See "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995," on page 69 in connection with "forward-looking" statements included in this report.

RESULTS OF OPERATIONS

Critical Accounting Policies

The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles. The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified seven policies as being critical because they require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, contingent assets and liabilities, and revenues and expenses included in the consolidated financial statements. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Circumstances and events that differ significantly from those underlying the Company's estimates, assumptions and judgments could cause the actual amounts reported to differ significantly from these estimates.

The Company's critical accounting policies include those that address the accounting for financial assets and liabilities reported at fair value, securities, allowance for loan and lease losses and reserve for off-balance sheet credit commitments, share-based compensation plans, goodwill and other intangible assets, derivatives and hedging activities and income taxes. The Company has not made any significant changes in its critical accounting policies or its estimates and assumptions from those disclosed in its 2008 Annual Report.

The Company, with the concurrence of the Audit & Risk Committee, has reviewed and approved these critical accounting policies, which are further described in Management's Discussion and Analysis and in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in the Company's Form 10-K as of December 31, 2008. Management has applied its critical accounting policies and estimation methods consistently in all periods presented in these financial statements.

Several new accounting pronouncements became effective for the Company on January 1, 2009. See Note 1 of the Notes to the Unaudited Consolidated Financial Statements in this Form 10-Q for a summary of the pronouncements and discussion of the impact of their adoption on the Company's consolidated financial statements.

References to net income and earnings per share in the discussion that follows are based on net income attributable to the Company after deducting net income attributable to noncontrolling interest.

RECENT DEVELOPMENTS

Recessionary conditions continue to affect the Company in the third quarter of 2009. California and Nevada, in particular, experienced declines in real estate values, rising unemployment rates and sluggish consumer spending. The weak economy, extraordinarily low interest rates, continuing credit costs, higher FDIC costs for all banks, and dividends on preferred stock held by the United States Department of the Treasury ("Treasury"), had a negative impact on third quarter earnings. Refer to "Item 1A-Risk Factors" for further discussion of business and economic conditions.

On August 26, 2009, the Company announced plans to acquire a San Jose branch owned by Westamerica Bank. The Company will acquire the branch's deposits and a portion of its loan portfolio. The acquisition is expected to close in the fourth quarter of 2009.

On July 21, 2009, the Company acquired a majority interest in Lee Munder Capital Group ("LMCG"), a Boston-based investment firm that manages assets for corporations, pensions, endowments and affluent households. LMCG was merged with Independence Investments, a Boston-based institutional asset management firm in which the Company holds a majority interest. The combined company operates under the Lee Munder Capital Group name and as an affiliate of Convergent Capital Management LLC, the Chicago-based asset management holding company that the Company acquired in 2003.

On July 15, 2009, the Bank issued a $50 million unsecured subordinated note to a third party investor. The subordinated note bears a 9 percent fixed rate of interest for five years, thereafter, the rate is reset at the Bank's option to either LIBOR plus 600 basis points or to prime plus 500 basis points. The note matures on July 15, 2019. On August 12, 2009, the Bank issued $130 million in subordinated notes of which $55 million were floating rate subordinated notes and $75 million were

fixed rate subordinated notes. The fixed rate subordinated notes bear a fixed interest rate of 9 percent. The floating rate subordinated notes bear a fixed interest rate of 9 percent for the initial five years from the date of issuance and thereafter bear an interest rate equal to the three-month LIBOR rate plus 6 percent. The rate is reset quarterly and is subject to an interest rate cap of 10 percent throughout the term of the notes. These subordinated notes mature on August 12, 2019. The subordinated notes qualify as Tier 2 capital for regulatory purposes.

The Company has extended through June 30, 2010 its participation in the Federal Deposit Insurance Corporation's ("FDIC") Transaction Account Guarantee Program. Under this FDIC program, all non-interest bearing transaction accounts and certain interest bearing checking accounts where the interest rate cannot exceed 0.50 percent are fully guaranteed by the FDIC for the full amount in the account. Coverage under this program is in addition to and separate from the coverage available under the FDIC's general deposit insurance rules.

HIGHLIGHTS

† For the quarter ended September 30, 2009, consolidated net income was $8.0 million and consolidated net income available to common shareholders was $2.5 million, or $0.05 per diluted common share. For the year-earlier quarter, consolidated net income and consolidated net income available to common shareholders was $16.6 million, or $0.34 per diluted common share. Net income available to common shareholders for 2009 reflects net income less dividends on preferred stock related to the Company's participation in the Treasury's Capital Purchase Program. The decrease in net income available to common shareholders is primarily due to a $85.0 million provision for credit losses recorded during the third quarter of 2009, as compared to a $35.0 million provision during the third quarter of 2008.

† Revenue for the third quarter of 2009 was $230.2 million, an increase of 5 percent from the second quarter of 2009 and 13 percent from the third quarter of 2008, due principally to increased average securities balances, lower funding costs and a net securities gain.

† Fully taxable-equivalent net interest income amounted to $164.9 million for the third quarter of 2009, up 5 percent from the same period last year and 4 percent from the second quarter of 2009.

† The Company's net interest margin was 3.94 percent in the third quarter of 2009, down 4 basis points from the second quarter of 2009.

† Noninterest income totaled $68.8 million in the third quarter of 2009, an increase of 37 percent from $50.1 million for the year-earlier quarter, reflecting significant securities losses in the year-earlier quarter compared to net securities gains in the third quarter of 2009. Noninterest income was up 7 percent from $64.3 million in the second quarter of 2009, largely due to an increase in wealth management fees stemming from improved market conditions and the July 21, 2009 acquisition of LMCG, which manages assets primarily for institutional investors.

† Third quarter noninterest expense was down slightly from the second quarter of 2009 and down 2 percent from the third quarter of 2008.

† The Company recognized a tax benefit of $7.0 million, which was primarily attributable to an updated effective tax rate based on lower expected taxable income for the year. The Company's effective tax rate for the third quarter of last year was 18.3 percent.

† Total assets grew to a record $18.40 billion at September 30, 2009, up 4 percent from $17.66 billion at June 30, 2009 and up 13 percent from $16.33 billion at September 30, 2008, largely reflecting the Company's strong deposit growth. Total average assets increased to $17.94 billion for the third quarter of 2009 from $17.37 billion for the second quarter of 2009 and $16.12 billion for the third quarter of 2008.

† Average loan and lease balances were $12.34 billion for the third quarter of 2009, up 1 percent from $12.23 billion for the year-earlier quarter, and down slightly from $12.35 billion from the second quarter of 2009. In the third quarter of 2009, the Company renewed approximately $1.3 billion of loans and made approximately $675 million in new loan commitments. About $386 million of these commitments were funded.

† The allowance for loan and lease losses increased to $265.0 million at September 30, 2009, from $256.0 million at June 30, 2009 and $208.0 million at September 30, 2008. The Company's allowance equals 2.18 percent of total loans and leases at September 30, 2009, compared with 2.06 percent at June 30, 2009 and 1.69 percent at September 30, 2008. The Company also maintains an additional $19.6 million in reserves for off-balance sheet credit commitments. At September 30, 2009, nonperforming assets amounted to $452.2 million, compared with $396.3 million at June 30, 2009.

† Nonaccrual loans totaled $408.3 million at September 30, 2009, up from $378.3 million as of June 30, 2009, and $150.9 million at September 30, 2008. Net loan charge-offs were $76.9 million, or 2.47 percent of average total loans and leases on an annualized basis, for the third quarter of 2009, up from $56.7 million, or 1.84 percent, in the second quarter of 2009 and $12.8 million, or 0.42 percent, in the year-earlier quarter.

† Average securities for the third quarter of 2009 totaled $3.63 billion, an increase of 8 percent from $3.36 billion for the second quarter of 2009 and an increase of 54 percent from $2.36 billion for the third quarter of 2008, as increased capital was invested in high-grade, fixed-income instruments.

† Average deposit balances grew to a record $14.78 billion for the third quarter of 2009, up 26 percent from $11.74 billion for the third quarter of 2008 and 5 percent from $14.02 billion for the second quarter of 2009. Average core deposits of $13.56 billion for the third quarter of 2009 grew 29 percent from the third quarter of 2008 and 7 percent from the second quarter of 2009 and amounted to 92 percent of total average deposit balances. Period-end deposits also grew to a record $15.11 billion at September 30, 2009, up 24 percent from $12.17 billion at September 30, 2008 and 4 percent from $14.50 billion at June 30, 2009.

† The Company further strengthened its capital position in the third quarter of 2009 by completing the sale of approximately $180 million of subordinated debt. Proceeds from the sales of these securities will qualify as Tier 2 capital for regulatory purposes. The subordinated debt sale followed the Company's second-quarter common equity offering, which raised $120 million. The Company's ratio of Tier 1 common shareholders' equity to risk-based assets was 9.22 percent at September 30, 2009. Recent regulatory guidelines for the banking industry call for a minimum of 4.0 percent. Refer to the "Capital Adequacy Requirement" section starting on page 64 for further discussion of this non-GAAP measure. The Company's third quarter ratio of total equity to total assets was 12.06 percent, compared to 12.31 percent at June 30, 2009. The modest decline in this ratio reflects the growth of assets.

OUTLOOK

Management continues to expect that the Company will remain modestly profitable in 2009.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a fully taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. The following tables present the components of net interest income on a fully taxable-equivalent basis for the three months and nine months ended September 30, 2009 and 2008:

                                                Net Interest Income Summary
                             For the three months ended             For the three months ended
                                 September 30, 2009                     September 30, 2008
                                        Interest    Average                    Interest    Average
                          Average       income/     interest     Average       income/     interest
                                        expense                                expense
(in thousands)            Balance        (1)(4)       rate       Balance        (1)(4)       rate
Assets (2)
Interest-earning
assets
Loans and leases
Commercial              $  4,723,633   $   50,691       4.26 % $  4,727,185   $   62,931       5.30 %
Commercial real
estate mortgages           2,144,631       29,660       5.49      2,094,914       34,344       6.52
Residential mortgages      3,528,055       48,533       5.50      3,335,160       46,882       5.62
Real estate
construction               1,078,833        9,727       3.58      1,403,706       17,808       5.05
Equity lines of
credit                       687,143        6,072       3.51        513,061        5,592       4.34
Installment                  176,810        2,263       5.08        156,553        2,318       5.89
Total loans and
leases (3)                12,339,105      146,946       4.72     12,230,579      169,875       5.53
Due from banks -
interest-bearing             204,255          259       0.50         94,459          440       1.85
Federal funds sold
and securities
purchased under
resale agreements            338,044          130       0.15          5,242           24       1.88
Securities
available-for-sale         3,559,512       35,849       4.03      2,240,698       27,814       4.97
Trading securities            70,820           32       0.18        118,240          576       1.94
Other
interest-earning
assets                        75,999          721       3.76         78,629        1,168       5.92
Total
interest-earning
assets                    16,587,735      183,937       4.40     14,767,847      199,897       5.39
Allowance for loan
and lease losses            (260,223 )                             (182,183 )
Cash and due from
banks                        308,014                                375,307
Other non-earning
assets                     1,302,705                              1,159,613
Total assets            $ 17,938,231                           $ 16,120,584

Liabilities and
Equity (2)
Interest-bearing
deposits
Interest checking
accounts                $  1,637,211   $    1,018       0.25   $    826,304   $    1,495       0.72
Money market accounts      4,231,706        7,029       0.66      3,780,027       15,961       1.68
Savings deposits             262,483          426       0.64        137,712          153       0.44
Time deposits - under
$100,000                     210,968          560       1.05        213,436        1,549       2.89
Time deposits -
$100,000 and over          1,220,790        3,821       1.24      1,222,287        7,531       2.45
Total
interest-bearing
deposits                   7,563,158       12,854       0.67      6,179,766       26,689       1.72

Federal funds
purchased and
securities sold under
repurchase agreements        234,213        2,016       3.41      1,357,166        7,767       2.28
Other borrowings             510,826        4,208       3.27      1,116,500        8,346       2.97
Total
interest-bearing
liabilities                8,308,197       19,078       0.91      8,653,432       42,802       1.97
Noninterest-bearing
deposits                   7,213,764                              5,557,354
Other liabilities            212,050                                251,985
Total equity               2,204,220                              1,657,813
Total liabilities and
equity                  $ 17,938,231                           $ 16,120,584

Net interest spread                                     3.49 %                                 3.42 %
Fully
taxable-equivalent
net interest and
dividend income                        $  164,859                             $  157,095
Net interest margin                                     3.94 %                                 4.23 %
Less: Dividend income
included in other
income                                        721                                  1,168
Fully
taxable-equivalent
net interest income                    $  164,138                             $  155,927

(2) Certain prior period balances have been reclassified to conform to the current period presentation.

(3) Includes average nonaccrual loans of $378,297 and $128,221 for 2009 and 2008, respectively.

(4) Loan income includes loan fees of $4,602 and $4,785 for 2009 and 2008, respectively.

                                                Net Interest Income Summary
                             For the nine months ended              For the nine months ended
                                 September 30, 2009                     September 30, 2008
                                        Interest    Average                    Interest    Average
                          Average       income/     interest     Average       income/     interest
                                        expense                                expense
(in thousands)            Balance        (1)(4)       rate       Balance        (1)(4)       rate
Assets (2)
Interest-earning
assets
Loans and leases
Commercial              $  4,733,345   $  149,710       4.23 % $  4,619,699   $  194,081       5.61 %
Commercial real
estate mortgages           2,173,984       91,687       5.64      2,026,798      100,417       6.62
Residential mortgages      3,463,277      143,648       5.53      3,261,983      137,028       5.60
Real estate
construction               1,154,056       28,193       3.27      1,445,672       61,227       5.66
Equity lines of
credit                       663,905       17,153       3.45        474,050       16,962       4.78
Installment                  174,147        6,617       5.08        165,603        7,561       6.10
Total loans and
leases (3)                12,362,714      437,008       4.73     11,993,805      517,276       5.76
Due from banks -
interest-bearing             178,146          705       0.53         89,173        1,491       2.23
Federal funds sold
and securities
purchased under
resale agreements            122,536          145       0.16          7,371          147       2.66
Securities
available-for-sale         3,042,393       95,772       4.20      2,345,649       85,950       4.89
Trading securities            99,276          467       0.63         99,496        1,598       2.15
Other
interest-earning
assets                        75,264        2,007       3.57         76,329        3,219       5.63
Total
interest-earning
assets                    15,880,329      536,104       4.51     14,611,823      609,681       5.57
Allowance for loan
and lease losses            (247,285 )                             (170,055 )
Cash and due from
banks                        322,187                                380,252
Other non-earning
assets                     1,289,956                              1,152,265
Total assets            $ 17,245,187                           $ 15,974,285

Liabilities and
Equity (2)
Interest-bearing
deposits
Interest checking
accounts                $  1,376,543   $    2,892       0.28   $    838,672   $    4,419       0.70
Money market accounts      4,081,099       25,506       0.84      3,709,868       53,974       1.94
Savings deposits             216,895        1,101       0.68        135,097          367       0.36
Time deposits - under
$100,000                     221,873        2,626       1.58        213,693        4,976       3.11
Time deposits -
$100,000 and over          1,330,984       16,358       1.64      1,231,350       29,075       3.15
Total
interest-bearing
deposits                   7,227,394       48,483       0.90      6,128,680       92,811       2.02

Federal funds
purchased and
securities sold under
repurchase agreements        474,715        6,279       1.77      1,254,052       25,009       2.66
Other borrowings             510,057        9,210       2.41      1,142,866       28,108       3.29
Total
interest-bearing
liabilities                8,212,166       63,972       1.04      8,525,598      145,928       2.28
Noninterest-bearing
deposits                   6,660,131                              5,522,594
Other liabilities            238,833                                257,707
Total equity               2,134,057                              1,668,386
Total liabilities and
equity                  $ 17,245,187                           $ 15,974,285

Net interest spread                                     3.47 %                                 3.29 %
Fully
taxable-equivalent
net interest and
dividend income                        $  472,132                             $  463,753
Net interest margin                                     3.97 %                                 4.24 %
Less: Dividend income
included in other
income                                      2,007                                  3,219
Fully
taxable-equivalent
net interest income                    $  470,125                             $  460,534

(2) Certain prior period balances have been reclassified to conform to the current period presentation.

(3) Includes average nonaccrual loans of $338,383 and $112,377 for 2009 and 2008, respectively.

(4) Loan income includes loan fees of $13,068 and $13,601 for 2009 and 2008, respectively.

Net interest income was $161.3 million for the third quarter of 2009, compared to $152.8 million for the same quarter last year and $155.6 million for the second quarter of 2009. Fully taxable-equivalent net interest and dividend income totaled $164.9 million for the third quarter of 2009, compared with $157.1 million for the same quarter last year and $158.9 million for the second quarter of 2009.

                                For the three months ended                    For the three
                                      September 30,                 %         months ended         %
(in millions)                     2009              2008          Change      June 30, 2009      Change
Average Loans and Leases     $     12,339.1    $     12,230.6           1    $      12,354.3          (0 )
Average Total Securities            3,630.3           2,358.9          54            3,364.2           8
Average Earning Assets             16,587.7          14,767.8          12           16,003.3           4
Average Deposits                   14,776.9          11,737.1          26           14,023.3           5
Average Core Deposits              13,556.1          10,514.8          29           12,711.8           7
Fully Taxable-Equivalent
Net Interest Income                   164.9             157.1           5              158.9           4
Net Interest Margin                    3.94 %            4.23 %        (7 )             3.98 %        (1 )

The Company's yield on earning assets for the third quarter of 2009 was 4.40 percent, down from 5.39 percent for the third quarter of 2008 and 4.49 percent for the second quarter of 2009. The Bank's average prime rate declined 175 basis points to 3.25 percent in the third quarter of 2009 from 5.00 percent for the year-earlier quarter, and remained unchanged from the second quarter of 2009. The net interest margin for the third quarter of 2009 was 3.94 percent, compared with 4.23 percent and 3.98 percent for the quarters ended September 30, 2008 and June 30, 2009, respectively. Lower funding costs and growth in noninterest-bearing deposits reduced the impact of the 99 basis point decrease in the yield on earning assets compared with the year-earlier quarter.

Average loan and lease balances grew to $12.34 billion for the third quarter of 2009, an increase of 1 percent over $12.23 billion for the year-earlier quarter and a slight decrease from $12.35 billion for the second quarter of 2009. The following table provides information on average loan balances by type:

                               For the three months ended                   For the three
                                     September 30,                 %        months ended         %
Average Loans (in
millions)                        2009              2008         Change      June 30, 2009      Change
Commercial                  $      4,723.6    $      4,727.2         (0 )% $       4,720.9           0 %
Commercial real estate
mortgages                          2,144.6           2,094.9          2            2,177.7          (2 )
Residential mortgages              3,528.1           3,335.2          6            3,454.1           2
Real estate construction           1,078.8           1,403.7        (23 )          1,153.3          (6 )
Equity lines of credit               687.2             513.1         34              674.1           2
Other loans                          176.8             156.5         13              174.2           1
Total Loans                 $     12,339.1    $     12,230.6          1 %  $      12,354.3          (0 )%

Average commercial loans were virtually unchanged from both the third quarter of 2008 and the second quarter of 2009. Average commercial real estate loans grew 2 percent from the third quarter of 2008 and decreased 2 percent from the second quarter of 2009. Average single family residential mortgage loans, nearly all of which are made to the Company's private banking clients, increased 6 percent from the third quarter of last year and 2 percent from the second quarter of 2009. The residential mortgage loan portfolio has an average loan-to-value ratio of 49 percent at origination and continues to perform well. Average construction loans decreased 23 percent from the same period a year ago and 6 percent from the second quarter of 2009. The construction portfolio is diverse in terms of geography and product type. It consists primarily of recourse loans to well-established real estate developers and are generally located in established urban markets. Most of these developers are clients with whom the Bank has significant long-term relationships. The construction loan portfolio . . .