INTRODUCTION

The following discussion and analysis is intended to address the significant factors affecting our Consolidated Statements of Income for the years 2010 through 2012 and Consolidated Statements of Financial Condition as of December 31, 2011 and 2012. 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 Bank," we are referring to our wholly owned banking subsidiary, The PrivateBank and Trust Company. The following discussion is designed to provide stockholders with a comprehensive review of our operating results and financial condition and should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other financial information presented in this Form 10-K.

Unless otherwise stated, all earnings per share data included in this section and through the remainder of this discussion are presented on a diluted basis.

OVERVIEW

We reported net income available to common stockholders of $64.5 million, or $0.88 per diluted share, for 2012, more than double the $30.7 million, or $0.43 per diluted share reported for 2011. Return on average common equity and average assets for 2012 were 5.76% and 0.60%, respectively, compared to 2.98% and 0.36%, respectively, for 2011. The improvement in 2012 performance is primarily a reflection of our significant improvement in asset quality as charge-offs and the provision for loan losses declined considerably. Despite higher revenues driven primarily by loan growth, lower funding costs and increased fee income, operating profit was relatively flat year over year due to high non-interest expense.

We restructured our capital base in fourth quarter 2012 when we repurchased all of the $243.8 million of preferred stock and related warrants issued in 2009 to the U.S. Treasury under the TARP CPP using $191.1 million in net proceeds from two separate underwritten public offerings ($75 million common stock offering and $125 million 7.125% subordinated debentures offering), together with existing cash resources.

Net revenue increased by $25.6 million to $533.8 million for 2012, compared to $508.2 million for 2011, with higher levels of net interest income and greater fee revenue contributing to the current year improvement. Non-interest income increased by $12.8 million in 2012 compared to 2011, and excluding the impact $6.0 million of higher net securities gains in 2011 than in 2012, non-interest income increased by $18.8 million, or 20%, in 2012 with revenues from mortgage banking, capital markets and syndications leading the year-over-year growth. Operating profit totaled $206.7 million for 2012, remaining relatively flat to the 2011 level of $206.0 million as increased non-interest expense largely offset revenue advances. Non-interest expense increased 8% in 2012 compared to 2011 and was largely impacted by higher incentive and equity compensation costs and increased net foreclosed property expense, from greater valuation adjustments and property ownership costs. Our 2012 efficiency ratio was 61.3%, up from 59.5% for 2011.

Net interest income increased by $12.8 million, or 3%, in 2012 compared to 2011 benefiting from higher average interest earning assets and lower deposit costs due mostly to a shift in deposit mix toward non-interest bearing deposits and downward pricing from the prior year. However, growth in net interest income was muted by lower average yields on earning assets due to the ongoing low interest rate environment and competitive pricing pressures. Net interest margin was 3.42% for 2012 compared to 3.49% for the prior year reflecting greater pressure on loan yields coupled with declining investment yields which were partially offset by a reduction in cost of funds. Although cost of funds and net interest margin will be adversely impacted by the interest expense associated with the fourth quarter 2012 issuance of $125 million subordinated debt, the debt issuance and preferred stock redemption will overall benefit net income available to common stockholders as the redemption of preferred stock enabled us to replace $13.6 million of annual dividends and accretion with after-tax interest expense of $5.5 million.

During 2012, total loans grew $1.1 billion, or 13%, from year end 2011, with most of the growth in the commercial and industrial portfolio, which represented 64% of total loans at year end 2012 compared to 59% at year end 2011. While we experienced loan growth throughout the year, fourth quarter loan volumes were unusually high as some of our clients made strategic moves prior to year end in anticipation of potential tax changes set to occur in 2013. The pace of loan growth is expected to be slower going into 2013 than it was in the fourth quarter 2012. In addition, we have plans to syndicate a portion of some fourth quarter loan transactions which will also reduce loan growth in the first half of 2013.

Total deposits increased by $1.8 billion to $12.2 billion at December 31, 2012 reflecting our bank-wide initiatives focused on client deposit growth. Deposit levels in 2012, in particular noninterest-bearing deposits and money market accounts, were also heavily influenced by the excess cash position of many of our commercial middle market clients, which will fluctuate based on their business needs. We maintained a higher level of liquidity during the second half of 2012 due to uncertainty around potential deposit activity related to the expiration of the unlimited deposit insurance on non-interest bearing accounts at year end and also experienced significant client deposits inflows late in the year. Consistent with activity seen last year, we have experienced some deposit outflows during the first quarter 2013 to date.

Our asset quality position improved meaningfully during 2012 as reflected in all key credit quality metrics. Total nonperforming assets and loans declined 43% and 47%, respectively, from December 31, 2011 levels with nonperforming assets to total assets representing 1.6% at year end 2012 compared to 3.1% at December 31, 2011. Dispositions of early-stage problem loans and nonperforming assets totaled $208.0 million. We had significant reductions in nonperforming loan inflows in 2012 as well as fewer early-stage problem loans that developed. With credit quality improving, the provision for loans losses, excluding covered assets, declined $59.7 million from 2011 levels and we reduced our allowance for loan losses by $30.2 million from the prior year end. As the number of OREO properties decline, we anticipate a decline in net foreclosed property costs will follow.

Please refer to the remaining sections of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for greater discussion of the various components of our 2012 performance, statement of financial condition and liquidity.

RESULTS OF OPERATIONS

The profitability of our operations depends on our net interest income, provision for loan and covered loan losses, non-interest income, and non-interest expense. Net interest income is dependent on the amount of and yields earned on interest-earning assets as compared to the amount of and rates paid on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest as well as to the execution of our asset/liability management strategy. The provision for loan and covered loan losses is primarily affected by changes in the loan portfolio's composition and performance, the identification of nonperforming loans and management's assessment of the collectability of the loan portfolio, based on loss experience as well as economic and market factors. Non-interest income consists primarily of fee revenue from Trust and Investments, mortgage banking, capital markets products, treasury management, loan and credit-related fees, and other services charges and fees. Net securities gains/losses, if any, are also included in non-interest income.

Net Interest Income

Net interest income equals the excess of interest income (including discount accretion or premium amortization on covered loans) plus fees earned on interest-earning assets over interest expense incurred on interest-bearing liabilities. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income.

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

The accounting policies underlying the recognition of interest income on loans, securities, and other interest-earning assets are included in Note 1 of "Notes to Consolidated Financial Statements" in Item 8 of this Form 10-K.

For purposes of this discussion, net interest income and any ratios or metrics that include net interest income as a component, such as net interest margin, have been adjusted to a fully tax-equivalent basis to more appropriately reflect the impact of returns on certain tax-exempt securities.

                                  Year Ended December 31,                     % Change
                             2012           2011           2010       2012-2011     2011-2010
Net interest income
(U.S. GAAP)              $  419,933     $  407,127     $  400,957            3.1         1.5
Tax-equivalent
adjustment                    2,873          2,857          3,577            0.6       -20.1
Tax-equivalent net
interest income          $  422,806     $  409,984     $  404,534            3.1         1.3

Table 2 summarizes the changes in our average interest-earning assets and interest-bearing liabilities as well as the average interest rates earned and paid on these assets and liabilities, respectively, for the three years ended December 31, 2012. The table also presents the trend in net interest margin on a quarterly basis for 2012 and 2011, including the tax-equivalent yields on interest-earning assets and rates paid on interest-bearing liabilities. Table 3 below details variances in income and expense for each of the major categories of interest-earning assets and interest-bearing liabilities and indicates the extent to which such variances are attributable to volume and rate changes. Interest income and yields are presented on a tax-equivalent basis assuming a federal income tax rate of 35%, through inclusion of the tax-equivalent adjustment presented in Table 1 above.

                                    Table 2
                    Net Interest Income and Margin Analysis
                             (Dollars in thousands)

                                              2012                                             2011                                             2010
                                                               Yield/                                           Yield/                                           Yield/
                             Average                            Rate          Average                            Rate          Average                            Rate
                             Balance         Interest (1)       (%)           Balance         Interest (1)       (%)           Balance         Interest (1)       (%)
Assets:
Federal funds sold and
interest-bearing deposits
in banks                  $    377,827     $          965       0.26       $    463,742     $        1,181       0.25       $    733,841     $        1,950       0.27
Securities:
Taxable                      2,064,893             56,826       2.75          1,864,583             61,026       3.27          1,632,586             64,023       3.92
Tax-exempt (2)                 179,594              8,360       4.65            140,707              8,296       5.90            165,535             10,352       6.25
Total securities             2,244,487             65,186       2.90          2,005,290             69,322       3.46          1,798,121             74,375       4.14
FHLB stock                      42,742                547       1.28             26,590                391       1.47             22,299                293       1.31
Loans, excluding covered
assets:
Commercial                   5,843,047            269,284       4.61          5,130,839            240,123       4.68          4,442,350            206,013       4.64
Commercial real estate       2,676,709            109,812       4.10          2,640,297            112,091       4.25          3,080,086            133,903       4.35
Construction                   202,825              7,609       3.75            397,771             14,937       3.76            620,937             22,047       3.55
Residential                    360,904             15,025       4.16            325,606             14,070       4.32            349,494             16,546       4.73
Personal and home equity       402,904             14,181       3.52            438,266             15,751       3.59            508,274             19,163       3.77
Total loans, excluding
covered assets (3)           9,486,389            415,911       4.38          8,932,779            396,972       4.44          9,001,141            397,672       4.42
Total interest-earning
assets before covered
assets (2)                  12,151,445            482,609       3.97         11,428,401            467,866       4.09         11,555,402            474,290       4.10
Covered assets (4)             218,500              7,300       3.34            317,631             16,137       5.08            422,962             37,212       8.80
Total interest-earning
assets (2)                  12,369,945     $      489,909       3.96         11,746,032     $      484,003       4.12         11,978,364     $      511,502       4.27
Cash and due from banks        142,200                                          158,655                                          152,346
Allowance for loan and
covered loan losses           (208,577 )                                       (237,038 )                                       (244,484 )
Other assets                   699,159                                          685,475                                          669,219
Total assets              $ 13,002,727                                     $ 12,353,124                                     $ 12,555,445

Liabilities and Equity:
Interest-bearing demand
deposits                  $    829,686     $        3,378       0.41       $    587,453     $        2,439       0.42       $    699,598     $        3,148       0.45
Savings deposits               238,171                680       0.29            205,814                786       0.38            170,268                948       0.56
Money market accounts        4,129,620             16,924       0.41          4,413,971             22,171       0.50          4,690,019             33,483       0.71
Time deposits                1,413,462             16,041       1.13          1,354,246             16,947       1.25          1,499,713             22,387       1.49
Brokered time deposits       1,176,131              5,791       0.49          1,210,424              7,729       0.64          1,341,254             14,071       1.05
Total interest-bearing
deposits                     7,787,070             42,814       0.55          7,771,908             50,072       0.64          8,400,852             74,037       0.88
Short-term borrowings          142,720                443       0.31             74,918              2,011       2.68            180,439              5,088       2.82
Long-term debt                 402,812             23,846       5.92            401,779             21,936       5.46            476,400             27,843       5.84
Total interest-bearing
liabilities                  8,332,602             67,103       0.81          8,248,605             74,019       0.90          9,057,691            106,968       1.18
Noninterest-bearing
demand deposits              3,186,562                                        2,669,924                                        2,083,874
Other liabilities              170,442                                          163,756                                          166,742
Equity                       1,316,121                                        1,270,839                                        1,247,138
Total liabilities and
equity                    $ 13,005,727                                     $ 12,353,124                                     $ 12,555,445

Net interest spread                                             3.15                                             3.22                                             3.09
Effect of
noninterest-bearing funds                                       0.27                                             0.27                                             0.29
Net interest
income/margin (2)                          $      422,806       3.42 %                      $      409,984       3.49 %                      $      404,534       3.38 %

                      Quarterly Net Interest Margin Trend

                                             2012                                  2011
                              Fourth    Third    Second    First    Fourth    Third    Second    First
Yield on interest-earning
assets (2)                     3.71 %   3.88 %    3.99 %   4.07 %    4.04 %   4.11 %    4.01 %   4.15 %
Cost of interest-bearing
liabilities                    0.83 %   0.79 %    0.78 %   0.81 %    0.85 %   0.90 %    0.90 %   0.93 %
Net interest margin (2)        3.16 %   3.35 %    3.46 %   3.53 %    3.48 %   3.49 %    3.36 %   3.46 %

(1) Interest income included $26.3 million, $24.4 million, and $21.3 million in loan fees for the years ended December 31, 2012, 2011, and 2010, respectively.

(2) Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. See Table 1 for a reconciliation of the effect of the tax-equivalent adjustment.

(3) Average loans on a nonaccrual basis for the recognition of interest income totaled $212.2 million for 2012, $340.7 million for 2011, and $400.1 million for 2010 and are included in loans for purposes of this analysis. Interest foregone on impaired loans was estimated to be approximately $8.9 million for the year ended December 31, 2012, $14.4 million for 2011 and $17.2 million for 2010, and was based on the average loan portfolio yield for the respective period.

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

                                    Table 3
  Changes in Net Interest Income Applicable to Volumes and Interest Rates (1)
                             (Amounts in thousands)

                                         2012 compared to 2011                    2011 compared to 2010
                                   Volume        Rate         Total          Volume        Rate        Total
Federal funds sold and
interest-bearing deposits in
banks                            $   (219 )   $       3     $   (216 )     $   (691 )   $    (78 )   $   (769 )
Securities:
Taxable                             6,136       (10,336 )     (4,200 )        8,403      (11,400 )     (2,997 )
Tax-exempt (2)                      2,019        (1,955 )         64         (1,489 )       (567 )     (2,056 )
Total securities                    8,155       (12,291 )     (4,136 )        6,914      (11,967 )     (5,053 )
FHLB stock                            212           (56 )        156             60           38           98
Loans, excluding covered assets:
Commercial                         32,873        (3,712 )     29,161         32,205        1,905       34,110
Commercial real estate              1,531        (3,810 )     (2,279 )      (18,734 )     (3,078 )    (21,812 )
Construction                       (7,313 )         (15 )     (7,328 )       (8,317 )      1,207       (7,110 )
Residential                         1,484          (529 )        955         (1,088 )     (1,388 )     (2,476 )
Personal and home equity           (1,250 )        (320 )     (1,570 )       (2,547 )       (865 )     (3,412 )
Total loans, excluding covered
assets                             27,325        (8,386 )     18,939          1,519       (2,219 )       (700 )
Total interest-earning assets
before covered assets (2)          35,473       (20,730 )     14,743          7,802      (14,226 )     (6,424 )
Covered assets (3)                 (4,214 )      (4,623 )     (8,837 )       (7,815 )    (13,260 )    (21,075 )
Total interest-earning assets
(2)                                31,259       (25,353 )      5,906            (13 )    (27,486 )    (27,499 )
Interest-bearing demand deposits      987           (48 )        939           (479 )       (230 )       (709 )
Savings deposits                      112          (218 )       (106 )          173         (335 )       (162 )
Money market accounts              (1,360 )      (3,887 )     (5,247 )       (1,874 )     (9,438 )    (11,312 )
Time deposits                         719        (1,625 )       (906 )       (2,039 )     (3,401 )     (5,440 )
Brokered time deposits               (213 )      (1,725 )     (1,938 )       (1,265 )     (5,077 )     (6,342 )
Total interest-bearing deposits       245        (7,503 )     (7,258 )       (5,484 )    (18,481 )    (23,965 )
Short-term borrowings               1,006        (2,574 )     (1,568 )       (2,843 )       (234 )     (3,077 )
Long-term debt                         56         1,854        1,910         (4,159 )     (1,748 )     (5,907 )
Total interest-bearing
liabilities                         1,307        (8,223 )     (6,916 )      (12,486 )    (20,463 )    (32,949 )
Net interest income (2)          $ 29,952     $ (17,130 )   $ 12,822       $ 12,473     $ (7,023 )   $  5,450

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

(2) Interest income is presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. See Table 1 for a reconciliation of the effect of the tax-equivalent adjustment.

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

2012 compared to 2011

Net interest income on a tax-equivalent basis increased $12.8 million, or 3%, to $422.8 million for the year ended December 31, 2012, compared to $410.0 million for the prior year. The year-over-year improvement in net interest income was primarily driven by $27.3 million in higher loan income generated from $553.6 million in higher average loan balances, which was partially offset by an $8.4 million decrease due to downward pressure on loan yields. Loan yields were helped somewhat by a substantial decline in nonperforming loans. Declining balances and yields with respect to covered assets also offset the increase in net interest income compared to 2011. Average investment securities balances increased $239.2 million, contributing $8.2 million to net interest income. However, compared to the prior year, securities income declined by $4.1 million, as the impact of the increase in average

balances from the prior year was more than offset by declines in yields. Competitive pricing pressures, reductions in short-term interest rates, and the re-investment of maturing securities in the low interest rate environment led to the lower yields on both the loan and securities portfolios. Interest paid on interest-bearing liabilities was reduced by $6.9 million primarily due to lower funding costs as compared to the prior year, which was partially offset by $1.8 million in interest expense related to the October 2012 $125.0 million underwritten public offering of the Company's subordinated debentures issued as part of the redemption of TARP preferred stock.

Net interest margin was 3.42% for 2012, a decline of seven basis points from 3.49% for 2011. Further downward pressure on primarily short-term interest rates negatively impacted yields on loans and securities, which was partially offset by a decline in deposit costs of nine basis points, due to a shifting in the mix of deposits towards non-interest bearing deposits and downward pricing from the prior year. Of our total loan balances, approximately 90% are tied to variable interest rates. A decline in short-term borrowings interest expense of $1.6 million year-over-year was more than offset by interest expense on the subordinated debt issued in October 2012, which negatively impacts net interest income and would likely reduce net interest margin by approximately seven basis points on an annualized basis.

Yield trends in both our loan and investment portfolios are likely to continue to pressure net interest margin given the current operating environment and the prospects for a continuation of low short-term interest rates for some time. Our net interest margin has been affected by pricing compression resulting from competition in our target markets and to a lesser extent we have started to see pricing compression on loan renewals due to improved client financial condition, which will likely continue in 2013. Competition is not only impacting loans to new clients, but also business that is being renewed with existing clients.

During the second half of 2012, we maintained higher levels of liquidity due to client deposit flows and uncertainty over client response to the expiration of the unlimited deposit insurance for non-interest bearing deposit accounts. We have experienced some deposit outflows during the first quarter 2013 to date and have experienced a corresponding decline in liquid assets as well. With respect to interest-bearing liabilities, we do not anticipate any significant benefit to net interest margin in 2013 from downward pricing of deposits given the current level of interest rates.

2011 compared to 2010

For 2011, net interest margin was 3.49%, an increase of 11 basis points from 3.38% for 2010. The improvement results from a 24 basis point decrease in the average rate paid on interest-bearing deposits and an increase in noninterest-bearing deposits, offset partially by a decrease in the yield on the investment portfolio. Also, the shift in the mix of the loan portfolio toward higher-yielding commercial loans and some large non-recurring loan fees . . .