate any difficulty achieving compliance with the final requirements of the Volcker Rule within the applicable regulatory timelines, nor do we anticipate any significant financial impact on the Company.

AVAILABLE INFORMATION

We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). These filings are available to the public over the Internet, free of charge through the investor relations section of our website at http://investor.theprivatebank.com and through the SEC's website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington D.C. 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facility.

The following documents can be accessed through our web site or are available in print upon the request of any stockholder to our corporate secretary:

Within the time period required by the SEC and The NASDAQ Stock Market, we will post on our web site any substantive amendment to our code of ethics and any waiver to the code of ethics applicable to any of our executive officers or directors. In addition, our website includes information concerning purchases and sales of our securities by our executive officers and directors. References to our website addressed in this report are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.

Our corporate secretary can be contacted by writing to PrivateBancorp, Inc., 120 South LaSalle Street, Chicago, Illinois 60603, Attn: Corporate Secretary. Our investor relations department can be contacted by telephone at (312) 564-2000.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Forward-looking statements are subject to risks, assumptions and uncertainties and could be significantly affected by many factors, including those set forth in the " Risk Factors " and " Management’s Discussion and Analysis of Financial Condition and Results of Operations " sections of this Form 10-K as well as those set forth in our subsequent periodic and current reports filed with the SEC. These factors should be considered in evaluating forward-looking statements and undue reliance should not be placed on our forward-looking statements. 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.