Summary of PRIVATEBANCORP, INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
PrivateBancorp, Inc. ("PrivateBancorp" or the "Company") was incorporated in Delaware in 1989 for the purpose of becoming a holding company registered under the Bank Holding Company Act of 1956, as amended (the "Act"). PrivateBancorp, through its PrivateBank subsidiaries (the "Banks"), provides customized business and personal financial services to middle-market commercial and commercial real estate companies, as well as business owners, executives, entrepreneurs and families in all of the markets we serve. We seek to develop lifetime relationships with our clients. Through a team of highly-qualified managing directors, the Banks deliver a sophisticated suite of tailored credit and non-credit solutions, including lending, treasury management, investment products, capital markets products and wealth management and trust services, to meet their clients' commercial and personal needs. Since our inception, we have expanded into multiple geographic markets in the Midwest and Southeastern United States through the creation of new banks and banking offices and the acquisition of existing banks. Our clients also have access to mortgage loans offered through The PrivateBank Mortgage Company, a subsidiary of PrivateBancorp. The discussion presented below provides an analysis of our results of operations and financial condition for the quarters and nine months ended September 30, 2009 and 2008. When we use the terms "PrivateBancorp," the "Company," "we," "us," and "our," we mean PrivateBancorp, Inc. and its consolidated subsidiaries. When we use the term the "the Banks," we are referring to our wholly owned banking subsidiaries, known under The PrivateBank brand. Management's discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes presented elsewhere in this report, as well as our audited consolidated financial statements and accompanying notes included in our 2008 Annual Report on Form 10-K. Results of operations for the quarter and nine months ended September 30, 2009 are not necessarily indicative of results to be expected for the year ending December 31, 2009. Unless otherwise stated, all earnings per share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but instead represent only management's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Although we believe the expectations reflected in any forward-looking statements are reasonable, it is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in such statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "could," "would," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "project," "potential," or "continue," and the negative of these terms and other comparable terminology. These forward-looking statements include statements relating to our projected growth, anticipated future financial performance and management's long-term performance goals. Forward-looking statements also include statements that anticipate the effects on our financial condition and results of operations from expected developments or events, such as the implementation of internal and external business and growth plans and strategies.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our financial condition, results of operations and future prospects include, but are not limited to:
• continued deterioration of general economic and business conditions, including the real estate and financial markets, in the U.S. and in our markets,

• further deterioration in asset quality, including transactions extended directly for commercial real estate property investment, and to investors in real estate projects,

• difficult commercial real estate market conditions; collateral values and absorption of projects available for lease remaining soft,

• the effect of continuing weak economic conditions on industry segments, in addition to commercial real estate, causing an increase in under-performing and non-performing loans,

• changes in legal or regulatory requirements or the results of regulatory examinations that could adversely impact our business and financial condition or restrict growth, including our ability to pursue FDIC-assisted transactions,

• additional adverse developments in our loan or investment portfolios,

• any need to continue to further increase our allowance for loan losses,

Table of Contents

• unforeseen difficulties, higher than expected costs and the inability to manage operational risks associated with the continued execution of our Strategic Growth Plan,

• fluctuations in market rates of interest and loan and deposit pricing in our market areas,

• the effect of margin pressure on our earnings,

• the failure to obtain on terms acceptable to us, or at all, the capital necessary to fund our growth and maintain our regulatory capital ratios, or those of our subsidiary banks, above the "well-capitalized" threshold,

• any charges related to asset impairments, including the impact of future losses on our deferred tax asset in future periods,

• inability to effectively manage interest rate risk, market risk, credit risk and operational risk,

• insufficient liquidity or funding sources or our inability to obtain the cost-effective funding necessary to fund our loan growth on terms that are acceptable to us,

• failure to capitalize on growth opportunities and to realize cost savings in connection with acquisitions,

• slower than anticipated growth of our business or business declines, including as a result of continuing negative economic conditions,

• inability to retain top management personnel due to inadequate incentive compensation arrangements, or legislation or regulations that restrict executive compensation,

• unforeseen difficulties relating to the mergers and integrations of our subsidiary banks,

• inability to comply with any requirements imposed on us or our subsidiary banks by our regulators, and the potential negative consequences that may result,

• statutory and regulatory restrictions and/or limitations on our ability to pay dividends or on our subsidiary banks' ability to pay dividends to us,

• unforeseen difficulties relating to the acquisition and integration of businesses acquired in purchase and assumption transactions, including certain assets of the former Founders Bank,

• competition,

• failure to improve operating efficiencies through expense controls,

• the possible dilutive effect of potential acquisitions, expansion or future capital raises, and

• risks and other factors set forth in Item 1A, "Risk Factors," of our Annual Report on Form 10-K and Item 1A in this Form 10-Q.

Because of these and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made. We are not undertaking an obligation to update these forward-looking statements, even though our situation may change in the future, except as required under federal securities law. We qualify all of our forward-looking statements by these cautionary statements.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and are consistent with predominant practices in the financial services industry. Critical accounting policies are those policies that management believes are the most important to our financial position and results of operations. Application of critical accounting policies requires management to make estimates, assumptions, and judgments based on information available at the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.
We have numerous accounting policies, of which the most significant are presented in Note 1, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements of our 2008 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other consolidated financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that our accounting policies with respect to the allowance for loan losses, goodwill and intangible assets, and income taxes are the accounting areas requiring subjective or complex judgments that are most important to our financial position and results of operations, and, as such, are considered to be critical accounting policies, as discussed below.

Table of Contents

Allowance for Loan Losses
We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in our loan portfolio. The allowance for loan losses represents our estimate of probable losses in the portfolio at each balance sheet date and is based on a review of available and relevant information. The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships as well as probable losses inherent in our loan portfolio and credit undertakings that are not specifically identified. Our allowance for loan losses is assessed monthly to determine the appropriate level of the allowance. The amount of the allowance for loan losses is determined based on a variety of factors, including, among other factors, assessment of the credit risk of the loans in the portfolio, delinquent loans, impaired loans, evaluation of current economic conditions in the market area, actual charge-offs and recoveries during the period, industry loss averages and historical loss experience.
Management adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at the level determined appropriate. Loans are charged-off when deemed to be uncollectible by management.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net assets acquired using the purchase method of accounting. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. We test goodwill at least annually for impairment or more often if events or circumstances indicate that there may be impairment. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.
Goodwill is allocated to business segments at acquisition. Fair values of reporting units are determined using either market-based valuation multiples for comparable businesses if available, or discounted cash flow analyses based on internal financial forecasts. If the fair value of a reporting unit exceeds its net book value, goodwill is considered not to be impaired.
Identified intangible assets that have a finite useful life are amortized over that life in a manner that reflects the estimated decline in the economic value of the identified intangible asset and are subject to impairment testing whenever events or changes in circumstances indicate that the carrying value may not be recoverable. All of the other intangible assets have finite lives which are amortized over varying periods not exceeding 15 years and include core deposit premiums that use an accelerated method of amortization and client relationship intangibles and assembled workforce which are amortized on a straight line basis.
Income Taxes
The determination of income tax expense or benefit, and the amounts of current and deferred income tax assets and liabilities are based on a complex analyses of many factors, including interpretation of federal and state income tax laws, current financial accounting standards, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), assessments of the likelihood that the reversals of deferred deductible temporary differences will yield tax benefits and estimates of reserves required for tax uncertainties.
We are subject to the federal income tax laws of the United States and the tax laws of the states and other jurisdictions where we conduct business. We periodically undergo examination by various governmental taxing authorities. Such agencies may require that changes in the amount of tax expense be recognized when their interpretations of tax law differ from those of management, based on their judgments about information available to them at the time of their examinations. There can be no assurance that future events, such as court decisions, new interpretations of existing law or positions by federal or state taxing authorities, will not result in tax liability amounts that differ from our current assessment of such amounts, the impact of which could be significant to future results.
Temporary differences may give rise to deferred tax assets or liabilities, which are recorded on our Consolidated Statements of Financial Condition. We assess the likelihood that deferred tax assets will be realized in future periods based on weighing both positive and negative evidence and establish a valuation allowance for those deferred tax assets for which recovery is unlikely, based on a standard of "more likely" than not. In making this assessment, we must make judgments and estimates regarding the ability to realize these assets through:
(a) the future reversal of existing taxable temporary differences, (b) future taxable income, (c) the possible application of future tax planning strategies, and (d) carryback to taxable income in prior years. We have not established a valuation allowance relating to our deferred tax assets at September 30, 2009. However, there is no guarantee that the tax benefits associated with these deferred tax assets will be fully realized. We have concluded, as of September 30, 2009, that it is more likely than not that such tax benefits will be realized.

Table of Contents

In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income tax laws for which the outcome of such positions may not be certain. We periodically review and evaluate the status of uncertain tax positions and may establish tax reserves for estimates of amounts that may ultimately be due or owed (including interest). These estimates may change from time to time based on our evaluation of developments subsequent to the filing of the income tax return, such as tax authority audits, court decisions or other tax law interpretations. There can be no assurance that any tax reserves will be sufficient to cover tax liabilities that may ultimately be determined to be owed. At September 30, 2009, we had $667,000 of tax reserves established relating to uncertain tax positions that would favorably affect the Company's effective tax rate if recognized in future periods.
THIRD QUARTER PERFORMANCE OVERVIEW
Overview
The Company reported a net loss of $31.2 million, or $0.68 per diluted share, for the third quarter ended September 30, 2009, compared with a net loss of $7.8 million, or $0.25 per diluted share, for the third quarter 2008. For the nine months ended September 30, 2009, the net loss was $23.9 million, or $0.62 per diluted share, compared to a net loss of $30.7 million, or $1.07 per diluted share, for the prior year period. Earnings for the third quarter 2009 were negatively impacted by ongoing weakness in the economy and in particular its impact on our commercial real estate borrowers, which directly impacted the performance of our loan portfolio and the amount of provision we recorded to maintain our allowance for loan losses in an amount adequate for GAAP accounting purposes. Despite the earnings setback this quarter, we believe we continue to meet many of the goals of our Strategic Growth Plan (the "Plan") announced in the fourth quarter 2007 and remain well-positioned to seize market opportunities that drive long-term shareholder value. We continue to be selective in the clients we choose to do business with, opting for people and businesses we know and with which we have relationships. Based on our strategy, loans and deposits, due in large part to the FDIC-assisted acquisition of Founders Bank, have continued to grow. Notable items for the third quarter 2009 include:
• provision for loan losses was $90.0 million and net charge-offs were $37.3 million, resulting in an increased allowance for loan losses of $192.8 million or 2.14% of total loans;

• net revenue grew 6% over the second quarter 2009 to $101.2 million, including $11.5 million from the Founders Bank transaction, from $95.8 million and net interest margin grew 10 basis points to 3.09% with Founders contributing 16 basis points to third quarter net interest margin;

• client deposits grew 21% from the second quarter, including $793.9 million from the Founders Bank transaction and $759.6 million of organic growth, while loans grew 3%, reflecting selectivity and market conditions; and

• total risk-based capital ratio was 13.40%, Tier 1 capital ratio was 11.01% and tangible common equity ratio was 6.00%.

Recent Developments
On November 2, 2009, we closed an underwritten public offering of common stock, which included the full exercise of the underwriters' overallotment option, and issued a total of 22.2 million shares for net proceeds of $181.2 million to the Company after deducting underwriting commissions. Of that amount, approximately $35.3 million was purchased by certain funds managed by GTCR Golder Rauner II, L.L.C (collectively, "GTCR").
In addition, certain funds affiliated with GTCR, purchased approximately $12.8 million of non-voting common stock of the Company, equating to 1.6 million shares through an exercise of its existing preemptive rights. The net proceeds from the public offering, as well as from the sale of non-voting common stock, will qualify as tangible common equity and Tier 1 capital and will be used to further capitalize our subsidiary banks in order to support continued growth and for working capital and other general corporate purposes, including possible FDIC-assisted acquisition transactions subject to satisfying eligibility requirements to participate in such transactions.
At September 30, 2009 our total risk-based capital ratio was 13.40%, Tier 1 capital ratio was 11.01% and tangible common equity ratio was 6.00%. Giving effect to the public offering and issuance of the non-voting common stock under the preemptive rights agreement and on a pro-forma basis, at September 30, 2009 our capital ratios would have been 15.24%, 12.84% and 7.62% for total risk-based capital, Tier 1 capital and tangible common equity, respectively.

Table of Contents

In addition, upon completion of the offering, we are eligible to request that the U.S. Department of the Treasury reduce the number of shares of common stock issuable upon exercise of the warrant held by the U.S. Treasury by 50 percent to 645,013 shares.
Update on Founders Bank Transaction
On July 2, 2009, The PrivateBank - Chicago acquired all the non-brokered deposits and certain assets of the former Founders Bank, which are reflected in our unaudited consolidated financial statements as of September 30, 2009. In conjunction with the FDIC loss sharing agreement on the Founders transaction, the acquired loans and foreclosed loan collateral, including the fair value of expected FDIC reimbursements, is presented in our consolidated statement of financial condition as "covered assets." In accordance with business combination accounting rules, these loans were recorded at fair value without a related allowance for loan losses. The transaction is contributing to the overall execution of the Strategic Growth Plan according to management's expectations. The client retention has been strong since the transaction, with total deposits growing 3% to $793.9 million as of September 30, 2009, and we believe the transaction provides us with a strong platform for cross-selling, new business development and core funding opportunities. Balance Sheet Growth
Total assets increased to $12.1 billion at September 30, 2009, from $10.0 billion at December 31, 2008. Assets attributable to Founders totaled $836.5 million at September 30, 2009. Total loans increased to $9.0 billion at September 30, 2009, from $8.0 billion at December 31, 2008. Commercial loans, including commercial and industrial and owner-occupied commercial real estate loans, increased to 51% of the Company's total loans at September 30, 2009 from 49% of total loans at December 31, 2008. Commercial real estate loans were 29% of total loans at September 30, 2009, compared to 30% of the Company's total loans at December 31, 2008.
Total deposits were $9.6 billion at September 30, 2009, compared to $8.0 billion at December 31, 2008. Deposits attributable to Founders totaled $793.9 million at September 30, 2009. Client deposits increased to $8.9 billion at September 30, 2009, from $6.0 billion at December 31, 2008. Client deposits at September 30, 2009, include $981.7 million in client CDARS® deposits. Brokered deposits (excluding client CDARS®) were 7% of total deposits at September 30, 2009, a decrease from 25% of total deposits at December 31, 2008. Net Revenue Growth
Net revenue grew to $101.2 million in the third quarter 2009, including $11.5 million attributable to Founders, from $65.2 million in the third quarter 2008. Net interest income improved to $87.4 million in the third quarter 2009, including $9.8 million attributable to Founders, up from $52.6 million for the third quarter 2008. Net interest margin (on a tax equivalent basis) was 3.09% for the third quarter 2009, compared to 2.70% for the third quarter 2008. The improvement in net interest margin was primarily the result of our interest bearing liabilities repricing downward more quickly than our interest earning assets. An increased client deposit base and repositioning within funding types further served to reduce our cost of funds by 166 basis points. The inclusion of Founders net interest income during the third quarter 2009 also aided our net interest margin improvement by 16 basis points over the second quarter 2009. Non-interest income was $12.9 million in the third quarter 2009, compared to $11.7 million in the third quarter 2008. Founders contributed $1.6 million to non-interest income in the third quarter 2009. Treasury management income was $3.1 million in the third quarter 2009 compared to $600,000 in the third quarter 2008. Mortgage banking income increased to $1.8 million in the third quarter 2009, compared to $776,000 for the third quarter 2008. Banking and other services income was $4.1 million in the third quarter 2009, compared to $1.7 million in the third quarter 2008. Capital markets activities resulted in a negative revenue position of $322,000, compared with income of $3.9 million in the third quarter 2008, primarily due to a trading credit valuation adjustment of $2.4 million.
Credit Quality
The combination of the need for specific reserves, deteriorating credit quality and increased charge-offs necessitated the provisioning of $90.0 during the third quarter 2009, compared to $30.2 million in the third quarter 2008. Charge-offs were $40.1 million for the quarter ended September 30, 2009, offset by recoveries of $2.8 million, and $109.5 million for the quarter ended December 31, 2008, offset by recoveries of $658,000. The allowance for loan losses as a percentage of total loans was increased to 2.14% at September 30, 2009, compared with 1.40% at December 31, 2008.

Table of Contents

We had $396.6 million in total non-performing assets at September 30, 2009, compared to $212.8 million at June 30, 2009 and $155.7 million at December 31, 2008, reflecting a continuing weakening credit environment. Non-performing assets to total assets were 3.28% at September 30, 2009 compared to 1.94% at June 30, 2009 and 1.55% at December 31, 2008. The elevated levels of nonperforming loans and the increase in provision expense reflect ongoing deterioration primarily in our commercial real estate portfolio but also across select industry sectors. The increased level of loan loss coverage reflects growth in non-performing assets and recognition of lower underlying collateral values. During the quarter, deterioration of the commercial real estate portfolio followed trends in the sector, including elevated commercial vacancy rates, limited sales and financing activity, sponsor bankruptcies and downward pressure on real estate values. The weak state of the economy continues to put pressure on other business sectors represented in our portfolio, but not to the degree seen in commercial real estate.
While a substantial majority of the commercial real estate loans that became non-performing during the quarter were originated prior to November 2007, we began to see several newer commercial (including Shared National Credits "SNCs") and commercial real estate loans migrate to non-performing during the third quarter. SNCs are defined as loan commitments of at least $20.0 million that are shared by three or more financial institutions. Expenses
Non-interest expense was $56.8 million in the third quarter, of which $8.7 million relates to ongoing and defined transaction integration costs from Founders, compared to $47.1 million in the third quarter 2008. The increase over the third quarter 2008 reflects the ongoing investment in the Plan throughout the year, increased Federal Deposit Insurance Company ("FDIC") insurance premiums due to significant growth in insured deposits over the past year, an increase in foreclosed property expense related to credit deterioration, and an increase in salaries and benefits as well as professional fees related primarily to the Founders transaction. The efficiency ratio was 56.2% in the third quarter 2009 compared to 72.2% in the third quarter 2008 primarily due to the reduction in salaries and benefits as a result of a $9.8 million reversal of incentive . . .