UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

Commission File Number 001-34066

PRIVATEBANCORP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	36-3681151
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
120 South LaSalle Street, Chicago, Illinois	60603
(Address of principal executive offices)	(zip code)

(312) 564-2000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 7, 2012, there were 68,864,453 shares of the issuer’s voting common stock, without par value, outstanding and 3,535,916 non-voting common shares, no par value, outstanding.

PRIVATEBANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition		3
	Consolidated Statements of Income		5
	Consolidated Statements of Comprehensive Income		6
	Consolidated Statements of Changes in Equity		7
	Consolidated Statements of Cash Flows		8
	Notes to Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		88
Item 4.	Controls and Procedures		90
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings		90
Item 1A.	Risk Factors		90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		90
Item 3.	Defaults Upon Senior Securities		91
Item 4.	Mine Safety Disclosures		91
Item 5.	Other Information		91
Item 6.	Exhibits		91
Signatures			93

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands)

	March 31, 2012			December 31, 2011
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	166,062		$	156,131
Federal funds sold and other short-term investments		193,571			205,610
Loans held for sale		29,185			32,049
Securities available-for-sale, at fair value		1,705,649			1,783,465
Securities held-to-maturity, at amortized cost (fair value: $602.4 million – 2012; $493.2 million – 2011)		598,066			490,143
Non-marketable equity investments (FHLB stock: $40.7 million – 2012 and 2011)		43,882			43,604
Loans – excluding covered assets, net of unearned fees		9,222,253			9,008,561
Allowance for loan losses		(183,844	)		(191,594	)
Loans, net of allowance for loan losses and unearned fees		9,038,409			8,816,967
Covered assets		276,534			306,807
Allowance for covered loan losses		(26,323	)		(25,939	)
Covered assets, net of allowance for covered loan losses		250,211			280,868
Other real estate owned, excluding covered assets		123,498			125,729
Premises, furniture, and equipment, net		37,462			38,633
Accrued interest receivable		36,033			35,732
Investment in bank owned life insurance		51,356			50,966
Goodwill		94,559			94,571
Other intangible assets		14,683			15,353
Capital markets derivative assets		97,805			101,676
Other assets		142,733			145,373
Total assets	$	12,623,164		$	12,416,870
Liabilities
Demand deposits:
Noninterest-bearing	$	3,054,536		$	3,244,307
Interest-bearing		714,522			595,238
Savings deposits and money market accounts		4,347,832			4,378,220
Brokered deposits		961,481			815,951
Time deposits		1,344,341			1,359,138
Total deposits		10,422,712			10,392,854
Short-term borrowings		355,000			156,000
Long-term debt		379,793			379,793
Accrued interest payable		5,425			5,567
Capital markets derivative liabilities		100,109			104,140
Other liabilities		47,971			81,764
Total liabilities		11,311,010			11,120,118
Equity
Preferred stock – Series B		240,791			240,403
Common stock:
Voting		68,075			67,947
Nonvoting		3,536			3,536
Treasury stock		(21,749	)		(21,454	)
Additional paid-in capital		973,417			968,787
Retained earnings (accumulated deficit)		932			(9,164	)
Accumulated other comprehensive income, net of tax		47,152			46,697
Total equity		1,312,154			1,296,752
Total liabilities and equity	$	12,623,164		$	12,416,870

See accompanying notes to consolidated financial statements.

3

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION – (Continued)

(Amounts in thousands, except per share data)

	March 31, 2012						December 31, 2011
	Preferred Stock-Series  B		Common Stock				Preferred Stock-Series  B		Common Stock
			Voting		Nonvoting				Voting		Nonvoting
Per Share Data
Par value		None		None		None		None		None		None
Liquidation value	$	1,000		n/a		n/a	$	1,000		n/a		n/a
Stated value		None	$	1.00	$	1.00		None	$	1.00	$	1.00
Share Balances
Shares authorized		1,000		174,000		5,000		1,000		174,000		5,000
Shares issued		244		69,669		3,536		244		68,978		3,536
Shares outstanding		244		68,879		3,536		244		68,209		3,536
Treasury shares		—		790		—		—		769		—

n/a Not applicable

See accompanying notes to consolidated financial statements.

4

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Quarters Ended March 31,
	2012		2011
Interest Income
Loans, including fees	$	103,539	$	105,647
Federal funds sold and other short-term investments		132		336
Securities:
Taxable		15,380		15,390
Exempt from Federal income taxes		1,300		1,486
Total interest income		120,351		122,859
Interest Expense
Interest-bearing demand deposits		636		642
Savings deposits and money market accounts		4,602		6,662
Brokered and time deposits		5,017		6,692
Short-term borrowings		142		827
Long-term debt		5,578		5,483
Total interest expense		15,975		20,306
Net interest income		104,376		102,553
Provision for loan and covered loan losses		27,701		37,578
Net interest income after provision for loan and covered loan losses		76,675		64,975
Non-interest Income
Trust and Investments		4,219		4,662
Mortgage banking		2,663		1,402
Capital markets products		7,349		4,489
Treasury management		5,154		4,325
Loan and credit-related fees		6,527		5,898
Deposit service charges and fees and other income		1,487		2,484
Net securities gains		105		367
Total non-interest income		27,504		23,627
Non-interest Expense
Salaries and employee benefits		42,698		38,557
Net occupancy expense		7,679		7,532
Technology and related costs		3,296		2,661
Marketing		2,160		1,943
Professional services		1,957		2,334
Outsourced servicing costs		1,710		2,154
Net foreclosed property expenses		8,235		6,306
Postage, telephone, and delivery		869		888
Insurance		4,305		7,340
Loan and collection expense		3,157		2,553
Other expenses		4,163		3,081
Total non-interest expense		80,229		75,349
Income before income taxes		23,950		13,253
Income tax provision		9,695		2,279
Net income		14,255		10,974
Net income attributable to noncontrolling interests		—		72
Net income attributable to controlling interests		14,255		10,902
Preferred stock dividends and discount accretion		3,436		3,415
Net income available to common stockholders	$	10,819	$	7,487
Per Common Share Data
Basic earnings per share	$	0.15	$	0.10
Diluted earnings per share	$	0.15	$	0.10
Cash dividends declared	$	0.01	$	0.01
Weighted-average common shares outstanding		70,780		70,347
Weighted-average diluted common shares outstanding		70,932		70,396

See accompanying notes to consolidated financial statements.

5

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Quarters Ended March 31,
	2012			2011
Net income	$	14,255		$	10,974
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized gains (losses) on securities		116			(718	)
Reclassification adjustment for gains included in net income		(37	)		(239	)
Unrealized gains on cash flow hedges:
Unrealized gains on cash flow hedges		690			—
Reclassification adjustment for gains included in net income		(314	)		—
Other comprehensive income (loss)		455			(957	)
Comprehensive income		14,710			10,017
Less: comprehensive income attributable to noncontrolling interests		—			(72	)
Comprehensive income attributable to controlling interests	$	14,710		$	9,945

See accompanying notes to consolidated financial statements.

6

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except per share data)

(Unaudited)

	Preferred Stock		Common Stock		Treasury Stock			Additional Paid-in Capital			(Accumulated Deficit) Retained Earnings			Accumu- lated Other Compre- hensive Income			Non-controlling Interests		Total
Balance at January 1, 2011	$	238,903	$	70,972	$	(20,054	)	$	954,977		$	(36,999	)	$	20,078		$	33	$	1,227,910
Comprehensive income		—		—		—			—			10,902			(957	)		72		10,017
Cash dividends declared:
Common stock ($0.01 per share)		—		—		—			—			(711	)		—			—		(711	)
Preferred stock		—		—		—			—			(3,048	)		—			—		(3,048	)
Accretion of preferred stock discount		367		—		—			—			(367	)		—			—		—
Common stock issued under benefit plans		—		60		—			811			—			—			—		871
Shortfall tax benefit from share-based compensation		—		—		—			(163	)		—			—			—		(163	)
Stock repurchased in connection with benefit plans		—		—		(258	)		—			—			—			—		(258	)
Share-based compensation expense		—		4		—			3,510			—			—			—		3,514
Balance at March 31, 2011	$	239,270	$	71,036	$	(20,312	)	$	959,135		$	(30,223	)	$	19,121		$	105	$	1,238,132
Balance at January 1, 2012	$	240,403	$	71,483	$	(21,454	)	$	968,787		$	(9,164	)	$	46,697		$	—	$	1,296,752
Comprehensive income		—		—		—			—			14,255			455			—		14,710
Cash dividends declared:
Common stock ($0.01 per share)		—		—		—			—			(723	)		—			—		(723	)
Preferred stock		—		—		—			—			(3,048	)		—			—		(3,048	)
Accretion of preferred stock discount		388		—		—			—			(388	)		—			—		—
Common stock issued under benefit plans		—		123		—			66			—			—			—		189
Stock repurchased in connection with benefit plans		—		—		(295	)		—			—			—			—		(295	)
Share-based compensation expense		—		5		—			4,564			—			—			—		4,569
Balance at March 31, 2012	$	240,791	$	71,611	$	(21,749	)	$	973,417		$	932		$	47,152		$	—	$	1,312,154

⁽¹⁾  Net of taxes and reclassification adjustments.

See accompanying notes to consolidated financial statements.

7

PRIVATEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Quarters Ended March 31,
	2012			2011
Operating Activities
Net income	$	14,255		$	10,902
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and covered loan losses		27,701			37,578
Depreciation of premises, furniture, and equipment		2,425			2,142
Net amortization of premium on securities		3,503			2,261
Net gains on sale of securities		(105	)		(367	)
Net losses on sale of other real estate owned		2,144			1,580
Net amortization (accretion) of discount on covered assets		1,091			(1,445	)
Bank owned life insurance income		(390	)		(391	)
Net decrease in deferred loan fees		(1,562	)		(148	)
Share-based compensation expense		4,569			3,581
Provision for deferred income tax expense		8,448			138
Amortization of other intangibles		670			376
Change in loans held for sale		2,864			8,147
Fair market value adjustments on derivatives		(160	)		(690	)
Net increase in accrued interest receivable		(301	)		(106	)
Net decrease in accrued interest payable		(142	)		(439	)
Net (increase) decrease in other assets		(2,425	)		4,385
Net decrease in other liabilities		(33,749	)		(19,900	)
Net cash provided by operating activities		28,836			47,604
Investing Activities
Available-for-sale securities and non-marketable equity investments:
Proceeds from maturities, repayments, and calls		121,368			106,819
Proceeds from sales		812			26,770
Purchases		(47,213	)		(147,532	)
Held-to-maturity securities:
Proceeds from maturities, repayments, and calls		10,994			—
Purchases		(119,531	)		—
Net (increase) decrease in loans		(259,635	)		12,988
Net decrease in covered assets		29,500			37,815
Proceeds from sale of other real estate owned		9,078			12,277
Net purchases of premises, furniture, and equipment		(1,254	)		(186	)
Net cash (used in) provided by investing activities		(255,881	)		48,951
Financing Activities
Net increase in deposit accounts		29,858			90,547
Net decrease in short-term borrowings, excluding FHLB advances		—			(941	)
Net increase (decrease) in FHLB advances		199,000			(34,000	)
Stock repurchased in connection with benefit plans		(295	)		(258	)
Cash dividends paid		(3,815	)		(3,755	)
Proceeds from exercise of stock options and issuance of common stock under benefit plans		189			871
Shortfall tax benefit from exercise of stock options and vesting of restricted shares		—			(163	)
Net cash provided by financing activities		224,937			52,301
Net (decrease) increase in cash and cash equivalents		(2,108	)		148,856
Cash and cash equivalents at beginning of year		361,741			654,088
Cash and cash equivalents at end of period	$	359,633		$	802,944
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	16,117		$	20,745
Cash paid for income taxes		11,490			9,600
Non-cash transfers of loans to other real estate		13,513			23,661

See accompanying notes to consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements of PrivateBancorp, Inc. (“PrivateBancorp” or the “Company”), a Delaware corporation, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include certain information and footnote disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete annual financial statements. Accordingly, these financial statements should be read in conjunction with the Company’s 2011 Annual Report on Form 10-K.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. GAAP and reflect all adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year or any other period.

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Certain reclassifications have been made to the prior periods to conform to the current period presentation. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

In preparing the consolidated financial statements, we have considered the impact of events occurring subsequent to March 31, 2012 for potential recognition or disclosure.

2. NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Pronouncements

Transfers and Servicing – On January 1, 2012, we adopted amendments to accounting guidance issued by the Financial Accounting Standards Board (“FASB”) relating to the effective control assessment for repurchase agreements that in part determines whether a transaction is accounted for as a sale or a secured borrowing. The amendments remove from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The adoption of this guidance did not have an impact on our financial position and consolidated results of operations.

Fair Value Measurement – On January 1, 2012, we adopted amendments to accounting guidance issued by the FASB relating to fair value measurement. The amendments substantially converge the principles for measuring fair value and the requirements for related disclosures under U.S. GAAP and International Financial Reporting Standards. The amendments include clarifications and new guidance related to the highest and best use and valuation premise, measuring the fair value of an instrument classified in shareholders’ equity, measuring the fair value of financial instruments that are managed within a portfolio, and applying of block discounts and other premiums and discounts in a fair value measurement. Additionally, the amendments require additional disclosures about fair value measurements. The adoption of this guidance did not have an impact on our financial position and consolidated results of operations. Refer to Note 16 for the expanded disclosure requirements.

Statement of Comprehensive Income – On January 1, 2012, we adopted new accounting guidance issued by the FASB relating to the presentation of the statement of comprehensive income. This guidance provides the Company the option of presenting net income and other comprehensive income in one continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change what items are reported in other comprehensive income. The guidance was effective for the Company’s financial statements that include periods beginning on or after January 1, 2012 with retrospective application to the Company’s annual reporting period beginning on January 1, 2011. The new guidance did not impact our financial position and consolidated results of operations. The Company elected to present net income and other comprehensive income in two separate but consecutive statements. Refer to the Consolidated Statements of Comprehensive Income, which follows the Consolidated Statements of Income, for the new presentation requirements.

9

Testing Goodwill for Impairment – On January 1, 2012, we adopted new accounting guidance issued by the FASB that permits the Company to perform a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value before applying the existing quantitative two-step goodwill impairment test to determine whether the fair value of a reporting unit is less than its carrying value and the amount of any goodwill impairment. The Company may bypass the two-step test and conclude that goodwill is not impaired based on the results of the qualitative assessment. The adoption of this guidance did not have an impact on our financial position and consolidated results of operations.

Accounting Pronouncements Pending Adoption

Disclosures about Offsetting Assets and Liabilities – On December 16, 2011, the FASB issued new accounting guidance to enhance current disclosure requirements on offsetting financial assets and liabilities. The new disclosure requirements are limited to recognized financial instruments subject to master netting arrangements or similar agreements. At a minimum, the Company will be required to disclose the following information separately for financial assets and liabilities: (a) the gross amounts of recognized financial assets and liabilities, (b) the amounts offset under current U.S. GAAP, (c) the net amounts presented in the balance sheet, (d) the amounts subject to an enforceable master netting arrangement or similar agreement that were not included in (b), and (e) the difference between (c) and (d). The guidance will be effective for the Company’s financial statements that include periods beginning on or after January 1, 2013, and must be retrospectively applied. As this guidance affects only our disclosures, the adoption of this guidance will not impact our financial position and consolidated results of operations.

3. SECURITIES

Securities Portfolio

(Amounts in thousands)

	March 31, 2012									December 31, 2011
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Securities Available-for-Sale
U.S. Treasury	$	87,499	$	641	$	(198	)	$	87,942	$	60,590	$	931	$	—		$	61,521
U.S. Agencies		—		—		—			—		10,014		20		—			10,034
Collateralized mortgage obligations		317,651		12,008		(100	)		329,559		344,078		12,062		(140	)		356,000
Residential mortgage -backed securities		1,062,052		50,670		—			1,112,722		1,140,555		48,660		(2	)		1,189,213
State and municipal		164,086		11,058		(218	)		174,926		154,080		12,140		(23	)		166,197
Foreign sovereign debt		500		—		—			500		500		—		—			500
Total	$	1,631,788	$	74,377	$	(516	)	$	1,705,649	$	1,709,817	$	73,813	$	(165	)	$	1,783,465
Securities Held-to-Maturity
Residential mortgage -backed securities	$	597,995	$	4,916	$	(627	)	$	602,284	$	490,072	$	3,172	$	(85	)	$	493,159
State and municipal		71		—		—			71		71		—		—			71
Total	$	598,066	$	4,916	$	(627	)	$	602,355	$	490,143	$	3,172	$	(85	)	$	493,230
Non-Marketable Equity Investments
FHLB stock	$	40,695	$	—	$	—		$	40,695	$	40,695	$	—	$	—		$	40,695
Other		3,187		—		—			3,187		2,909		—		—			2,909
Total	$	43,882	$	—	$	—		$	43,882	$	43,604	$	—	$	—		$	43,604

10

Non-marketable equity investments primarily consist of Federal Home Loan Bank (“FHLB”) stock and represent amounts required to be invested in the common stock of the FHLB. This equity security is “restricted” in that it can only be sold to the FHLB or another member institution at par. Therefore, it is less liquid than other equity securities. The fair value is estimated to be cost, and no other-than-temporary impairments have been recorded on this security during 2012 and 2011 with such impairment assessment based on the ultimate recoverability at par.

The carrying value of securities pledged to secure public deposits, FHLB advances, trust deposits, Federal Reserve Bank (“FRB”) discount window borrowings, derivative transactions with counterparty banks, standby letters of credit with counterparty banks and for other purposes as permitted or required by law, totaled $503.7 million at March 31, 2012 and $514.6 million at December 31, 2011.

Excluding securities issued or backed by the U.S. Government and its agencies and U.S. Government-sponsored enterprises, there were no investments in securities from one issuer that exceeded 10% of consolidated equity at March 31, 2012 or December 31, 2011.

The following table presents fair values of securities with unrealized losses as of March 31, 2012 and December 31, 2011. The securities presented are grouped according to the time periods during which the securities have been in a continuous unrealized loss position.

Securities in Unrealized Loss Position

(Amounts in thousands)

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of March 31, 2012
Securities Available-for-Sale
U.S. Treasury	$	26,805	$	(198	)	$	—	$	—	$	26,805	$	(198	)
Collateralized mortgage obligations		23,962		(100	)		—		—		23,962		(100	)
State and municipal		14,794		(218	)		—		—		14,794		(218	)
Total	$	65,561	$	(516	)	$	—	$	—	$	65,561	$	(516	)
Securities Held-to-Maturity
Residential mortgage-backed securities	$	93,887	$	(627	)	$	—	$	—	$	93,887	$	(627	)
As of December 31, 2011
Securities Available-for-Sale
Collateralized mortgage obligations	$	36,126	$	(140	)	$	—	$	—	$	36,126	$	(140	)
Residential mortgage-backed securities		154		(2	)		—		—		154		(2	)
State and municipal		4,352		(23	)		—		—		4,352		(23	)
Total	$	40,632	$	(165	)	$	—	$	—	$	40,632	$	(165	)
Securities Held-to-Maturity
Residential mortgage-backed securities	$	80,500	$	(85	)	$	—	$	—	$	80,500	$	(85	)

There were no securities in an unrealized loss position for greater than 12 months at March 31, 2012 or December 31, 2011. The change in unrealized losses from year end 2011 for U.S. Treasuries, agency-backed residential mortgage-backed securities, and state and municipal securities were caused primarily by changes in interest rates and credit spreads.

Since the unrealized losses on available-for-sale securities as of March 31, 2012 are attributable to changes in interest rates and credit spreads, and because we do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2012.

11

Remaining Contractual Maturity of Securities

(Amounts in thousands)

	March 31, 2012
	Available-For Sale Securities				Held-To-Maturity Securities and Non-Marketable Equity Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasury, U.S. Agencies, state and municipal and foreign sovereign debt securities
One year or less	$	1,324	$	1,334	$	23	$	23
One year to five years		121,877		124,254		48		48
Five years to ten years		116,060		123,991		—		—
After ten years		12,824		13,789		—		—
All other securities
Collateralized mortgage obligations		317,651		329,559		—		—
Residential mortgage-backed securities		1,062,052		1,112,722		597,995		602,284
Non-marketable equity investments		—		—		43,882		43,882
Total	$	1,631,788	$	1,705,649	$	641,948	$	646,237

Securities Gains (Losses)

(Amounts in thousands)

	Quarters Ended March 31,
	2012			2011
Proceeds from sales	$	812		$	26,770
Gross realized gains		126			424
Gross realized losses		(21	)		(57	)
Net realized gains	$	105		$	367
Income tax provision on net realized gains	$	42		$	144

Refer to Note 11 for additional details of the securities available-for-sale portfolio and the related impact of unrealized gains (losses) on other comprehensive income.

12

4. LOANS

The following loan portfolio and credit quality disclosures exclude covered loans. Covered loans represent loans acquired through a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction that are subject to a loss share agreement and are presented separately in the Consolidated Statements of Financial Condition. Refer to Note 6 for a detailed discussion regarding covered loans.

Loan Portfolio

(Amounts in thousands)

	March 31, 2012		December 31, 2011
Commercial and industrial	$	4,325,558	$	4,192,842
Commercial – owner-occupied commercial real estate		1,175,729		1,130,932
Total commercial		5,501,287		5,323,774
Commercial real estate		2,378,640		2,233,851
Commercial real estate – multi-family		493,218		452,595
Total commercial real estate		2,871,858		2,686,446
Construction		127,837		287,002
Residential real estate		308,880		297,229
Home equity		175,972		181,158
Personal		236,419		232,952
Total loans	$	9,222,253	$	9,008,561
Deferred loan fees included as a reduction in total loans	$	37,697	$	39,259
Overdrawn demand deposits included in total loans	$	4,588	$	1,919

We primarily lend to businesses and consumers in the market areas in which we have physical locations. We seek to diversify our loan portfolio by loan type, industry, and borrower.

Carrying Value of Loans Pledged

(Amounts in thousands)

	March 31, 2012		December 31, 2011
Loans pledged to secure:
FRB discount window borrowings	$	1,185,802		$	1,352,012
FHLB advances		1,113,325			583,507
Total	$	2,299,127		$	1,935,519

13

Loan Portfolio Aging

Loan Portfolio Aging

(Amounts in thousands)

	Delinquent
	Current		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days Past Due and Accruing		Total Accruing Loans		Nonaccrual		Total Loans
As of March 31, 2012
Commercial	$	5,453,922	$	3,216	$	3,963	$	—	$	5,461,101	$	40,186	$	5,501,287
Commercial real estate		2,703,932		6,590		2,081		—		2,712,603		159,255		2,871,858
Construction		124,988		—		68		—		125,056		2,781		127,837
Residential real estate		290,716		4,960		1,135		—		296,811		12,069		308,880
Home equity		163,866		1,728		—		—		165,594		10,378		175,972
Personal		227,587		26		253		—		227,866		8,553		236,419
Total loans	$	8,965,011	$	16,520	$	7,500	$	—	$	8,989,031	$	233,222	$	9,222,253
As of December 31, 2011
Commercial	$	5,250,875	$	6,018	$	923	$	—	$	5,257,816	$	65,958	$	5,323,774
Commercial real estate		2,539,889		3,523		9,777		—		2,553,189		133,257		2,686,446
Construction		262,742		—		2,381		—		265,123		21,879		287,002
Residential real estate		278,195		3,800		645		—		282,640		14,589		297,229
Home equity		168,322		433		800		—		169,555		11,603		181,158
Personal		220,364		13		9		—		220,386		12,566		232,952
Total loans	$	8,720,387	$	13,787	$	14,535	$	—	$	8,748,709	$	259,852	$	9,008,561

Impaired Loans

Impaired Loans

(Amounts in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve
As of March 31, 2012
Commercial	$	128,528	$	95,265	$	27,590	$	122,855	$	14,061
Commercial real estate		214,024		75,840		120,972		196,812		39,271
Construction		3,967		—		2,781		2,781		1,280
Residential real estate		13,934		7,692		5,492		13,184		1,160
Home equity		13,281		3,021		8,981		12,002		1,901
Personal		27,748		13,555		8,554		22,109		7,276
Total impaired loans	$	401,482	$	195,373	$	174,370	$	369,743	$	64,949

14

Impaired Loans (Continued)

(Amounts in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve
As of December 31,2011
Commercial	$	118,118	$	57,230	$	46,098	$	103,328	$	14,163
Commercial real estate		190,486		65,571		114,233		179,804		38,905
Construction		24,135		1,548		20,331		21,879		5,202
Residential real estate		18,577		10,502		7,325		17,827		976
Home equity		12,881		2,310		9,293		11,603		1,272
Personal		38,515		14,751		11,569		26,320		9,426
Total impaired loans	$	402,712	$	151,912	$	208,849	$	360,761	$	69,944

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

(Amounts in thousands)

	Quarters Ended March 31,
	2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	116,186	$	755	$	85,542	$	95
Commercial real estate		196,460		598		281,677		815
Construction		4,578		—		35,269		28
Residential real estate		17,006		20		18,225		10
Home equity		11,766		23		10,345		1
Personal		24,625		119		36,974		129
Total	$	370,621	$	1,515	$	468,032	$	1,078

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

Credit Quality Indicators

The Company has adopted an internal risk rating policy in which each loan is rated for credit quality with a numerical rating of 1 through 8. Loans rated 5 and better (1-5 ratings, inclusive) are credits that exhibit acceptable financial performance, cash flow, and leverage. We attempt to mitigate risk by structure, collateral, monitoring, or other meaningful controls. Credits rated 6 are performing in accordance with contractual terms but are considered special mention as these credits demonstrate potential weakness that if left unresolved, may result in deterioration in the Company’s credit position and/or the repayment prospects for the credit. Borrowers rated special mention may exhibit adverse operating trends, high leverage, tight liquidity or other credit concerns. Potential problem loans are also loans that are performing in accordance with contractual terms, but for which management has some level of concern about the ability of the borrowers to meet existing repayment terms in future periods. These loans have a risk rating of 7 but are not classified as nonaccrual. The ultimate collection of these loans is subject to some uncertainty due to the same conditions that characterize a 6-rated credit. These credits may also have somewhat increased risk profiles as a result of the current net worth and/or paying capacity of the obligor or guarantors or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize collection of the debt and are characterized by the distinct possibility that the Company will sustain some loss if left unresolved. Although these loans are generally identified as potential problem loans and require additional attention by management, they may never become nonperforming. Nonperforming loans include nonaccrual loans risk rated 7 or 8 and have all the weaknesses inherent in a 7-rated potential problem loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently-existing facts, conditions and values, highly questionable and improbable. Special mention, potential problem and nonperforming loans are reviewed at minimum on a quarterly basis, while all other rated credits over a certain dollar threshold, depending on product segment, are reviewed annually or as the situation warrants.

15

Credit Quality Indicators

(Dollars in thousands)

Product Segment	Special Mention		% of Portfolio Loan Type		Potential Problem Loans		% of Portfolio Loan Type		Non- Performing Loans		% of Portfolio Loan Type		Total Loans
As of March 31, 2012
Commercial	$	72,580		1.3	$	57,786		1.1	$	40,186		0.7	$	5,501,287
Commercial real estate		56,821		2.0		96,131		3.3		159,255		5.5		2,871,858
Construction		7,272		5.7		—		—		2,781		2.2		127,837
Residential real estate		6,693		2.2		21,010		6.8		12,069		3.9		308,880
Home equity		420		0.2		7,272		4.1		10,378		5.9		175,972
Personal		4		*		1,830		0.8		8,553		3.6		236,419
Total	$	143,790		1.6	$	184,029		2.0	$	233,222		2.5	$	9,222,253
As of December 31, 2011
Commercial	$	54,326		1.0	$	79,328		1.5	$	65,958		1.2	$	5,323,774
Commercial real estate		132,915		4.9		62,193		2.3		133,257		5.0		2,686,446
Construction		7,272		2.5		9,283		3.2		21,879		7.6		287,002
Residential real estate		9,344		3.1		17,931		6.0		14,589		4.9		297,229
Home equity		758		0.4		6,384		3.5		11,603		6.4		181,158
Personal		350		0.2		1,976		0.8		12,566		5.4		232,952
Total	$	204,965		2.3	$	177,095		2.0	$	259,852		2.9	$	9,008,561

* Less than 0.1%

Troubled Debt Restructured Loans

Troubled Debt Restructured Loans Outstanding

(Amounts in thousands)

	March 31, 2012		December 31, 2011
Accruing interest:
Commercial	$	82,669	$	42,569
Commercial real estate		37,557		41,348
Construction		—		—
Residential real estate		1,115		3,238
Home equity		1,624		—
Personal		13,556		13,754
Total accruing	$	136,521	$	100,909
Nonaccrual:
Commercial	$	24,142	$	28,409
Commercial real estate		30,902		32,722
Construction		658		960
Residential real estate		4,182		3,592
Home equity		2,014		2,082
Personal		6,336		7,639
Total nonaccrual	$	68,234	$	75,404

At March 31, 2012 and December 31, 2011, commitments to lend additional funds to debtors whose loan terms have been modified in a troubled debt restructuring (“TDR”) (both accruing and nonaccruing) totaled $21.8 million and $16.1 million, respectively.

16

Additions to Troubled Debt Restructurings during the Period

(Dollars in thousands)

	Quarters Ended March 31,
	2012						2011
			Outstanding Recorded Investment (1)						Outstanding Recorded Investment (1)
	Number of Borrowers		Pre- Modification		Post- Modification		Number of Borrowers		Pre- Modification		Post- Modification
Accruing interest:
Commercial
Extension of maturity date (2)		3	$	31,688	$	31,688		5	$	3,756	$	3,756
Other concession (3)		—		—		—		1		1,694		1,694
Multiple note structuring		1		17,596		11,796		—		—		—
Total commercial		4		49,284		43,484		6		5,450		5,450
Commercial real estate
Extension of maturity date (2)		1		3,094		2,294		5		3,173		3,173
Multiple note structuring		—		—		—		3		18,827		10,610
Total commercial real estate		1		3,094		2,294		8		22,000		13,783
Residential real estate
Extension of maturity date (2)		3		2,182		2,182		—		—		—
Other concession (3)		1		200		200		—		—		—
Total residential real estate		4		2,382		2,382		—		—		—
Home equity
Extension of maturity date (2)		1		125		125		1		177		177
Personal
Extension of maturity date (2)		—		—		—		1		265		265
Other concession (3)		—		—		—		1		252		252
Total personal		—		—		—		2		517		517
Total accruing		10	$	54,885	$	48,285		17	$	28,144	$	19,927
Change in recorded investment due to principal paydown at time of modification					$	800					$	400
Change in recorded investment due to charge- offs as part of the multiple note structuring					$	5,800					$	7,817

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

⁽³⁾  Other concessions primarily include interest rate reductions, loan increases, and deferral of principal.

17

Additions to Troubled Debt Restructurings during the Period (Continued)

(Dollars in thousands)

	Quarters Ended March 31,
	2012						2011
	Number of Borrowers		Outstanding Recorded Investment (1)				Number of Borrowers		Outstanding Recorded Investment (1)
			Pre-Modification		Post- Modification				Pre-Modification		Post- Modification
Nonaccrual:
Commercial
Extension of maturity date (2)		—	$	—	$	—		1	$	119	$	119
Other concession (3)		1		3,000		3,000		1		128		128
Total commercial		1		3,000		3,000		2		247		247
Commercial real estate
Extension of maturity date (2)		4		823		823		2		3,353		3,353
Other concession (3)		—		—		—		1		5,187		5,187
Total commercial real estate		4		823		823		3		8,540		8,540
Residential real estate
Extension of maturity date (2)		—		—		—		1		238		238
Personal
Extension of maturity date (2)		—		—		—		2		125		110
Total nonaccrual		5	$	3,823	$	3,823		8	$	9,150	$	9,135
Change in recorded investment due to principal paydown at time of modification					$	—					$	15

⁽¹⁾  Represents amounts as of the date immediately prior to and immediately after the modification is effective.

⁽²⁾  Extension of maturity date also includes loans renewed at existing rate of interest which is considered a below market rate for that particular loan’s risk profile.

⁽³⁾  Other concessions primarily include interest rate reductions, loan increases, and deferral of principal.

At the time an accruing loan becomes modified and meets the definition of a TDR, it is considered impaired and no longer included as part of the general loan loss reserve determination. However, our general reserve methodology considers the amount and characteristics of the TDRs removed as one of many credit or portfolio considerations in establishing final reserve requirements.

As impaired loans, TDRs (both accruing and nonaccruing) are specifically evaluated for impairment at the end of each accounting period with a specific valuation reserve created, if necessary, as a component of the allowance for loan losses. Refer to the “Impaired Loan” and “Allowance for Loan Loss” sections of Note 1, “Summary of Significant Accounting Policies” to the Notes to Consolidated Financial Statements of our 2011 Annual Report on Form 10-K regarding our policy for assessing potential impairment on such loans. Our allowance for loan losses included $19.0 million and $25.7 million in specific reserves for nonaccrual TDRs at March 31, 2012 and December 31, 2011, respectively. There were no specific reserves for accruing TDRs at March 31, 2012 or December 31, 2011.

18

The following table presents the recorded investment and number of loans modified as an accruing TDR during the previous 12 months which subsequently became nonperforming during the quarters ended March 31, 2012 and 2011. A loan becomes nonperforming and placed on nonaccrual status typically when the principal or interest payments are 90 days past due based on contractual terms or when an individual analysis of a borrower’s creditworthiness indicates a loan should be placed on nonaccrual status earlier than when the loan becomes 90 days past due.

Troubled Debt Restructurings

That Became Nonperforming Within 12 Months of Restructuring

(Dollars in thousands)

	Quarters Ended March 31,
	2012				2011
	Number of Borrowers		Recorded Investment(1)		Number of Borrowers		Recorded Investment(1)
Commercial		—	$	—		1	$	155
Commercial real estate		1		97		1		344
Construction		—		—		1		960
Residential real estate		—		—		—		—
Total		1	$	97		3	$	1,459

⁽¹⁾  Represents amounts as of the balance sheet date from the quarter the default was first reported.

5. ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED COMMITMENTS

The following allowance and credit quality disclosures exclude covered loans. Refer to Note 6 for a detailed discussion regarding covered loans.

Allowance for Loan Losses and Recorded Investment in Loans

(Amounts in thousands)

	For the Quarter Ended March 31, 2012
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Home Equity			Personal			Total
Allowance for Loan Losses:
Balance at beginning of year	$	60,663		$	94,905		$	12,852		$	6,376		$	4,022		$	12,776		$	191,594
Loans charged-off		(9,549	)		(25,280	)		(1,245	)		(1,084	)		(483	)		(2,085	)		(39,726	)
Recoveries on loans previously charged-off		1,679			1,882			41			11			26			702			4,341
Net charge-offs		(7,870	)		(23,398	)		(1,204	)		(1,073	)		(457	)		(1,383	)		(35,385	)
Provision for loan losses		7,118			25,514			(8,468	)		1,257			3,036			(822	)		27,635
Balance at end of period	$	59,911		$	97,021		$	3,180		$	6,560		$	6,601		$	10,571		$	183,844
Ending balance, individually evaluated for impairment (1)	$	14,061		$	39,271		$	1,280		$	1,160		$	1,901		$	7,276		$	64,949
Ending balance, collectively evaluated for impairment	$	45,850		$	57,750		$	1,900		$	5,400		$	4,700		$	3,295		$	118,895
Recorded Investment in Loans:
Ending balance, individually evaluated for impairment (1)	$	122,855		$	196,812		$	2,781		$	13,184		$	12,002		$	22,109		$	369,743
Ending balance, collectively evaluated for impairment		5,378,432			2,675,046			125,056			295,696			163,970			214,310			8,852,510
Total recorded investment in loans	$	5,501,287		$	2,871,858		$	127,837		$	308,880		$	175,972		$	236,419		$	9,222,253

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

19

Additional detail on the allowance for loan losses and recorded investment in loans, by product segment, for the quarter ended March 31, 2011 is presented in the following table.

Allowance for Loan Losses and Recorded Investment in Loans

(Amounts in thousands)

	For the Quarter Ended March 31, 2011
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Home Equity			Personal			Total
Allowance for Loan Losses:
Balance at beginning of year	$	70,115		$	110,853		$	19,778		$	5,321		$	5,764		$	10,990		$	222,821
Loans charged-off		(4,200	)		(29,409	)		(62	)		(386	)		(1,447	)		(6,787	)		(42,291	)
Recoveries on loans previously charged-off		465			272			97			2			10			155			1,001
Net charge-offs		(3,735	)		(29,137	)		35			(384	)		(1,437	)		(6,632	)		(41,290	)
Provision for loan losses		(1,685	)		32,470			4,285			1,036			506			94			36,706
Balance at end of period	$	64,695		$	114,186		$	24,098		$	5,973		$	4,833		$	4,452		$	218,237
Ending balance, individually evaluated for impairment (1)	$	14,445		$	38,686		$	11,198		$	1,548		$	1,408		$	1,127		$	68,412
Ending balance, collectively evaluated for impairment	$	50,250		$	75,500		$	12,900		$	4,425		$	3,425		$	3,325		$	149,825
Recorded Investment in Loans:
Ending balance, individually evaluated for impairment (1)	$	87,456		$	264,379		$	44,737		$	17,665		$	11,574		$	32,016		$	457,827
Ending balance, collectively evaluated for impairment		4,871,132			2,588,193			419,516			296,417			177,326			226,656			8,579,240
Total recorded investment in loans	$	4,958,588		$	2,852,572		$	464,253		$	314,082		$	188,900		$	258,672		$	9,037,067

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

Reserve for Unfunded Commitments ⁽¹⁾

(Amounts in thousands)

	Quarters Ended March 31,
	2012		2011
Balance at beginning of period	$	7,277	$	8,119
Provision for unfunded commitments		933		—
Balance at end of period	$	8,210	$	8,119
Unfunded commitments, excluding covered assets, at period end (1)	$	4,461,994	$	4,044,217

⁽¹⁾  Unfunded commitments include commitments to extend credit, standby letters of credit and commercial letters of credit.

Refer to Note 15 for additional details of commitments to extend credit, standby letters of credit and commercial letters of credit.

6. COVERED ASSETS

Covered assets represent acquired loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC and include an indemnification receivable representing the present value of the expected reimbursement from the FDIC related to expected losses on the acquired loans and foreclosed real estate under such agreement.

20

The carrying amount of covered assets is presented in the following table.

Covered Assets

(Amounts in thousands)

	March 31, 2012											December 31, 2011
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total			Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total
Commercial loans	$	9,623		$	19,701		$	—	$	29,324		$	10,489		$	21,079		$	—	$	31,568
Commercial real estate loans		31,787			103,544			—		135,331			38,433			111,777			—		150,210
Residential mortgage loans		299			49,595			—		49,894			292			50,111			—		50,403
Consumer installment and other		293			5,060			319		5,672			281			5,518			324		6,123
Foreclosed real estate		—			—			26,384		26,384			—			—			30,342		30,342
Estimated loss reimbursement by the FDIC		—			—			29,929		29,929			—			—			38,161		38,161
Total covered assets		42,002			177,900			56,632		276,534			49,495			188,485			68,827		306,807
Allowance for covered loan losses		(12,871	)		(13,452	)		—		(26,323	)		(14,727	)		(11,212	)		—		(25,939	)
Net covered assets	$	29,131		$	164,448		$	56,632	$	250,211		$	34,768		$	177,273		$	68,827	$	280,868
Nonperforming covered loans (1)									$	22,892										$	19,894

⁽¹⁾  Excludes purchased impaired loans which are accounted for on a pool basis based on common risk characteristics as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Because we are recognizing interest income on each pool of loans, all purchased impaired loans are considered to be performing.

At the date of purchase, all purchased loans and the related indemnification asset were recorded at fair value.

On an ongoing basis, the accounting for purchased loans and the related indemnification asset follows applicable authoritative accounting guidance for purchased nonimpaired loans and purchased impaired loans. The amounts that we realize on these loans and the related indemnification asset could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods. Our losses on these assets may be mitigated to the extent covered under the specific terms and provisions of any loss share agreements.

The allowance for covered loan losses is determined in a manner consistent with our policy for the originated loan portfolio.

21

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

Allowance for Covered Loan Losses

(Amounts in thousands)

	Quarters Ended March 31,
	2012									2011
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Total			Purchased Impaired Loans		Purchased Nonimpaired Loans			Total
Balance at beginning of period	$	14,727		$	11,212		$	25,939		$	8,601	$	6,733		$	15,334
Loans charged-off		—			(2	)		(2	)		—		(1	)		(1	)
Recoveries on loans previously charged-off		46			14			60			2		43			45
Net recoveries		46			12			58			2		42			44
(Release) provision for covered loan losses (1)		(1,902	)		2,228			326			3,087		1,273			4,360
Balance at end of period	$	12,871		$	13,452		$	26,323		$	11,690	$	8,048		$	19,738

⁽¹⁾  Includes a provision for credit losses of $66,000 and $872,000 recorded in the Consolidated Statements of Income for the quarters ended March 31, 2012 and 2011, respectively, representing the Company’s 20% non-reimbursable portion under the loss share agreement.

Disposals (including sales) of loans or foreclosed property result in removal of the asset from the covered asset portfolio at its carrying amount.

Changes in the carrying amount and accretable yield for purchased impaired loans that evidenced deterioration at the acquisition date are set forth in the following table.

Change in Purchased Impaired Loans Accretable Yield and Carrying Amount

(Amounts in thousands)

	Quarters Ended March 31,
	2012						2011
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	5,595		$	49,495		$	13,253		$	71,258
Payments received		—			(1,782	)		—			(3,472	)
Charge-offs/disposals(1)		(6,223	)		(6,223	)		(1,269	)		(1,269	)
Reclassifications from nonaccretable difference, net		4,783			—			5,404			—
Accretion		(512	)		512			(1,460	)		1,460
Balance at end of period	$	3,643		$	42,002		$	15,928		$	67,977
Contractual amount outstanding at period end				$	65,766					$	108,856

⁽¹⁾  Includes transfers to covered foreclosed real estate.

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7. GOODWILL AND OTHER INTANGIBLE ASSETS

Carrying Amount of Goodwill by Operating Segment

(Amounts in thousands)

	March 31,		December 31,
	2012		2011
Banking	$	81,755	$	81,755
Trust and Investments		12,804		12,816
Total goodwill	$	94,559	$	94,571

Goodwill is not amortized but, instead, is subject to impairment tests at least on an annual basis or more often if events or circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is below its carrying value. Our annual goodwill test was performed as of October 31, 2011, and it was determined that no impairment existed as of that date.

There were no impairment charges for goodwill recorded in 2011. The Company is not aware of any events or circumstances that would result in goodwill impairment as of March 31, 2012.

Goodwill decreased by $12,000 during the first quarter of 2012 due to an adjustment for tax benefits associated with the goodwill attributable to Lodestar Investment Counsel, LLC (“Lodestar”), an investment management firm and wholly-owned subsidiary of the Company.

We have other intangible assets capitalized on the Consolidated Statements of Financial Condition in the form of core deposit premiums and client relationships. These intangible assets are being amortized over their estimated useful lives, which range from 8 years to 15 years. We review intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. During first quarter 2012, there were no events or circumstances to indicate there may be impairment of intangible assets, and no impairment charges for other intangible assets were recorded in 2011.

Other Intangible Assets

(Amounts in thousands)

	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Core deposit intangible	$	18,093	$	18,093	$	5,651	$	5,079	$	12,442	$	13,014
Client relationships		4,900		4,900		2,659		2,561		2,241		2,339
Total	$	22,993	$	22,993	$	8,310	$	7,640	$	14,683	$	15,353

Additional Information—Other Intangible Assets

	March 31, 2012
Weighted average remaining life at period end (in years):
Core deposit intangible		5
Client relationships		7

Amortization expense for other intangible assets totaled $670,000 and $376,000 for the quarters ended March 31, 2012 and March 31, 2011, respectively.

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Scheduled Amortization of Other Intangible Assets

(Amounts in thousands)

	Total
Year ending December 31, 2012:
Remaining nine months	$	2,003
2013		3,101
2014		3,190
2015		2,639
2016		2,345
2017 and thereafter		1,405
Total	$	14,683

8. SHORT-TERM BORROWINGS

Summary of Short-Term Borrowings

(Dollars in thousands)

	March 31, 2012					December 31, 2011
	Amount		Rate			Amount		Rate
Outstanding:
FHLB advances	$	355,000		0.16	%	$	156,000		0.33	%
Other Information:
Unused overnight federal funds availability (1)	$	300,000				$	200,000
Borrowing capacity through the FRB’s discount window primary credit program (2)	$	974,853				$	1,074,687
Unused FHLB advances availability	$	285,867				$	261,490
Weighted average remaining maturity of FHLB advances at period end (in months)		0.6					1.8

⁽¹⁾  Our total availability of overnight fed fund borrowings is not a committed line of credit and is dependent upon lender availability.

⁽²⁾  Includes federal term auction facilities. Our borrowing capacity changes each quarter subject to available collateral and FRB discount factors.

As a member of the FHLB Chicago, we have access to a borrowing capacity of $611.2 million at March 31, 2012, of which $285.9 million was available. FHLB advances reported as short-term borrowings represent advances with a remaining maturity of one year or less and are secured by qualifying residential and multi-family mortgages and commercial real estate loans.

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9. LONG-TERM DEBT

Long-Term Debt

(Dollars in thousands)

	March 31, 2012			December 31, 2011
Parent Company:
3.12% junior subordinated debentures due 2034 (1)(a)	$	8,248		$	8,248
2.18% junior subordinated debentures due 2035 (2)(a)		51,547			51,547
1.97% junior subordinated debentures due 2035 (3)(a)		41,238			41,238
10.00% junior subordinated debentures due 2068 (a)		143,760			143,760
Subtotal		244,793			244,793
Subsidiaries:
FHLB advances		15,000			15,000
3.97% subordinated debt facility due 2015 (4)(b)		120,000			120,000
Subtotal		135,000			135,000
Total long-term debt	$	379,793		$	379,793
Weighted average interest rate of FHLB long-term advances at period end		4.42	%		4.42	%
Weighted average remaining maturity of FHLB long-term advances at period end (in months).		46.2			49.2

⁽¹⁾  Variable rate in effect at March 31, 2012, based on three-month LIBOR + 2.65%.

⁽²⁾  Variable rate in effect at March 31, 2012, based on three-month LIBOR + 1.71%.

⁽³⁾  Variable rate in effect at March 31, 2012, based on three-month LIBOR + 1.50%.

⁽⁴⁾  Variable rate in effect at March 31, 2012, based on three-month LIBOR + 3.50%.

^(a)  Qualifies as Tier I capital for regulatory capital purposes; the capital qualification is grandfathered under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

^(b)  Effective in the third quarter 2010, Tier II capital qualification was reduced by 20% of the total balance outstanding and annually thereafter will be reduced by an additional 20%. As of March 31, 2012 and December 31, 2011, 60% of the balance qualified as Tier II capital for regulatory capital purposes.

We have $244.8 million in junior subordinated debentures issued to four separate wholly-owned trusts for the purpose of issuing Company-obligated mandatorily redeemable preferred securities. Refer to Note 10 for further information on the nature and terms of these and previously issued debentures.

FHLB long-term advances, which have fixed interest rates, were secured by residential mortgage-backed securities.

We have $120.0 million outstanding under a 7-year subordinated debt facility due September 2015. The debt facility has a variable rate of interest based on LIBOR plus 3.50%, per annum, payable quarterly and re-prices quarterly. The debt may be prepaid at any time prior to maturity without penalty and is subordinate to any future senior indebtedness.

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

Scheduled Maturities of Long-Term Debt

(Amounts in thousands)

	Total
Year ending December 31,
2013	$	5,000
2014		2,000
2015		123,000
2016		—
2017 and thereafter		249,793
Total	$	379,793

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10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES HELD BY TRUSTS THAT ISSUED GUARANTEED CAPITAL DEBT SECURITIES

As of March 31, 2012, we sponsored, and wholly owned, 100% of the common equity of four trusts that were formed for the purpose of issuing Company-obligated mandatorily redeemable preferred securities (“Trust Preferred Securities”) to third-party investors and investing the proceeds from the sale of the Trust Preferred Securities solely in junior subordinated debt securities of the Company (“Debentures”). The Debentures held by the trusts, which totaled $244.8 million, are the sole assets of each trust. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The guarantee covers the distributions and payments on liquidation or redemption of the Trust Preferred Securities, but only to the extent of funds held by the trusts. We have the right to redeem the Debentures in whole or in part, on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. We may also have the right to redeem the Debentures at an earlier time, if future legislative or regulatory changes impact our capital treatment of the Trust Preferred Securities. We used the proceeds from the sales of the Debentures for general corporate purposes.

Under current accounting rules, the trusts qualify as variable interest entities for which we are not the primary beneficiary and therefore ineligible for consolidation. Accordingly, the trusts are not consolidated in our financial statements. The subordinated Debentures issued by us to the trusts are included in our Consolidated Statements of Financial Condition as “long-term debt” with the corresponding interest distributions recorded as interest expense. The common shares issued by the trusts are included in other assets in our Consolidated Statements of Financial Condition with the related dividend distributions recorded in other non-interest income.

Common Securities, Preferred Securities, and Related Debentures

(Dollars in thousands)

	Issuance Date		Common Securities Issued		Trust Preferred Securities Issued (1)		Coupon Rate (2)			Earliest Redemption Date (on or after) (3)		Maturity		Principal Amount of Debentures (3)
														March 31, 2012		December 31, 2011
Bloomfield Hills Statutory Trust I		May 2004	$	248	$	8,000		3.12	%		Jun. 17, 2009		Jun. 2034	$	8,248	$	8,248
PrivateBancorp Statutory Trust II		Jun. 2005		1,547		50,000		2.18	%		Sep. 15, 2010		Sep. 2035		51,547		51,547
PrivateBancorp Statutory Trust III		Dec. 2005		1,238		40,000		1.97	%		Dec. 15, 2010		Dec. 2035		41,238		41,238
PrivateBancorp Statutory Trust IV		May 2008		10		143,750		10.00	%		Jun. 13, 2013		Jun. 2068		143,760		143,760
Total			$	3,043	$	241,750								$	244,793	$	244,793

⁽¹⁾  The trust preferred securities accrue distributions at a rate equal to the interest rate and maturity identical to that of the related Debentures. The trust preferred securities will be redeemed upon maturity of the related Debentures.

⁽²⁾  Reflects the coupon rate in effect at March 31, 2012. The coupon rate for the Bloomfield Hills Statutory Trust I is a variable rate and is based on three-month LIBOR plus 2.65%. The coupon rates for the PrivateBancorp Statutory Trusts II and III are at a variable rate based on three-month LIBOR plus 1.71% for Trust II and three-month LIBOR plus 1.50% for Trust III. The coupon rate for the PrivateBancorp Statutory Trust IV is fixed. Distributions for all of the Trusts are payable quarterly. We have the right to defer payment of interest on the Debentures at any time or from time to time for a period not exceeding five years provided no extension period may extend beyond the stated maturity of the Debentures. During such extension period, distributions on the trust preferred securities would also be deferred, and our ability to pay dividends on our common stock would be restricted. The Federal Reserve has the ability to prevent interest payments on the Debentures.

⁽³⁾  The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the Debentures at maturity or their earlier redemption. Subject to restrictions relating to our participation in the TARP CPP, the Debentures are redeemable in whole or in part prior to maturity at any time after the dates shown in the table, and earlier at our discretion if certain conditions are met, and, in any event, only after we have obtained Federal Reserve approval, if then required under applicable guidelines or regulations.

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11. EQUITY

Comprehensive Income

Components of Accumulated Other Comprehensive Income

(Amounts in thousands)

	Quarters Ended March 31,
	2012									2011
	Unrealized Gain (Loss) on Available-for- Sale Securities			Accumulated Gain (Loss) on Effective Cash Flow Hedges			Total			Unrealized Gain (Loss) on Available-for- Sale Securities
Balance at beginning of period	$	45,140		$	1,557		$	46,697		$	20,078
Increase in unrealized gains (losses) on securities		275			—			275			(1,185	)
Increase in unrealized gains on cash flow hedges		—			1,146			1,146			—
Deferred tax liability on increase in unrealized gains (losses)		(159	)		(456	)		(615	)		467
Reclassification adjustment of net gains (losses) included in net income		(62	)		(522	)		(584	)		(393	)
Reclassification adjustment for tax expense on realized net gains (losses)		25			208			233			154
Balance at end of period	$	45,219		$	1,933		$	47,152		$	19,121

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12. EARNINGS PER COMMON SHARE

Basic and Diluted Earnings per Common Share

(Amounts in thousands, except per share data)

	Quarters Ended March 31,
	2012			2011
Basic earnings per common share
Net income attributable to controlling interests	$	14,255		$	10,902
Preferred dividends and discount accretion of preferred stock		(3,436	)		(3,415	)
Net income available to common stockholders		10,819			7,487
Earnings allocated to participating stockholders(1)		(169	)		(132	)
Earnings allocated to common stockholders	$	10,650		$	7,355
Weighted-average common shares outstanding		70,780			70,347
Basic earnings per common share	$	0.15		$	0.10
Diluted earnings per common share
Earnings allocated to common stockholders (2)	$	10,650		$	7,356
Weighted-average common shares outstanding:
Weighted-average common shares outstanding		70,780			70,347
Dilutive effect of stock awards		152			49
Weighted-average diluted common shares outstanding		70,932			70,396
Diluted earnings per common share	$	0.15		$	0.10
Antidilutive shares not included in diluted earnings per common share computation(3):
Stock options		3,489			3,162
Unvested stock/unit awards		105			605
Warrant related to the U.S. Treasury Capital Purchase Program		645			645
Total antidilutive shares		4,239			4,412

⁽¹⁾  Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities (i.e., the Company’s deferred stock units and nonvested restricted stock awards and restricted stock units, excluding certain awards with forfeitable rights to dividends).

⁽²⁾  Earnings allocated to common stockholders for basic and diluted earnings per share may differ under the two-class method as a result of adding common stock equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to allocate earnings to common stockholders and participating securities for the purposes of calculating diluted earnings per share.

⁽³⁾  For the quarters ended March 31, 2012 and 2011, represents potentially dilutive common stock securities for which the exercise price for the stock options and warrants and fair value of non-vested restricted stock/units was greater than the average market price of our common stock during the period.

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13. INCOME TAXES

Income Tax Provision Analysis

(Dollars in thousands)

	Quarters Ended March 31,
	2012			2011
Income before income taxes	$	23,950		$	13,253
Income tax provision:
Current income tax provision	$	1,247		$	2,141
Deferred income tax provision		8,448			138
Total income tax provision	$	9,695		$	2,279
Effective tax rate		40.5	%		17.2	%

Deferred Tax Assets

Net deferred tax assets totaled $97.5 million at March 31, 2012 and $106.3 million at December 31, 2011. Net deferred tax assets are included in other assets in the accompanying Consolidated Statements of Financial Condition.

At March 31, 2012, we concluded that it was more likely than not the deferred tax assets will be realized and no valuation allowance was recorded. In making this determination, we relied primarily on the fact that we were not in a cumulative book loss position for financial statement purposes, measured on a trailing three-year basis. In addition, we considered our recent earnings history, on both a book and tax basis, and our outlook for earnings in future periods. Our expectation of pre-tax book earnings in future periods should give rise to taxable income levels (exclusive of reversing temporary differences) that more likely than not will be sufficient to absorb the deferred tax assets.

As of March 31, 2012 and December 31, 2011, there were $459,000 and $454,000 respectively, of unrecognized tax benefits relating to uncertain tax positions that would favorably affect the effective tax rate, if recognized in future periods.

14. DERIVATIVE INSTRUMENTS

We utilize an overall risk management strategy that incorporates the use of derivative instruments to reduce interest rate risk, as it relates to mortgage loan commitments and planned sales, and foreign currency volatility. We also use these instruments to accommodate our clients as we provide them with risk management solutions. None of the above-mentioned end-user and client-related derivatives were designated as hedging instruments at March 31, 2012 and December 31, 2011.

We also use interest rate derivatives to hedge interest rate risk in our loan portfolio which is comprised primarily of floating rate loans. These derivatives are designated as cash flow hedges.

Derivatives expose us to counterparty credit risk. Credit risk is managed through our standard underwriting process. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. Additionally, credit risk is managed through the use of collateral and netting agreements.

29

Composition of Derivative Instruments

and Fair Value

(Amounts in thousands)

	Asset Derivatives										Liability Derivatives
	March 31, 2012					December 31, 2011					March 31, 2012					December 31, 2011
	Notional(1)		Fair Value			Notional(1)		Fair Value			Notional(1)		Fair Value			Notional(1)		Fair Value
Derivatives designated as hedging instruments(2):
Interest rate contracts	$	275,000	$	2,185		$	200,000	$	2,586		$	25,000	$	46		$	—	$	—
Derivatives not designated as hedging instruments:
Capital markets group derivatives(4):
Interest rate contracts	$	3,146,830	$	101,531		$	2,985,774	$	104,482		$	3,146,830	$	104,624		$	2,985,774	$	107,612
Foreign exchange contracts		120,920		4,139			101,401		5,203			120,920		3,329			101,401		4,517
Credit contracts(1)		30,400		10			43,218		12			123,480		31			94,921		32
Subtotal				105,680					109,697					107,984					112,161
Netting adjustments(3)				(7,875	)				(8,021	)				(7,875	)				(8,021	)
Total			$	97,805				$	101,676				$	100,109				$	104,140
Other derivatives(2):
Foreign exchange contracts	$	—	$	—		$	8,217	$	196		$	2,589	$	13		$	3,883	$	26
Mortgage banking derivatives				175					563					218					683
Subtotal				175					759					231					709
Total derivatives not designated as hedging instruments			$	97,980				$	102,435				$	100,340				$	104,849
Grand total derivatives			$	100,165				$	105,021				$	100,386				$	104,849

⁽¹⁾  The remaining average notional amounts are shown for credit contracts.

⁽²⁾  Derivative assets and liabilities designated as hedging instruments and other derivative assets and liabilities not designated as hedging instruments are reported in other assets and other liabilities on the Consolidated Statements of Financial Condition, respectively.

⁽³⁾  Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract.

⁽⁴⁾  Capital markets group asset and liability derivatives are reported separately on the Consolidated Statements of Financial Condition.

Certain of our derivative contracts contain embedded credit risk contingent features that if triggered either allow the derivative counterparty to terminate the derivative or require additional collateral. These contingent features are triggered if we do not meet specified financial performance indicators such as minimum capital ratios under the federal banking agencies’ guidelines. All requirements were met on March 31, 2012 and December 31, 2011.

30

Details on these derivative contracts are set forth in the following table.

Derivatives Subject to Credit Risk Contingency Features

(Amounts in thousands)

	March 31, 2012		December 31, 2011
Fair value of derivatives with credit contingency features in a net liability position	$	56,529	$	56,586
Collateral posted for those transactions in a net liability position	$	57,323	$	56,082
If credit risk contingency features were triggered:
Additional collateral required to be posted to derivative counterparties	$	671	$	321
Outstanding derivative instruments that would be immediately settled	$	49,604	$	48,677

Derivatives Designated in Hedge Relationships

Our objectives in using interest rate derivatives are to add stability to interest income and to manage our exposure to interest rate movements.

Cash flow hedges – Commencing in the third quarter of 2011, we entered into receive fixed/pay variable interest rate swaps 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. We use regression analysis to assess the effectiveness of cash flow hedges at both the inception of the hedge relationship and on an ongoing basis. Ineffectiveness is generally measured as the amount by which the cumulative change in fair value of the hedging instrument exceeds the present value of the cumulative change in the expected cash flows of the hedged item. Measured ineffectiveness is recognized directly in other non-interest income in the Consolidated Statements of Income. The effective portion of the gains or losses on cash flow hedges are recorded, net of tax, in accumulated other comprehensive income (“AOCI”) and are subsequently reclassified to interest income on loans in the period that the hedged interest cash flows affect earnings. As of March 31, 2012, the maximum length of time over which forecasted interest cash flows are hedged is seven years. There are no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to our cash flow hedge strategy.

Change in Accumulated Other Comprehensive Income

Related to Interest Rate Swaps Designated as Cash Flow Hedge

(Amounts in thousands)

	Quarter Ended March 31,
	2012
Unrealized gain at beginning of period	$	2,586
Amount of gain recognized in AOCI		1,146
Amount reclassified from AOCI to interest income on loans		(522	)
Unrealized gain at end of period	$	3,210

As of March 31, 2012, $1.8 million in net deferred gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to March 31, 2012.

Gain (Loss) Recorded in Consolidated Statements of Income

and Accumulated Other Comprehensive Income Related to

Interest Rate Swaps Designated as Cash Flow Hedge

(Amounts in thousands)

	Quarter Ended March 31
	2012
Amount of gain, net of tax, recognized in AOCI (effective portion)	$	690
Amount of gain, pre-tax, reclassified from AOCI to interest income on loans		522

31

During the first quarter 2012, there were no gains or losses from cash flow hedge derivatives related to ineffectiveness that were reclassified to current earnings. We are required to reclassify such gains or losses related to ineffectiveness in circumstances where the original forecasted transaction was no longer probable of occurring.

Derivatives Not Designated in Hedge Relationships

End-User Derivatives – We enter into derivatives that include commitments to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of residential mortgage loans. It is our practice to enter into forward commitments for the future delivery of residential mortgage loans when customer interest rate lock commitments are entered into to economically hedge the effect of changes in interest rates on our commitments to fund the loans as well as on our portfolio of mortgage loans held-for-sale. At March 31, 2012, we had approximately $118.5 million of interest rate lock commitments and $143.2 million of forward commitments for the future delivery of residential mortgage loans with rate locks at rates consistent with the lock commitment.

We are also exposed at times to foreign exchange risk as a result of issuing loans in which the principal and interest are settled in a currency other than U.S. dollars. Currently our exposure is to the Euro and British pound on $2.6 million of loans and we manage this risk by using currency forward derivatives.

Client Related Derivatives – We offer, through our capital markets group, over-the-counter interest rate and foreign exchange derivatives to our clients, including but not limited to, interest rate swaps, options on interest rate swaps, interest rate options (also referred to as caps, floors, collars, etc.), foreign exchange forwards, and options as well as cash products such as foreign exchange spot transactions. When our clients enter into an interest rate or foreign exchange derivative transaction with us, we mitigate our exposure to market risk through the execution of off-setting positions with inter-bank dealer counterparties. Although the off-setting nature of transactions originated by our capital markets group limit our market risk exposure, they do expose us to other risks including counterparty credit, settlement, and operational risk.

To accommodate our loan clients, we occasionally enter into risk participation agreements (“RPA”) with counterparty banks to either accept or transfer a portion of the credit risk related to their interest rate derivatives. This allows clients to execute an interest rate derivative with one bank while allowing for distribution of the credit risk among participating members. We have entered into written RPAs in which we accept a portion of the credit risk associated with a loan client’s interest rate derivative in exchange for a fee. We manage this credit risk through our loan underwriting process, and when appropriate, the RPA is backed by collateral provided by our clients under their loan agreement.

The current payment/performance risk of written RPAs is assessed using internal risk ratings which range from 1 to 8 with the latter representing the highest credit risk. The risk rating is based on several factors including the financial condition of the RPA’s underlying derivative counterparty, present economic conditions, performance trends, leverage, and liquidity.

The maximum potential amount of future undiscounted payments that we could be required to make under our written RPAs assumes that the underlying derivative counterparty defaults and that the floating interest rate index of the underlying derivative remains at zero percent. In the event that we would have to pay out any amounts under our RPAs, we will seek to recover these amounts from assets that our clients pledged as collateral for the derivative and the related loan.

Risk Participation Agreements

(Dollars in thousands)

	March 31, 2012			December 31, 2011
Fair value of written RPAs	$	(31	)	$	(32	)
Range of remaining terms to maturity (in years)		Less than 1 to 5			Less than 1 to 4
Range of assigned internal risk ratings		2 to 4			3 to 4
Maximum potential amount of future undiscounted payments	$	4,377		$	3,075
Percent of maximum potential amount of future undiscounted payments covered by proceeds from liquidation of pledged collateral		50	%		55	%

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Gain (Loss) Recognized on Derivative Instruments

Not Designated in Hedging Relationship

(Amounts in thousands)

	Quarters Ended March 31,
	2012			2011
Gain on derivatives recognized in capital markets products income:
Interest rate contracts	$	5,522		$	3,456
Foreign exchange contracts		1,692			1,000
Credit contracts		135			33
Total capital markets group derivatives		7,349			4,489
Gain (loss) on other derivatives recognized in deposit service charges and fees and other income:
Foreign exchange derivatives		(182	)		(138	)
Mortgage banking derivatives		77			68
Total other derivatives		(105	)		(70	)
Total derivatives	$	7,244		$	4,419

15. COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Extension Commitments and Guarantees

In the normal course of business, we enter into a variety of financial instruments with off-balance sheet risk to meet the financing needs of our clients and to conduct lending activities. These instruments principally include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts reflected in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments

(Amounts in thousands)

	March 31, 2012		December 31, 2011
Commitments to extend credit:
Home equity lines	$	155,695	$	159,072
Residential 1-4 family construction - secured		31,569		34,167
Commercial real estate - secured		618,852		539,667
Commercial and industrial		3,184,890		3,197,347
All other commitments		175,511		176,916
Total commitments to extend credit	$	4,166,517	$	4,107,169
Letters of credit:
Financial standby	$	294,469	$	341,502
Performance standby		25,784		26,212
Commercial letters of credit		3,347		2,127
Total letters of credit	$	323,600	$	369,841

Commitments to extend credit are agreements to lend funds to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and variable interest rates tied to the prime rate or LIBOR and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash-flow requirements. As of March 31, 2012, we had a reserve for unfunded commitments of $8.2 million, which reflects our estimate of inherent losses associated with these commitment obligations. The reserve is recorded in other liabilities in the Consolidated Statements of Financial Condition.

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Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third-party. Standby letters of credit include performance and financial guarantees for clients in connection with contracts between our clients and third parties. Standby letters of credit are agreements where we are obligated to make payment to a third-party on behalf of a client in the event the client fails to meet their contractual obligations. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the client and third-party.

In the event of a client’s nonperformance, our credit loss exposure is equal to the contractual amount of those commitments. We manage this credit risk in a similar manner to evaluating credit risk in extending loans to clients under our credit policies. We use the same credit policies in making credit commitments as for on-balance sheet instruments, mitigating exposure to credit loss through various collateral requirements, if deemed necessary. In the event of nonperformance by the clients, we have rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

The maximum potential future payments guaranteed by us under standby letters of credit arrangements are equal to the contractual amount of the commitment. The unamortized fees associated with standby letters of credit, which are included in other liabilities in the Consolidated Statements of Financial Condition, totaled $1.3 million as of March 31, 2012. We amortize these amounts into income over the commitment period. As of March 31, 2012, standby letters of credit had a remaining weighted-average term of approximately 15 months, with remaining actual lives ranging from less than 1 year to 19 years.

Credit Card Settlement Guarantees

Our third-party corporate credit card vendor issues corporate purchase credit cards on behalf of our commercial clients. The corporate purchase credit cards are issued to employees of certain of our commercial clients at the client’s direction and used for payment of business-related expenses. In most circumstances, these cards will be underwritten by our third-party vendor. However, in certain circumstances, we may enter into a recourse agreement, which transfers the credit risk from the third-party vendor to us in the event that the client fails to meet its financial payment obligation. In these circumstances, a total maximum exposure amount is established for our corporate client. In addition to the obligations presented in the prior table, the maximum potential future payments guaranteed by us under this third-party settlement guarantee is $3.4 million at March 31, 2012.

We believe that the estimated amounts of maximum potential future payments are not representative of our actual potential loss given our insignificant historical losses from this third-party settlement guarantee program. As of March 31, 2012, we have not recorded any contingent liability in the consolidated financial statements for this settlement guarantee program, and management believes that the probability of any payments under this arrangement is remote.

Mortgage Loans Sold with Recourse

Certain mortgage loans sold have limited recourse provisions. We recorded no losses for the quarter ended March 31, 2012 arising from limited recourse provisions. The losses for the quarter ended March 31, 2011 arising from limited recourse provisions were not material. Based on this experience, the Company has not established any liability for potential future payments relating to mortgage loans sold in prior periods.

Legal Proceedings

As of March 31, 2012, there were various legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. Management does not believe that the outcome of these proceedings will have, individually or in the aggregate, a material adverse effect on the Company’s results of operations, financial condition or cash flows.

16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

We measure, monitor, and disclose certain of our assets and liabilities on a fair value basis. Fair value is used on a recurring basis to account for securities available-for-sale, mortgage loans held for sale, derivative assets, derivative liabilities, and certain other assets and other liabilities. In addition, fair value is used on a non-recurring basis to apply lower-of-cost-or-market accounting to foreclosed real estate and certain other loans held for sale, evaluate assets or liabilities for impairment, including collateral-dependent impaired loans, and for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, we use various valuation techniques and input assumptions when estimating fair value.

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U.S. GAAP requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements. The three levels of the fair value hierarchy are defined as follows:

• Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets.

• Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Valuation Methodology

We believe our valuation methods are appropriate and consistent with other market participants. However, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. Additionally, the methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

The following describes the valuation methodologies we use for assets and liabilities measured at fair value, including the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Securities Available-for-Sale – Securities available-for-sale include U.S. Treasury, collateralized mortgage obligations, residential mortgage-backed securities, state and municipal securities, and foreign sovereign debt. Substantially all available-for-sale securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. U.S. Treasury securities have been classified in level 1 of the valuation hierarchy. All other remaining securities are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from external pricing services, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While our validation procedures may result in the use of a price obtained from our primary pricing source or our secondary pricing source, we have not altered the fair values obtained from the external pricing services.

Mortgage Loans Held for Sale – Mortgage loans held for sale represent mortgage loan originations intended to be sold in the secondary market. We have elected the fair value option for mortgage loans originated with the intention of selling to a third party bank. The election of the fair value option aligns the accounting for these loans with the related mortgage banking derivatives used to economically hedge them. These mortgage loans are measured at fair value as of each reporting date, with changes in fair value recognized through mortgage banking non-interest income. The fair value of mortgage loans held for sale is determined based on prices obtained for loans with similar characteristics from third party sources. On a quarterly basis, the Company validates the overall reasonableness of the fair values obtained from third party sources by comparing prices obtained to prices received from various other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. Mortgage loans held for sale are classified in level 2 of the valuation hierarchy.

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Collateral-Dependent Impaired Loans – We do not record loans held for investment at fair value on a recurring basis. However, periodically, we record nonrecurring adjustments to reduce the carrying value of certain impaired loans based on fair value measurement. This population of impaired loans includes those for which repayment of the loan is expected to be provided solely by the underlying collateral. We measure the fair value of collateral-dependent impaired loans based on the fair value of the collateral securing these loans. Substantially all collateral-dependent impaired loans are secured by real estate with the fair value generally determined based upon appraisals performed by a certified or licensed appraiser using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. We also consider other factors or recent developments that could result in adjustments to the collateral value estimates indicated in the appraisals. Accordingly, fair value estimates for collateral-dependent impaired loans are classified in level 3 of the valuation hierarchy. The carrying value of all impaired loans and the related specific reserves are disclosed in Note 4.

When collateral-dependent loans are determined to be impaired, updated appraisals for loans in excess of $500,000 are typically obtained every twelve months and evaluated internally by our appraisal department at least every six months. In addition, both borrower and market-specific factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement. Any appraisal with a value in excess of $250,000 but less than $500,000 will be reviewed upon request only. Appraisals received with a value in excess of $1.0 million require a technical review. Appraisals are either reviewed internally by our appraisal department or sent to an outside firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the loan and its collateral. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. To validate the reasonableness of the appraisals obtained, the Company compares the appraised value to the actual sales price of certain properties sold and analyzes the reasons why a property may be sold for less than its appraised value.

Covered Asset OREO and OREO – Covered asset OREO and OREO generated from our originated book of business are valued on a nonrecurring basis using third-party appraisals of each property and our judgment of other relevant market conditions and are classified in level 3 of the valuation hierarchy. Updated appraisals on both OREO portfolios are typically obtained every twelve months and evaluated internally at least every six months. In addition, both property-specific and market-specific factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. Any appraisal with a value in excess of $250,000 is subject to a compliance review. Appraisals received with a value in excess of $1.0 million are subject to a technical review. Appraisals are either reviewed internally by our appraisal department or sent to an outside technical firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the OREO. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. To validate the reasonableness of the appraisals obtained, the Company compares the appraised value to the actual sales price of properties sold and analyzes the reasons why a property may be sold for less than its appraised value.

Capital Market Derivative Assets and Derivative Liabilities – Client-related derivative instruments with positive fair values are reported as an asset and derivative instruments with negative fair value are reported as liabilities, in both cases after taking into account the effects of master netting agreements. For derivative counterparties with which we have a master netting agreement, we elect to measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value of client-related derivative assets and liabilities is determined based on prices obtained from third party advisors using standardized industry models. Many factors affect derivative values, including the level of interest rates, the market’s perception of our nonperformance risk as reflected in our credit spread, and our assessment of counterparty nonperformance risk. The nonperformance risk assessment is based on our evaluation of credit risk, or if available, on observable external assessments of credit risk. Values of client-related derivative assets and liabilities are primarily based on observable inputs and are generally classified in level 2 of the valuation hierarchy. Level 3 derivatives include risk participation agreements and derivatives associated with clients whose loans are risk rated 6 or higher (“watch list derivative”). Refer to “Credit Quality Indicators” in Note 4 for further discussion on risk ratings. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While we may challenge prices obtained from third party advisors based on our validation procedures, we have not altered the fair values ultimately provided by the third party advisors.

The Company uses level 3 valuation inputs for its risk participation agreements and watch list derivatives. For these derivatives, the Company obtains prices from third party advisors, consistent with the valuation processes employed for the Company’s derivatives

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classified in level 2 of the fair value hierarchy, and then applies loss factors to adjust the prices obtained from third party advisors. The significant unobservable inputs that are employed in the valuation process for the risk participation agreements and watch list derivatives that cause these derivatives to be classified in level 3 of the fair value hierarchy are the historic loss factors specific to the particular industry segment and risk rating category. The loss factors are updated quarterly and are derived and aligned with the loss factors utilized in the calculation of the Company’s general reserve component of the allowance for loan losses. Changes in the fair value measurement of risk participation agreements and watch list derivatives are largely due to changes in the fair value of the derivative and to changes in the pertinent historic average loss rate.

Other Assets and Other Liabilities – Included in other assets and other liabilities are cash flow hedges designated in a hedging relationship and other end-user derivative instruments that we use to manage our foreign exchange and interest rate risk. Those derivative instruments with a positive fair value are reported as assets and those with a negative fair value are reported as liabilities. For derivative counterparties with which we have a master netting agreement, we elect to measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value is determined based on prices obtained from third party advisors. These derivative assets and liabilities are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. While we may challenge prices obtained from third party advisors based on our validation procedures, we have not altered the fair values ultimately provided by the third party advisors.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the hierarchy level and fair value for each major category of assets and liabilities measured at fair value at March 31, 2012 and December 31, 2011 on a recurring basis.

Fair Value Measurements on a Recurring Basis

(Amounts in thousands)

	March 31, 2012								December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobserv- able Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobserv- able Inputs (Level 3)		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	87,942	$	—	$	—	$	87,942	$	61,521	$	—	$	—	$	61,521
U.S. Agencies		—		—		—		—		—		10,034		—		10,034
Collateralized mortgage obligations		—		329,559		—		329,559		—		356,000		—		356,000
Residential mortgage- backed securities		—		1,112,722		—		1,112,722		—		1,189,213		—		1,189,213
State and municipal		—		174,926		—		174,926		—		166,197		—		166,197
Foreign sovereign debt		—		500		—		500		—		500		—		500
Total securities available-for-sale		87,942		1,617,707		—		1,705,649		61,521		1,721,944		—		1,783,465
Mortgage loans held for sale		—		24,745		—		24,745		—		32,049		—		32,049
Capital market derivative assets(1)		—		96,762		1,043		97,805		—		100,849		827		101,676
Other assets(2)		—		175		—		175		—		759		—		759
Total assets	$	87,942	$	1,739,389	$	1,043	$	1,828,374	$	61,521	$	1,855,601	$	827	$	1,917,949
Liabilities:
Capital market derivative liabilities(1)	$	—	$	100,078	$	31	$	100,109	$	—	$	104,108	$	32	$	104,140
Other liabilities(2)		—		231		—		231		—		709		—		709
Total liabilities	$	—	$	100,309	$	31	$	100,340	$	—	$	104,817	$	32	$	104,849

⁽¹⁾  Capital market derivative assets and derivative liabilities include client-related derivatives.

⁽²⁾  Other assets and other liabilities include derivatives designated in hedging relationships, derivatives for commitments to fund certain mortgage loans held for sale and end-user foreign exchange derivatives.

If a change in valuation techniques or input assumptions for an asset or liability occurred between periods, we would consider whether this would result in a transfer between the three levels of the fair value hierarchy. There have been no transfers of assets or liabilities between level 1 and level 2 of the valuation hierarchy between December 31, 2011 and March 31, 2012.

There have been no changes in the valuation techniques and related inputs we used for assets and liabilities measured at fair value on a recurring basis from December 31, 2011 to March 31, 2012.

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Reconciliation of Beginning and Ending Fair Value for Those

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

(Amounts in thousands)

	Quarters Ended March 31,
	2012						2011
	Derivative Assets			Derivative (Liabilities)			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	827		$	(32	)	$	4,654		$	(9	)
Total gains (losses):
Included in earnings (1)		51			137			(276	)		29
Purchases, issuances, sales and settlements:
Issuances		—						21			(30	)
Settlements		(250	)		(136	)		(1,354	)		—
Level 3 transfers in (out), net		415			—			190			—
Balance at end of period	$	1,043		$	(31	)	$	3,235		$	(10	)
Change in unrealized gains (losses) in earnings relating to assets and liabilities still held at end of period	$	53		$	138		$	68		$	(29	)

⁽¹⁾  Amounts disclosed in this line are included in capital markets products income in the Consolidated Statements of Income.

During the quarters ended March 31, 2012 and 2011, respectively, $523,000 and $500,000 of derivative assets were transferred from level 2 to level 3 of the valuation hierarchy due to a lack of observable market data, as there was deterioration in the credit risk of the derivative counterparty. Also, during the quarters ended March 31, 2012 and 2011, respectively, $108,000 and $310,000 of derivative assets were transferred from level 3 to level 2 of the valuation hierarchy due to an improvement in the credit risk of the counterparty. We recognize transfers in and transfers out at the end of each quarterly reporting period.

Financial Instruments Recorded Using the Fair Value Option

Difference Between Aggregate Fair Value and Aggregate Remaining Principal Balance

for Mortgage Loans Held For Sale Elected to be Carried at Fair Value ⁽¹⁾

(Amounts in thousands)

	March 31, 2012			December 31, 2011
Aggregate fair value	$	24,745		$	32,049
Difference		(43	)		(120	)
Aggregate unpaid principal balance	$	24,702		$	31,929

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

As of March 31, 2012 and December 31, 2011, none of the mortgage loans held for sale were on nonaccrual or 90 days or more past due and still accruing interest. Changes in fair value due to instrument-specific credit risk for the quarters ended March 31, 2012 were not material.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

From time to time, we may be required to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets when there is evidence of impairment. The following table presents the fair value of those assets that were subject to fair value adjustments during the first three months of 2012 and 2011, and still held at March 31, 2012 and 2011, respectively. All fair value measurements on a nonrecurring basis were measured using level 3 of the valuation hierarchy.

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Fair Value Measurements on a Nonrecurring Basis

(Amounts in thousands)

	Fair Value				Losses
	March 31,				For the Quarters Ended March 31,
Financial Asset	2012		2011		2012		2011
Collateral-dependent impaired loans (1)	$	100,273	$	183,461	$	19,215	$	20,002
Covered assets—OREO (2) (3)		6,313		2,966		497		197
OREO (2)		24,986		16,032		4,522		4,762
Total	$	131,572	$	202,459	$	24,234	$	24,961

⁽¹⁾  Represents fair value of loans for which adjustments are based on the appraised value of the collateral and had a write-down in fair value or whose specific reserve changed during the respective period. These fair value adjustments are recognized as part of the provision for loan losses charged to earnings.

⁽²⁾  Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as foreclosed assets. Write-downs are recognized as a component of net foreclosed real estate expense in the Consolidated Statements of Income.

⁽³⁾  The write-down loss on covered asset OREO represents the 20% portion of the write-down not reimbursed by the FDIC.

There have been no changes in the valuation techniques and related inputs we used for assets and liabilities measured at fair value on a nonrecurring basis from December 31, 2011 to March 31, 2012.

Additional Information Regarding Level 3 Fair Value Measurements

The following table presents information regarding the unobservable inputs developed by the Company for its level 3 fair value measurements.

Quantitative Information Regarding Level 3 Fair Value Measurements

(Dollars in thousands)

Financial Instrument	Fair Value of Assets/ (Liabilities) at March 31, 2012			Valuation Technique(s)	Unobservable Input	Range		Weighted Average
Watch list derivatives	$	1,106		Discounted cash flow	Loss factors		3.4 - 16.9%		6.0	%
Risk participation agreements		(517	)(1)	Discounted cash flow	Loss factors		0.0 - 1.5%		0.5	%
Collateral-dependent impaired loans		100,273		Sales comparison, income capitalization and/or cost approach	Property specific adjustment		1.0 - 35.0%		5.0	%(2)
OREO	$	24,986		Sales comparison, income capitalization and/or cost approach	Property specific adjustment		3.0 - 44.0%		9.0	%(2)

⁽¹⁾  Represents fair value of underlying swap.

⁽²⁾  Weighted average is calculated based on assets with a property specific adjustment.

The significant unobservable inputs used in the fair value measurement of the reporting entity’s risk participation agreements and watch list derivatives are the historic loss factors. A significant increase (decrease) in the pertinent loss factor would result in a significantly lower (higher) fair value measurement.

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Estimated Fair Value of Certain Financial Instruments

U.S. GAAP requires disclosure of the estimated fair values of certain financial instruments, both assets and liabilities, on and off-balance sheet, for which it is practical to estimate the fair value. Because the estimated fair values provided herein exclude disclosure of the fair value of certain other financial instruments and all non-financial instruments, any aggregation of the estimated fair value amounts presented would not represent total underlying value. Examples of non-financial instruments having significant value include the future earnings potential of significant customer relationships and the value of Trust and Investments’ operations and other fee-generating businesses. In addition, other significant assets including property, plant, and equipment and goodwill are not considered financial instruments and, therefore, have not been valued.

Various methodologies and assumptions have been utilized in management’s determination of the estimated fair value of our financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based on relevant market information. Because no market exists for a significant portion of these financial instruments, fair value estimates are based on judgments regarding future expected economic conditions, loss experience, and risk characteristics of the financial instruments. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In addition to the valuation methodology explained above for financial instruments recorded at fair value, the following methods and assumptions were used in estimating the fair value of financial instruments that are carried at cost in the Consolidated Statements of Financial Condition and includes the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Short-term financial assets and liabilities – For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments include cash and due from banks (level 1), federal funds sold and other short-term investments (level 2), accrued interest receivable (level 3), and accrued interest payable (level 3). Accrued interest receivable and accrued interest payable are classified consistent with the hierarchy of their corresponding assets and liabilities.

Securities Held-to-Maturity – The fair value of securities held-to-maturity is based on quoted market prices or dealer quotes (level 2). If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Non-marketable equity investments – Non-marketable equity investments include FHLB stock (level 2) and other various non-marketable equity securities (level 3). The carrying value of FHLB stock approximates fair value as the stock is non-marketable, but can only be sold to the FHLB or another member institution at par. The carrying value of all other non-marketable equity investments approximates fair value.

Loans – The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan (level 3). The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each loan classification. The estimation is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Covered assets – Covered assets include the acquired loans and foreclosed loan collateral (including the fair value of expected reimbursements from the FDIC). The fair value of covered assets is calculated by discounting expected cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the asset (level 3). The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each asset classification. The estimate is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Investment in BOLI – The fair value of our investment in bank owned life insurance is equal to its cash surrender value (level 3).

Deposit liabilities – The fair values disclosed for noninterest-bearing deposits, savings deposits, interest-bearing demand deposits, and money market deposits is approximated by the amount payable on demand at the reporting date (i.e., their carrying amounts) (level 2). The fair values for certificate of deposits and brokered deposits were estimated using present value techniques by discounting the future cash flows at rates based on internal models and broker quotes (level 3).

Short-term borrowings – The fair value of repurchase agreements and FHLB advances with remaining maturities of one year or less is estimated by discounting the obligations using the rates currently offered for repurchase agreements or borrowings of similar remaining maturities (level 2). The carrying amounts of funds purchased and other borrowed funds approximate their fair value due to their short-term nature (level 2).

Long-term debt – The fair value of subordinated debt (level 3), FHLB advances with remaining maturities greater than one year (level 2), and the junior subordinated debentures (fixed rate is level 2; variable rate is level 3) are estimated by discounting future cash flows. For level 2 instruments, the Company discounts cash flows using quoted interest rates for similar financial instruments. For level 3 instruments, the Company interpolates a discount rate it believes is appropriate based on quoted interest rates and entity specific adjustments.

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Commitments – Given the limited interest rate exposure posed by the commitments outstanding at period end due to their variable rate structure, termination clauses provided in the agreements, and the market rate of fees charged, we have deemed the fair value of commitments outstanding to be immaterial.

Financial Instruments

(Amounts in thousands)

	As of
	March 31, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and due from banks	$	166,062	$	166,062	$	156,131	$	156,131
Federal funds sold and other short-term investments		193,571		193,571		205,610		205,610
Loans held for sale		29,185		29,185		32,049		32,049
Securities available-for-sale		1,705,649		1,705,649		1,783,465		1,783,465
Securities held-to-maturity		598,066		602,355		490,143		493,230
Non-marketable equity investments		43,882		43,882		43,604		43,604
Loans, net of allowance for loan losses and unearned fees		9,038,409		8,851,486		8,816,967		8,465,358
Covered assets, net of allowance for covered loan losses		250,211		277,153		280,868		306,976
Accrued interest receivable		36,033		36,033		35,732		35,732
Investment in BOLI		51,356		51,356		50,966		50,966
Capital markets derivative assets		97,805		97,805		101,676		101,676
Financial Liabilities:
Deposits	$	10,422,712	$	10,435,101	$	10,392,854	$	10,405,158
Short-term borrowings		355,000		355,020		156,000		156,047
Long-term debt		379,793		358,869		379,793		343,121
Accrued interest payable		5,425		5,425		5,567		5,567
Capital markets derivative liabilities		100,109		100,109		104,140		104,140

17. OPERATING SEGMENTS

We have three primary operating segments: Banking, Trust and Investments and the Holding Company. With respect to the Banking and Trust and Investments’ segments, each is delineated by the products and services that each segment offers. The Banking operating segment is comprised of commercial and personal banking services, including mortgage originations. Commercial banking services are primarily provided to corporations and other business clients and include a wide array of lending and cash management products. Personal banking services offered to individuals, professionals, and entrepreneurs include direct lending and depository services. The Trust and Investments segment includes certain activities of our PrivateWealth group, including investment management, investment advisory, personal trust and estate administration, custodial and escrow, retirement account administration, and brokerage services. The activities of the third operating segment, the Holding Company, include the direct and indirect ownership of our banking subsidiary, the issuance of debt and intersegment eliminations.

The accounting policies of the individual operating segments are the same as those of the Company as described in Note 1, “Summary of Significant Accounting Policies,” to the Notes to Consolidated Financial Statements of our 2011 Annual Report on Form 10-K. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated from consolidated results of operations. Financial results for each segment are presented below. For segment reporting purposes, the statement of financial condition of Trust and Investments is included with the Banking segment.

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Operating Segments Performance

(Amounts in thousands)

	Quarters Ended March 31,
	Banking				Trust and Investments				Holding Company and Other Adjustments						Consolidated
	2012		2011		2012		2011		2012			2011			2012		2011
Net interest income (loss)	$	108,563	$	106,677	$	695	$	602	$	(4,882	)	$	(4,726	)	$	104,376	$	102,553
Provision for loan and covered loan losses		27,701		37,578		—		—		—			—			27,701		37,578
Non-interest income		23,255		18,679		4,219		4,959		30			(11	)		27,504		23,627
Non-interest expense		68,968		64,459		4,686		5,035		6,575			5,855			80,229		75,349
Income (loss) before taxes		35,149		23,319		228		526		(11,427	)		(10,592	)		23,950		13,253
Income tax provision (benefit)		13,680		6,156		91		210		(4,076	)		(4,087	)		9,695		2,279
Net income (loss)		21,469		17,163		137		316		(7,351	)		(6,505	)		14,255		10,974
Noncontrolling interest expense (1)		—		—		—		72		—			—			—		72
Net income (loss) attributable to controlling interests	$	21,469	$	17,163	$	137	$	244	$	(7,351	)	$	(6,505	)	$	14,255	$	10,902

Selected Balances	Banking				Holding Company and Other Adjustments (2)						Consolidated
	3/31/12		12/31/11		3/31/12			12/31/11			3/31/12		12/31/11
Assets	$	11,208,193	$	11,034,516	$	1,414,971		$	1,382,354		$	12,623,164	$	12,416,870
Total loans		9,222,253		9,008,561		—			—			9,222,253		9,008,561
Deposits		10,569,350		10,542,517		(146,638	)		(149,663	)		10,422,712		10,392,854

⁽¹⁾  During the fourth quarter 2011, the Company acquired all the noncontrolling interests of our Lodestar subsidiary.

⁽²⁾  Deposit amounts represent the elimination of Holding Company cash accounts included in total deposits of the Banking segment.

18. VARIABLE INTEREST ENTITIES

At March 31, 2012 and December 31, 2011, the Company had no variable interest entity (“VIE”) consolidated in its financial statements.

Nonconsolidated VIEs

Trust preferred capital securities issuances – As discussed in Note 10, we sponsor and wholly own 100% of the common equity of four trusts that were formed for the purpose of issuing trust preferred securities to third-party investors and investing the proceeds from the sale of the trust preferred securities solely in debentures issued by the Company. The trusts’ only assets as of March 31, 2012 were the $244.8 million principal balance of the debentures and the related interest receivable. The Company is not the primary beneficiary of the trusts and accordingly, the trusts are not consolidated in our financial statements.

Community reinvestment investments – We hold certain investments in funds that make investments to further our community reinvestment initiatives. Such investments have a carrying amount of $2.9 million at March 31, 2012 and are included within non-marketable equity investments in our Consolidated Statements of Financial Condition. Certain of these investments meet the definition of a VIE, but the Company is not the primary beneficiary as we are a limited investor in those investment funds and do not have the power to direct their investment activities. Accordingly, we will continue to account for our interests in these investments using the cost or equity method. Our maximum exposure to loss is limited to the carrying amount plus additional required future capital contributions of $1.4 million as of March 31, 2012.

Troubled debt restructured loans (excluding personal and non-for-profit loans) – For certain troubled commercial loans, we restructure the terms of the borrower’s debt in an effort to increase the probability of collecting of amounts contractually due. Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered and economic events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As we do not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, we are not considered the primary beneficiary even in situations where, based on the size of the financing provided, we are exposed to potentially significant benefits and losses of the borrowing entity. We have no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt. Our interests in the troubled commercial borrowers include outstanding loans of $170.2 million and derivative assets of $109,000 at March 31, 2012. Our maximum exposure to loss is limited to these interests plus any additional future capital commitments of which $23.2 million remains available at March 31, 2012.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

PrivateBancorp, Inc. (“PrivateBancorp” or the “Company”), is a Delaware corporation and bank holding company headquartered in Chicago, Illinois. Through our wholly-owned bank subsidiary, The PrivateBank and Trust Company (the “Bank” or the “PrivateBank”), we provide customized business and personal financial services to middle-market companies and business owners, executives, entrepreneurs and families in all the markets and communities we serve. We operate in seven geographic markets in the Midwest, as well as Denver and Atlanta with a majority of our business conducted in the greater Chicago market.

We deliver a full spectrum of commercial and personal banking products and services to our clients through our commercial banking, community banking and private wealth businesses. We offer clients a full range of lending, treasury management, and investment and capital markets products to meet their commercial needs and residential mortgage banking, private banking, trust and investment services to meet their personal needs.

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 2011 Annual Report on Form 10-K. Results of operations for the three months ended March 31, 2012 are not necessarily indicative of results to be expected for the year ending December 31, 2012. 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

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, but are not limited to: unforeseen credit quality problems or further deterioration in problem assets that could result in charge-offs greater than we have anticipated in our allowance for loan losses; adverse developments impacting one or more large credits; the extent of further deterioration in real estate values in our market areas, particularly in the Chicago area; difficulties in resolving problem credits or slower than anticipated dispositions of other real estate owned which may result in increased losses or higher credit-related operating costs; continued uncertainty regarding U.S. and global economic recovery and economic outlook, and ongoing volatility in market conditions, that may impact credit quality or prolong weakness in demand for loans or other banking products and services; unanticipated withdrawals of significant client deposits; lack of sufficient or cost-effective sources of liquidity or funding; the terms and availability of capital when and to the extent necessary or required to repay TARP preferred stock or otherwise; loss of key personnel or an inability to recruit and retain appropriate talent; unanticipated changes in interest rates or significant tightening of credit spreads; competitive pricing pressures; uncertainty regarding implications of the Dodd-Frank Act, including evolving regulatory capital standards, and the rules and regulations to be adopted in connection with implementation of the legislation that may negatively affect our revenues or profitability; other legislative, regulatory or accounting changes affecting financial services companies and/or the products and services offered by financial services companies; or failures or disruptions to our data processing or other information or operational systems.

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These forward-looking statements are subject to significant risks, assumptions and uncertainties, and could be affected by many factors including those set forth in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2011, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Form 10-Q 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 public filings in light of future events unless required under the federal securities laws.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with U.S. GAAP, and our accounting policies are consistent with predominant practices in the financial services industry. Critical accounting policies are those policies that require management to make the most significant estimates, assumptions, and judgments based on information available at the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

Our most significant accounting policies are presented in Note 1, “Summary of Significant Accounting Policies,” to the Notes to Consolidated Financial Statements of our 2011 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, income taxes and fair value measurement 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.

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 is assessed quarterly and represents an accounting estimate of probable losses in the portfolio at each balance sheet date based on a review of available and relevant information at that time. The allowance consists of reserves for probable losses that have been identified relating to specific borrowing relationships that are individually evaluated for impairment (“the specific component”), as well as probable losses inherent in our loan portfolio that are not specifically identified (“the general allocated component”), which is determined using a methodology that is a function of quantitative and qualitative factors applied to segments of our loan portfolio as well as management’s judgment.

The specific component relates to impaired loans. Impaired loans consist of nonaccrual loans (which include nonaccrual troubled debt restructurings (“TDRs”)) and loans classified as accruing TDRs. A loan is considered impaired when, based on current information and events, management believes that it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement. Once a loan is determined to be impaired, the amount of impairment is measured based on the loan’s observable fair value, fair value of the underlying collateral less selling costs if the loan is collateral-dependent, or the present value of expected future cash flows discounted at the loan’s effective interest rate.

If the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating a specific valuation reserve as a component of the allowance for loan losses. Impaired loans exceeding $500,000 are evaluated individually, while loans less than $500,000 are evaluated as pools using historical loss experience, as well as management’s loss expectations, for the respective asset class and product type.

All impaired loans and their related reserves are reviewed and updated each quarter. Any impaired loan for which a determination has been made that the economic value is permanently reduced is charged-off against the allowance for loan losses to reflect its current economic value in the period in which the determination has been made.

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At the time a collateral-dependent loan is initially determined to be impaired, we review the existing collateral appraisal. If the most recent appraisal is greater than a year old, a new appraisal is obtained on the underlying collateral. The Company generally obtains “as is” appraisal values for use in the evaluation of collateral dependent impaired loans. Appraisals for loans in excess of $500,000 are updated with a new independent appraisal at least annually and are formally reviewed by our internal appraisal department upon receipt of a new appraisal as well as at the six-month interval between the independent appraisals. If during the course of the six-month review period there is evidence supporting a meaningful decline in the value of collateral, the appraised value is either internally adjusted downward per procedure or a new appraisal is required to support the value of the impaired loan. With an immaterial number of exceptions, all appraisals and internal reviews are current under this methodology at March 31, 2012.

To determine the general allocated component of the allowance for loan losses, we segregate loans by originating line of business and vintage (“transformational” and “legacy”) for reserve purposes because of observable similarities in the performance experience of loans underwritten by these business units. In general, loans originated by the business units that existed prior to the strategic changes of the Company in 2007 are considered “legacy” loans. Loans originated by a business unit that was established in connection with or following the strategic business transformation plan are considered “transformational” loans. Renewals or restructurings of legacy loans may continue to be evaluated as legacy loans depending on the structure or defining characteristics of the new transaction. The Company has implemented a line of business model that has reorganized the legacy business units so that after 2009, all new loan originations are considered transformational.

The methodology produces an estimated range of potential loss exposure for the product types within each originating line of business. We consider the appropriate balance of the general allocated component of the reserve within these ranges based on a variety of internal and external quantitative and qualitative factors to reflect data or timeframes not captured by the basic allowance framework as well as market and economic data and management judgment. In certain instances, these additional factors and judgments may lead to management’s conclusion that the appropriate level of the reserve is outside the range determined through the basic allowance framework.

Determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, risk ratings, product type, and vintage, as well as consideration of current economic trends and portfolio attributes, all of which may be susceptible to significant change. For instance, loss rates in our allowance methodology typically reflect the Company’s more recent loss experience, by product, on a trailing twelve or eighteen month basis. These loss rates consider both cumulative charge offs to date and other real estate owned value adjustments in the individual product categories which comprise our allowance. Default estimates use a multi-year cumulative calculation of defaults by product. In addition, we compare current model-derived and historically established reserve levels to recent charge-off trends and history in considering the appropriate final level of reserve at each product level.

Credit exposures deemed to be uncollectible are charged-off against the allowance, while recoveries of amounts previously charged-off are credited to the allowance. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio as of the balance sheet date.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired using the acquisition 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.

Goodwill is allocated to reporting units at acquisition. Subsequently, goodwill is not amortized but, instead, is tested at the reporting unit level at least annually for impairment or more often if an event occurs or circumstances change that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In the event that we conclude that all or a portion of our goodwill may be impaired, a noncash charge for the amount of such impairment would be recorded in earnings. Such a charge would have no impact on tangible or regulatory capital. The Company is not aware of any events or circumstances that would indicate impairment of goodwill at March 31, 2012.

The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. In “step one,” the fair value of each reporting unit is compared to the recorded book value. Our step one calculation of each reporting unit’s fair value is based upon a simple average of two metrics: (1) a primary market approach, which measures fair value based upon trading multiples of independent publicly traded financial institutions of comparable size and character to the reporting units, and (2) an income approach, which estimates fair value based upon discounted cash flows (“DCF”) and terminal value (using the perpetuity growth method). If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair

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value of goodwill. The implied fair value of goodwill is determined using the residual approach, where the fair value of a reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit, calculated in step one, is the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment charge is recognized to the extent the carrying value of goodwill exceeds the implied fair value of goodwill.

Under new accounting guidance effective January 1, 2012, the Company has the option to perform a qualitative assessment for each reporting unit to determine of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value before applying the existing two-step goodwill impairment test. If the Company concludes that this is the case, the Company would proceed with the existing two-step test, as described above. Otherwise, the Company would be able to bypass the two-step test and conclude that goodwill is not impaired from a qualitative perspective.

Goodwill impairment testing is considered a “critical accounting estimate” as estimates and assumptions are made about future performance and cash flows, as well as other prevailing market factors. For our annual impairment testing, we engage an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit as part of its impairment assessment. In connection with obtaining an independent third-party valuation, management provides certain information and assumptions that are utilized in the DCF and implied fair value calculations. Assumptions critical to the process include: forecasted earnings, which are developed for each segment by considering several key business drivers such as historical performance, forward interest rates (using forward interest rate curves to forecast future expected interest rates), anticipated loan and deposit growth, and industry and economic trends; discount rates; and credit quality assessments, among other considerations. We provide the best information available at the time to be used in these estimates and calculations.

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. During the first quarter of 2012, there were no events or circumstances to indicate that there may be impairment of intangible assets. All of the other intangible assets have finite lives which are amortized over varying periods not exceeding 15 years and include core deposit premiums, client relationship, and assembled workforce intangibles, 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 complex analyses of many factors, including interpretations 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. In addition, for interim reporting purposes, management generally determines its income tax provision, exclusive of any discrete items, based on its current best estimate of pre-tax income, permanent differences and the resulting effective tax rate expected for the full year.

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 authorities 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 March 31, 2012. However, there is no guarantee that the tax benefits associated with these deferred tax assets will be fully realized. We have concluded, as of March 31, 2012, that it is more likely than not that such tax benefits will be realized.

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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 tax benefits that may not be realized. The amount of any such reserves are based on the standards for determining such reserves as set forth in current accounting guidance and our 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 March 31, 2012, we had $459,000 of tax reserves established relating to uncertain tax positions that would favorably affect the Company’s effective tax rate if recognized in future periods.

For additional discussion of income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Income Taxes,” Note 13 of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q, and Notes 1 and 15 of “Notes to Consolidated Financial Statements” in our 2011 Annual Report on Form 10-K.

Fair Value Measurements

Certain of the Company’s assets and liabilities are measured at fair value at each reporting date, including securities available-for-sale, derivatives, and certain loans held for sale. Additionally, other assets are periodically evaluated for impairment using fair value estimates, including goodwill and other intangible assets, assets acquired in business combinations at the time of combination, impaired loans, and OREO.

The Company measures fair value in accordance with U.S. GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

U.S. GAAP establishes a fair value hierarchy that categorizes fair value measurements based on the observability of the valuation inputs used in determining fair value. Level 1 valuations are based on unadjusted quoted prices for identical instruments traded in active markets. Level 2 valuations are based on quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 valuations use at least one significant unobservable input that is supported by little or no market activity.

Judgment is required to determine whether certain assets measured at fair value are included in Level 2 or Level 3. When making this judgment, we consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. Classification of Level 2 or Level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.

Judgment is also required when determining the fair value of an asset or liability when either relevant observable inputs do not exist or available observable inputs are in a market that is not active. When relevant observable inputs are not available, the Company must use its own assumptions about future cash flows and appropriately risk-adjusted discount rates. Conversely, in some cases observable inputs may require significant adjustments. For example, in cases where the volume and level of trading activity in an asset or liability have declined significantly, the available prices vary significantly over time or among market participants, or the prices are not current, the observable inputs may not be relevant and could require adjustment.

Valuation techniques and models used to measure the fair value of financial instruments on a recurring basis are reviewed and validated by the Company on at least a quarterly basis. The Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from external sources, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions.

The Company believes its valuation methods are appropriate and consistent with those of other market participants. However, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Imprecision in estimating unobservable market inputs can affect the amount of income or loss recorded for a particular position.

Additional information regarding fair value measurements is included in Note 16 of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q.

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USE OF NON-U.S. GAAP FINANCIAL MEASURES

This report contains both U.S. GAAP and non-U.S. GAAP financial measures. These non-U.S. GAAP financial measures include net interest income, net interest margin, net revenue, operating profit, and efficiency ratio all on a fully taxable-equivalent basis, Tier 1 common equity to risk-weighted assets, tangible common equity to tangible assets, tangible equity to risk-weighted assets, tangible equity to tangible assets, and tangible book value. We believe that presenting these non-U.S. GAAP financial measures will provide information useful to investors in understanding our underlying operational performance, our business, and performance trends and facilitates comparisons with the performance of others in the banking industry. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found in Table 31. These disclosures should not be viewed as a substitute for operating results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-U.S. GAAP performance measures that may be presented by other companies.

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FIRST QUARTER OVERVIEW

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

Table 1

Consolidated Financial Highlights

(Dollars in thousands, except per share data)

	As of and for the Quarters Ended
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Selected Operating Statistics
Net income	$	14,255		$	11,066		$	13,482		$	9,018		$	10,974
Net income available to common stockholders		10,819			7,629			10,023			5,541			7,487
Effective tax rate		40.5	%		46.1	%		36.0	%		41.2	%		17.2	%
Net interest income		104,376			102,982			101,089			100,503			102,553
Fee revenue (1)		27,399			25,029			23,265			20,922			23,260
Net revenue (2)		132,560			129,046			129,404			122,811			126,970
Operating profit (2)		52,331			52,816			54,370			47,147			51,621
Provision for loan losses (3)		27,635			29,783			32,341			31,725			36,706
Per Common Share Data
Basic earnings per share	$	0.15		$	0.11		$	0.14		$	0.08		$	0.10
Diluted earnings per share	$	0.15		$	0.11		$	0.14		$	0.08		$	0.10
Tangible book value at period end (2)(4)	$	13.29		$	13.19		$	13.04		$	12.68		$	12.43
Dividend payout ratio		6.67	%		9.09	%		7.14	%		12.50	%		10.00	%
Performance Ratios
Return on average common equity		4.05	%		2.86	%		3.80	%		2.18	%		3.03	%
Return on average assets		0.46	%		0.36	%		0.44	%		0.29	%		0.35	%
Net interest margin (2)		3.53	%		3.48	%		3.49	%		3.36	%		3.46	%
Efficiency ratio (2)(5)		60.52	%		59.07	%		57.98	%		61.61	%		59.34	%
Credit Quality(3)
Nonperforming loans at period end	$	233,222		$	259,852		$	304,747		$	330,448		$	356,932
OREO at period end		123,498			125,729			116,364			123,997			93,770
Total nonperforming assets at period end	$	356,720		$	385,581		$	421,111		$	454,445		$	450,702
Restructured loans accruing interest	$	136,521		$	100,909		$	106,330		$	124,614		$	100,895
Special mention loans (6)	$	143,790		$	204,965		$	218,561		$	227,413		$	275,519
Potential problem loans (6)	$	184,029		$	177,095		$	277,125		$	392,019		$	518,144
Net charge-offs	$	35,385		$	38,230		$	38,586		$	43,676		$	41,290
Total nonperforming loans to total loans		2.53	%		2.88	%		3.51	%		3.81	%		3.95	%
Total nonperforming assets to total assets		2.83	%		3.11	%		3.50	%		3.75	%		3.61	%
Allowance for loan losses to total loans		1.99	%		2.13	%		2.31	%		2.38	%		2.41	%
Balance Sheet Highlights
Total assets	$	12,623,164		$	12,416,870		$	12,019,861		$	12,115,377		$	12,497,442
Average earning assets (for the quarter)		11,796,499			11,696,741			11,446,323			11,916,038			11,930,751
Loans (3)		9,222,253			9,008,561			8,674,955			8,672,642			9,037,067
Allowance for loan losses (3)		(183,844	)		(191,594	)		(200,041	)		(206,286	)		(218,237	)
Deposits		10,422,712			10,392,854			10,108,663			10,234,268			10,625,976
Client deposits (7)		10,156,689			10,372,355			10,047,998			9,847,940			10,047,456

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	As of
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Capital Ratios
Total risk-based capital (2)		14.20	%		14.28	%		14.82	%		15.12	%		14.55	%
Tier 1 risk-based capital (2)		12.31	%		12.38	%		12.89	%		12.95	%		12.41	%
Tier 1 leverage ratio (2)		11.35	%		11.33	%		11.48	%		11.00	%		10.91	%
Tier 1 common capital (2)		8.04	%		8.04	%		8.34	%		8.34	%		7.97	%
Tangible common equity to tangible assets (2)(8)		7.69	%		7.69	%		7.86	%		7.58	%		7.17	%

⁽¹⁾  Computed as total non-interest income less net securities gains (losses).

⁽²⁾  This is a non-U.S. GAAP financial measure. Refer to Table 31 for a reconciliation from non-U.S. GAAP to U.S. GAAP.

⁽³⁾  Excludes covered assets.

⁽⁴⁾  Computed as total equity less preferred stock, goodwill and other intangibles divided by outstanding shares of common stock at end of period.

⁽⁵⁾  Computed as non-interest expense divided by the sum of net interest income on a tax equivalent basis (assuming a federal income tax rate of 35%) and non-interest income.

⁽⁶⁾  Refer to the section entitled “Delinquent Loans, Special Mention and Potential Problem Loans and Nonperforming Assets” included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q for additional discussion.

⁽⁷⁾  Total deposits net of traditional brokered deposits and non-client CDARS^®.

⁽⁸⁾  Computed as tangible common equity divided by tangible assets, where tangible common equity equals total equity less preferred stock, goodwill and other intangible assets and tangible assets equals total assets less goodwill and other intangible assets.

We reported net income available to common stockholders of $10.8 million, or $0.15 per diluted share, for first quarter 2012, a 45% improvement from $7.5 million, or $0.10 per diluted share for first quarter 2011. We continued the steady progress made in 2011 as a number of our key performance metrics for first quarter 2012 reflected improvement.

Net revenue increased 4% in first quarter 2012 compared to the prior year quarter and operating profit increased $710,000 for the same time periods. Both performance measures benefited from increases in net interest income and strong non-interest income growth with income from mortgage banking, capital markets and treasury management contributing to the improvement and reflective of our cross-sell efforts and deepening client relationships. The increase in operating profit was dampened by higher compensation expense accruals (primarily due to higher incentive-based compensation tied to improved performance) and net foreclosed property expense (which resulted from the elevated level of OREO).

Net interest income increased in the current quarter by $1.8 million compared to the prior year period, benefitting from improved loan rates, principally in the commercial and industrial portfolio, coupled with lower cost of funds across the board on interest-bearing liabilities and was partially offset by reduced yields on our covered asset portfolio. Net interest margin improved 7 basis points to 3.53% for the current quarter compared to 3.46% for the prior year period reflecting higher loan yields combined with deposits and short-term borrowings repricing downward over the course of the past 12 months. A shift in the deposit mix to a higher level of non-interest bearing deposits also contributed to the margin improvement. In addition, lower average Fed funds sold in the current quarter contributed to improvement in net interest margin compared to the prior year period and was partially mitigated by declining yields within the investment portfolio.

Non-interest expense increased $4.9 million in the first quarter 2012 compared to the prior year period and was primarily due to the aforementioned higher compensation expenses and credit-related operating costs offset in part by lower deposit insurance costs and professional services. The level of credit-related operating costs is a function of our problem asset remediation efforts and will continue to be influenced by the pace and timing of our resolution and disposition activities for these assets. Our efficiency ratio remains relatively steady with prior quarters and stood at 60.5% for first quarter 2012.

During first quarter 2012, we continued to make meaningful progress in reducing problem assets and improving asset quality by employing a variety of resolution strategies including asset sales and loan restructurings. Problem assets which are comprised of special mention, potential problem and nonperforming loans and OREO declined by $83.1 million, or 11%, from year end 2011. This reduction was driven by continued improvement in early stage problem loans and lower nonperforming assets which declined 14% and 7%, respectively. We disposed of $67.4 million of problem assets in the first quarter 2012 with an incremental charge of 14% based on the carrying value net of specific reserves. We also restructured $47.7 million of problem loans and had $18 million in problem loans payoff with full interest and principal. Levels of restructured loan and nonperforming loan assets may fluctuate depending on the mix and timing of dispositions or other remediation actions. Nonperforming inflows have remained steady for the third consecutive quarter and totaled $69.6 million as a result of the improvement in early stage problem loans. Nonperforming loans as a percent of total loans was 2.53% as March 31, 2012 compared to 2.88% as December 31, 2011.

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With credit quality improving, the provision for loans losses, excluding covered assets, declined $9.1 million, or 25%, for the first quarter 2012 compared to first quarter 2011, and we reduced our allowance for loan losses during first quarter 2012 by $7.8 million from December 31, 2011 representing 1.99% of total loans at March 31, 2012 compared to 2.13% at December 31, 2011.

Total loans grew $213.7 million during first quarter 2012 from year end 2011, including 3% growth in our higher-yielding commercial and industrial loan portfolio. We continue to develop new relationships as we funded $378 million in new client relationships in the first quarter 2012. As a result, total loans were $9.2 billion at March 31, 2012, compared to $9.0 billion at the end of 2011.

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 condition and liquidity.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income equals the excess of interest income (including discount accretion 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. The 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 stockholders’ equity, also support interest-earning assets.

The accounting policies underlying the recognition of interest income on loans, securities, and other interest-earning assets are included in Note 1 of “Notes to Consolidated Financial Statements” contained in our 2011 Annual Report on 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 for example, net interest margin, have been adjusted to a fully tax-equivalent basis to more appropriately compare the returns on certain tax-exempt securities to those on taxable interest-earning assets.

The reconciliation of tax-equivalent net interest income is presented in the following table.

Table 2

Effect of Tax-Equivalent Adjustment

(Dollars in thousands)

	Quarters Ended March 31,
	2012		2011		% Change
Net interest income (U.S. GAAP)	$	104,376	$	102,553		1.8
Tax-equivalent adjustment		680		790		(13.9	)
Tax-equivalent net interest income	$	105,056	$	103,343		1.7

Table 3 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 quarters ended March 31, 2012 and 2011. The table also 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 2 above.

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Table 3

Net Interest Income and Margin Analysis

(Dollars in thousands)

	Quarters Ended March 31,																Attribution of Change in
	2012								2011								Net Interest Income (1)
	Average Balance			Interest (2)		Yield/ Rate (%)			Average Balance			Interest (2)		Yield/ Rate (%)			Volume			Yield/ Rate			Total
Assets:
Federal funds sold and other short-term investments	$	211,343		$	132		0.25	%	$	517,641		$	336		0.26	%	$	(191	)	$	(13	)	$	(204	)
Securities:
Taxable		2,097,422			15,380		2.93	%		1,734,347			15,390		3.55	%		2,916			(2,926	)		(10	)
Tax-exempt (3)		152,412			1,980		5.20	%		149,260			2,276		6.10	%		47			(343	)		(296	)
Total securities		2,249,834			17,360		3.09	%		1,883,607			17,666		3.75	%		2,963			(3,269	)		(306	)
Loans, excluding covered assets :
Commercial		5,443,925			63,910		4.64	%		5,021,733			57,746		4.60	%		4,936			1,228			6,164
Commercial real estate		2,598,139			27,715		4.22	%		2,842,014			29,929		4.21	%		(2,597	)		383			(2,214	)
Construction		279,343			2,611		3.70	%		516,609			4,885		3.78	%		(2,219	)		(55	)		(2,274	)
Residential		338,144			3,619		4.28	%		329,050			3,785		4.60	%		103			(269	)		(166	)
Personal and home equity		411,152			3,732		3.65	%		466,719			4,065		3.53	%		(499	)		166			(333	)
Total loans, excluding covered assets(4)		9,070,703			101,587		4.44	%		9,176,125			100,410		4.38	%		(276	)		1,453			1,177
Total interest-earning assets before covered assets (3)		11,531,880			119,079		4.10	%		11,577,373			118,412		4.09	%		2,496			(1,829	)		667
Covered assets (5)		264,619			1,952		2.93	%		353,378			5,237		5.94	%		(1,095	)		(2,190	)		(3,285	)
Total interest-earning assets (3)		11,796,499		$	121,031		4.07	%		11,930,751		$	123,649		4.15	%	$	1,401		$	(4,019	)	$	(2,618	)
Cash and due from banks		141,317								171,007
Allowance for loan and covered loan losses		(224,071	)							(250,067	)
Other assets		731,771								656,053
Total assets	$	12,445,516							$	12,507,744
Liabilities and Equity:
Interest-bearing demand deposits	$	654,791		$	636		0.39	%	$	599,357		$	642		0.43	%	$	57		$	(63	)	$	(6	)
Savings deposits		218,145			156		0.29	%		197,501			200		0.41	%		19			(63	)		(44	)
Money market accounts		4,199,855			4,446		0.43	%		4,664,227			6,462		0.56	%		(598	)		(1,418	)		(2,016	)
Time deposits		1,352,361			3,933		1.17	%		1,379,197			4,518		1.33	%		(87	)		(498	)		(585	)
Brokered deposits		811,069			1,084		0.54	%		1,478,171			2,174		0.66	%		(907	)		(183	)		(1,090	)
Total interest-bearing deposits		7,236,221			10,255		0.57	%		8,318,453			13,996		0.68	%		(1,516	)		(2,225	)		(3,741	)
Short-term borrowings		265,205			142		0.21	%		114,957			827		2.88	%		495			(1,180	)		(685	)
Long-term debt		379,793			5,578		5.85	%		411,960			5,483		5.32	%		(447	)		542			95
Total interest-bearing liabilities		7,881,219			15,975		0.81	%		8,845,370			20,306		0.93	%		(1,468	)		(2,863	)		(4,331	)
Noninterest-bearing deposits		3,054,679								2,264,100
Other liabilities		194,262								157,634
Equity		1,315,356								1,240,640
Total liabilities and equity	$	12,445,516							$	12,507,744
Net interest spread							3.26	%							3.22	%
Effect of noninterest-bearing funds							0.27	%							0.24	%
Net interest income/margin (3)				$	105,056		3.53	%				$	103,343		3.46	%	$	2,869		$	(1,156	)	$	1,713

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Quarterly Net Interest Margin Trend

	2012			2011
	First			Fourth			Third			Second			First
Yield on interest-earning assets (3)		4.07	%		4.04	%		4.11	%		4.01	%		4.15	%
Yield on interest-earning assets, before covered assets (3)		4.10	%		4.05	%		4.08	%		3.98	%		4.09	%
Cost of interest-bearing liabilities		0.81	%		0.85	%		0.90	%		0.90	%		0.93	%
Net interest margin (3)		3.53	%		3.48	%		3.49	%		3.36	%		3.46	%

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

⁽²⁾  Interest income included $7.2 million and $5.9 million in loan fees for the quarters ended March 31, 2012 and 2011, respectively.

⁽³⁾  Interest income and yields are presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. See Table 2 for a reconciliation of the effect of the tax-equivalent adjustment.

⁽⁴⁾  Average loans on a nonaccrual basis for the recognition of interest income totaled $256.8 million and $377.3 million for the quarters ended March 31, 2012 and 2011, respectively, and are included in loans for purposes of this analysis. Interest foregone on non-performing loans was estimated to be approximately $2.8 million and $4.0 million for the quarters ended March 31, 2012 and 2011, respectively, and is based on the average loan portfolio yield for the respective period.

⁽⁵⁾  Covered interest-earning assets consist of loans acquired through a Federal Deposit Insurance Corporation (“FDIC”)-assisted transaction that is subject to a loss share agreement and the related indemnification asset. Refer to the section entitled “Covered Assets” for a detailed discussion.

Net interest income on a tax-equivalent basis increased 1.7% to $105.1 million in the first quarter 2012 compared to first quarter 2011 due largely to higher yields on a majority of our loan portfolio, excluding covered assets and lower cost of funds. Of the $4.3 million in lower interest expense, $2.9 million was attributable to an overall decrease in the average rate paid on interest-bearing deposits. Average interest-bearing deposits decreased $1.1 billion while average noninterest-bearing deposits increased $790.6 million from the first quarter 2011. The combination of increased noninterest-bearing deposits and lower costing short-term borrowings accounted for the residual difference in reduced interest expense. Net interest income continued to be impacted by the negative effect of nonaccrual loans although to a lesser degree in the first quarter 2012 compared to the prior year period.

Net interest margin was 3.53% for the first quarter 2012, an increase of seven basis points from 3.46% for the first quarter 2011. The net interest margin increase was primarily due to the average rate on interest-bearing liabilities decreasing by 12 basis points as deposits and short borrowings repriced downward over the past year, as well as a $790.6 million, or 35%, increase in noninterest-bearing deposits. Net interest margin also benefitted from lower federal funds balances and an increase in the loan portfolio yield as a favorable shift in the portfolio mix with an increase in commercial loans (including specialty sectors, such as healthcare) led to a six basis point increase in the average interest received on loans. Within the commercial loan portfolio, we are able to attract premium pricing within certain specialized sectors and this, along with continued reductions in non-performing loans, has helped mitigate competitive pricing pressure seen elsewhere in core middle market lending. Loan yields are also impacted by non-recurring fees and, given the magnitude of loans priced off short-term LIBOR rates, any movement in external benchmark rates. Notwithstanding increased loan yields, the earning asset yield decreased by eight basis points, as the yield and income on the covered asset portfolio reduced significantly, and the lower interest rate environment negatively impacted the investment portfolio yield.

Average interest-earning assets declined $134.3 million compared to the prior year period, due to declines in average loan balances and fed funds sold and other short term investments and partially offset by increases in average security balances. We have continued to favorably shift the mix of loans toward commercial loans which generally provide higher yields and greater potential for cross-selling of other products and services than other loan types. Average commercial loan balances increased by $422.2 million from the prior year quarter. This shift in the loan mix accompanied decreases in commercial real estate (“CRE”) and construction average loan balances of $481.1 million from the prior year period. Also, year-over-year, we reduced low-yielding average fed funds sold and other short term investments by $306.3 million and increased average securities by $366.2 million to continue to support liquidity needs but at more attractive yields than federal funds balances.

During the third quarter 2011, we entered into receive fixed/pay variable interest rate swaps to hedge certain floating-rate commercial loans to fixed rate in order to substantially reduce the variability in forecasted interest cash flows due to market interest rate changes. The notional value of these cash flow hedges at March 31, 2012 was $300 million with a positive impact on quarterly net interest income of $522,000.

Average interest-bearing liabilities decreased $964.2 million compared to the prior year first quarter, primarily due to the decline in average interest-bearing deposits, as the deposit mix shifted from money market accounts and term deposits to noninterest-bearing deposits. Average noninterest-bearing deposits were 30% of total average deposits for the quarter ended March 31, 2012, an increase from 21% for the quarter ended March 31, 2011. Refer to the section entitled “Deposits” included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q for additional discussion on client deposits.

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Provision for loan losses

The provision for loan losses, excluding the provision for covered loans, totaled $27.6 million for the quarter ended March 31, 2012 compared to $36.7 million for the same period in 2011. The provision for loan losses is a function of our allowance for loan loss methodology used to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted. Net charge-offs were $35.4 million in the first quarter 2012 compared to $41.3 million for the same period in 2011. For further analysis and information on how we determine the appropriate level for the allowance for loan losses and analysis of credit quality, see “Critical Accounting Policies” and “Credit Quality Management and Allowance for Loan Losses.”

Provision for covered loan losses

For the quarter ended March 31, 2012, we recognized $66,000 in provision for covered loan losses related to the loans purchased under the FDIC-assisted transaction loss share agreement, compared to $872,000 in the prior year period. The decrease was driven by higher payoffs and transfers to OREO occurring over the past twelve months. The provision for covered loan losses represents the 20% portion of expected losses on covered loans not reimbursed by the FDIC. For further information regarding the FDIC-assisted transaction, see “Covered Assets.”

Non-interest Income

Non-interest income is derived from a number of sources related to our banking activities, including loan and credit-related fees, the sale of derivative products to clients through our capital markets group, treasury management services, and fees from our Trust and Investments business. The following table presents a break-out of these multiple sources of revenue.

Table 4

Non-interest Income Analysis

(Dollars in thousands)

	Quarters Ended March 31,
	2012		2011		% Change
Trust and Investments	$	4,219	$	4,662		-9.5
Mortgage banking		2,663		1,402		89.9
Capital markets products		7,349		4,489		63.7
Treasury management		5,154		4,325		19.2
Loan and credit-related fees		6,527		5,898		10.7
Deposit service charges and fees and other income		1,487		2,484		-40.1
Subtotal fee revenue		27,399		23,260		17.8
Net securities gains		105		367		-71.4
Total non-interest income	$	27,504	$	23,627		16.4

Total non-interest income for first quarter 2012 totaled $27.5 million, increasing 16% compared to $23.6 million in the first quarter 2011 with capital markets products, mortgage banking and loan and treasury management leading the improvement over the prior year period. These items were partially offset by lower trust and investment fees, deposit service charges and fees and other income.

Trust and Investments fee revenue declined 10% compared to first quarter 2011 due to the absence of larger estate fees recognized in the prior year period, the discontinuation of land trust fees due to the sale of the land trust business late in first quarter 2011 and as a result of exiting certain non-strategic client relationships. Further, during the past year, client portfolios were increasingly invested in mutual funds and ETFs reducing reliance on third-party investment managers. Accordingly, the fees collected for these investment management services decreased with a corresponding reduction to investment expenses compared to the prior year period. Assets under management and administration (“AUMA”) grew to $4.9 billion at March 31, 2012 from $4.3 billion at December 31, 2011, with approximately 80% of such growth attributable to an increase in custodial assets. The increase in custodial assets is largely attributable to a change in regulations requiring certain companies to utilize a “qualified custodian” for the administration and custody of their clients’ assets. The Bank is considered a qualified custodian under the new regulations. We do not anticipate growth in custody assets to continue at the same pace as in the current quarter. Fees earned on custody assets are typically a flat fee structure and generally are lower than fees recognized on the managed asset portfolio which is based on the value of the underlying assets.

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Revenue from our mortgage banking business increased $1.3 million, or 90%, compared to first quarter 2011 as higher application volumes from late 2011 worked their way through to closing. On a comparative basis, during first quarter 2011, mortgage interest rates moved upward, slowing purchase and refinancing activity until rates again moved lower later in 2011. Rates currently remain low and applications continued to be strong in the first quarter 2012.

Capital markets income increased $2.9 million compared to first quarter 2011 and included a positive $19,000 credit valuation adjustment (“CVA”) compared to a positive CVA of $817,000 for the first quarter 2011. The CVA represents the credit component of fair value with regard to both client-based derivatives and the related matched derivatives with interbank dealer counterparties. Exclusive of CVA adjustments, year-over-year capital markets income increased by $3.7 million, doubling to $7.3 million in the current period compared to $3.7 million in the first quarter 2011. Client interest rate derivative activity is sensitive to the pace of loan growth, the shape of the LIBOR curve, and our clients’ interest rate expectations. Steady origination and renewal activity, along with larger margin transactions and deeper cross-sell across the business lines benefited the interest rate swap business during the current quarter. Capital markets revenues were also favorably impacted by a higher volume of foreign exchange activity, driven in part by volatility in the foreign exchange markets during first quarter 2012, larger transactions and increased penetration of the client base.

Treasury management income increased $829,000, or 19%, compared to the first quarter 2011. Revenue growth for these services is closely correlated with loan growth and the acquisition of new middle market lending clients, though subject to a three-to six-month implementation lag. The current year increase reflects ongoing success in cross-selling treasury management services to new and existing commercial clients as the Company experienced approximately $812 million in new loan fundings during the past six months. In addition, in December 2011, we reduced our earnings credit rate (the rate applied to balances maintained in the client’s deposit account to offset activity charges) which resulted in an additional $100,000 in collected fees for the first quarter 2012.

Loan and credit-related fees increased $629,000, or 11%, compared to first quarter 2011 and is principally due to greater unused commitment fees and a higher volume of syndication revenue driven by increased lead agency credits.

Deposit service charges and fees and other income declined $997,000 in first quarter 2012 or 40% compared to the prior year period and is primarily due to $672,000 in gain on sale of various assets recognized in first quarter 2011, including the sale of our land trust accounts. In addition, card-based interchange fees were reduced by $117,000 during the current quarter compared to first quarter 2011 and attributable to new fee limits provided for under the Dodd-Frank Act.

Net securities gains totaled $105,000 for the first quarter 2012, compared to $367,000 for the first quarter 2011. During the first quarter 2012, we sold $812,000 of tax-exempt municipal securities, resulting in the recognition of net securities gains of $62,000. The sales assisted in managing prepayment risk and provided a measure of benefit to our capital position. In addition, we recognized $43,000 in gains on other non-marketable securities during the first quarter 2012.

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Non-interest Expense

Table 5

Non-interest Expense Analysis

(Dollars in thousands)

	Quarters Ended March 31,
	2012			2011			% Change
Compensation expense:
Salaries and wages	$	23,174		$	22,819			1.6
Share-based costs		4,569			3,514			30.0
Incentive compensation, retirement costs and other employee benefits		14,955			12,224			22.3
Total compensation expense		42,698			38,557			10.7
Net occupancy expense		7,679			7,532			2.0
Technology and related costs		3,296			2,661			23.9
Marketing		2,160			1,943			11.2
Professional services		1,957			2,334			-16.2
Outsourced servicing costs		1,710			2,154			-20.6
Net foreclosed property expense (“OREO”)		8,235			6,306			30.6
Postage, telephone, and delivery		869			888			-2.1
Insurance		4,305			7,340			-41.3
Loan and collection		3,157			2,553			23.7
Other expenses		4,163			3,081			35.1
Total non-interest expense	$	80,229		$	75,349			6.5
Operating efficiency ratios:
Non-interest expense to average assets		2.59	%		2.44	%
Net overhead ratio (1)		1.70	%		1.68	%
Efficiency ratio (2)		60.52	%		59.34	%

⁽¹⁾  Computed as non-interest expense, less non-interest income, annualized, divided by average total assets.

⁽²⁾  Computed as non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio is presented on a tax-equivalent basis, assuming a federal income tax rate of 35%. See Table 31, “Non-U.S. GAAP Financial Measures” for a reconciliation of the effect of the tax-equivalent adjustment.

Non-interest expense increased for the first quarter 2012 by $4.9 million, or 7% compared to the first quarter of 2011, primarily due to increases in compensation expense, continued elevated net foreclosed property expense and credit-related workout costs and higher provision for unfunded commitments, partially offset by reduced FDIC insurance expense, professional fees and outsourced serving costs.

Compensation expense increased overall in first quarter 2012 by $4.1 million, or 10.7%, compared to first quarter 2011. Salary and wages were up slightly by $355,000 or 2% largely due to annual salary increases, offset in part by lower temporary services. Share-based payment costs were higher by $1.1 million primarily due to a full quarter’s expense recognition of annual stock-based awards issued in March and April 2011, a partial period of expense recognized for stock-based awards issued in February 2012. Incentive compensation, retirement costs and other employee benefits were up by $2.7 million or 22% compared to first quarter 2011 principally due to higher incentive compensation accruals which aligns with the Company’s performance and reflects improved financial results in 2012 compared to the prior year period, including incentives linked to fee-based revenues such as mortgage banking and capital markets, both of which had significantly higher revenues in the first quarter 2012 than the prior year period. In addition, and as typically experienced in the first quarter of the year, payroll taxes and 401k contributions were higher in the current quarter compared to the prior year period driven by a higher level of 2011 accrued incentives paid compared to the prior year period.

Technology and related costs increased in first quarter 2012 by $635,000, or 24%, compared to first quarter 2011 and was primarily due to investments in data networking to provide greater bandwidth and improve overall service levels, as well as higher volumes in transaction based data processing fees for client-based services (loans, deposits and wires).

Professional services decreased in first quarter 2012 by $377,000, or 16% compared to first quarter 2011 with lower corporate legal fees and reduced consultancy services driving the current period decline.

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Outsourced servicing costs decreased in first quarter 2012 by $444,000, or 21% from the first quarter 2011 due to the combination of management’s efforts to control costs through change in certain vendor services and the delay in timing of costs to be incurred in the current year associated with tax-related processing for wealth management services as well as compliance and IT related support compared to the prior year quarter.

Aggregate credit-related costs, which is comprised of net foreclosed property expense, loan and collection expense and provision for unfunded commitments which is included as a component of other expenses, totaled $12.3 million for first quarter 2012, increasing by $3.5 million, or 39%, compared to $8.8 million for first quarter 2011. First quarter 2012 net foreclosed property expenses, which include write-downs on foreclosed properties, gains and losses on sales of foreclosed properties, taxes, and other expenses associated with the maintenance of OREO, continues to remain elevated, reflecting the current level of OREO. At March 31, 2012, OREO totaled $123.5 million, representing 400 individual properties. We expect net foreclosed property expense to remain at elevated levels as we actively resolve problem loans and liquidate the related collateral. In evaluating opportunities to sell OREO, we seek to maximize our ultimate net recovery. The timing of dispositions will depend on a number of factors, including the pace and timing of the overall recovery of the economy, activity and pricing levels in the real estate market and real estate inventory coming into the market for sale.

Loan and collection expense, which consists of certain non-reimbursable costs associated with performing loan activities and loan remediation costs of problem and nonperforming loans, increased in first quarter 2012 by $604,000, or 24%, compared to first quarter 2011 and is attributable to higher mortgage refinance volumes in connection with performing loan activities. Although loan remediation costs were down on a comparative basis, they are likely to remain elevated as we continue to address problem credits.

Provision for unfunded commitments totaled $933,000 during the first quarter 2012 compared to the absence of a provision in first quarter 2011 and represented over 85% of the current quarter increase in other expenses. The first quarter 2012 provision is attributable to higher loss factors and an increase in the propensity to fund criteria in the reserve model.

Insurance costs decreased in first quarter 2012 by $3.0 million, or 41%, compared to first quarter 2011 and was directly associated with lower deposit insurance assessments as a result of the change in FDIC insurance methodology that became effective in April 2011. The new assessment regulations modified the assessment base from one based on domestic deposits to one based on total assets less average tangible equity.

Income Taxes

Our provision for income taxes includes both federal and state income tax expense. For the quarter ended March 31, 2012, we recorded an income tax provision of $9.7 million on pre-tax income of $24.0 million (equal to a 40.5% effective tax rate) compared to an income tax provision of $2.3 million on pre-tax income of $13.3 million for the quarter ended March 31, 2011 (equal to a 17.2% effective tax rate).

Generally, our effective income tax rate varies from the statutory federal income tax rate of 35% principally due to state income taxes, the effects of tax-exempt earnings from municipal securities and bank-owned life insurance, certain non-deductible compensation (due to TARP limitations on deductions) and business expenses, and tax credits. Our effective tax rate for the first quarter 2012 was increased by approximately two percentage points as a result of non-deductible compensation costs incurred in the quarter. For the quarter ended March 31, 2012, our effective tax rate was also impacted by tax charges relating to the vesting and expiration of equity awards during the quarter. This increased our effective tax rate by approximately 1.6 percentage points and is discussed in greater detail below. For the quarter ended March 31, 2011, the effective tax rate was impacted by a $2.8 million tax benefit associated with the repricing of our deferred tax asset due to a change in the Illinois corporate income tax rate. Exclusive of this one-time adjustment, the Company’s effective tax rate would have been 38.6% in the first quarter of 2011.

Net deferred tax assets totaled $97.5 million at March 31, 2012. We have concluded that it is more likely than not that the deferred tax assets will be realized and no valuation allowance was recorded. This conclusion was based in part on the fact that the Company was not in a cumulative book loss position for financial statement purposes at March 31, 2012, measured on a trailing three-year basis. In addition, we considered the Company’s recent earnings history, on both a book and tax basis, and our outlook for earnings and taxable income in future periods.

At March 31, 2012, we had approximately $14 million of deferred tax assets that relate to equity compensation awards, including both unexercised stock options and unvested restricted shares. In both cases, the deferred tax assets may not be fully realized in future periods primarily due to stock price valuation. Currently, most of our stock options are “out of the money” with an exercise price above our current stock price. Depending in part on changes in our stock price, we could incur tax charges at the expiration date of the options or prior to that time if employees terminate and “out-of-the money” options expire, or in certain instances, when employees exercise options. In the case of restricted shares, the tax benefits will not be fully realized if the fair market value of the awards on the vesting/release date is less than the value of the awards on the grant date.

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In such circumstances where there is a “shortfall” in tax benefits on the exercise, vesting or expiration of an equity award, such “shortfall” amounts are charged to stockholders’ equity if there is a sufficient level of “excess” tax benefits accumulated from prior years. For the quarter ended March 31, 2012, we charged $377,000 of such shortfall tax benefits to income tax expense as a result of equity award transactions during the quarter because the balance of cumulative prior year “excess” tax benefits was reduced to zero during 2011. This resulted in an increase in the effective tax rate in 2012 as discussed above. Based on our current stock price level, scheduled vesting of restricted shares and anticipated option expirations, we expect to incur additional “shortfall” tax charges throughout 2012 which will put upward pressure on our effective income tax rate. The amount of such “shortfall” charges in 2012 and in future periods is dependent on changes in our stock price as well as the impact of employee terminations, option exercise decisions and other factors.

For calendar year 2012, we currently expect the effective tax rate to be in the range of 41-42%, although this will likely be uneven through the remaining quarters and a number of factors will continue to influence that estimate, including share price valuation and its influence on the tax benefits related to stock compensation.

Operating Segments Results

We have three primary business segments: Banking, Trust and Investments, and Holding Company Activities.

Banking

The profitability of our Banking segment is dependent on net interest income, provision for loan losses, non-interest income and non-interest expense. The net income for the Banking segment for the quarter ended March 31, 2012 was $21.5 million, an increase of $4.3 million from net income of $17.2 million for the prior year period. The increase in net income resulted primarily from a $9.9 million decrease in the provision for loan losses. Non-interest income improved by $4.6 million, with increases in capital markets product income and mortgage banking contributing to the year-over-year growth.

Total loans for the Banking segment increased to $9.2 billion at March 31, 2012 compared to $9.0 billion at December 31, 2011. Total deposits increased from December 31, 2011 levels of $10.5 billion to $10.6 billion at March 31, 2012.

Trust and Investments

The Trust and Investments segment includes investment management, investment advisory, personal trust and estate administration, custodial and escrow, retirement account administration, and brokerage services. Lodestar Investment Counsel, LLC (“Lodestar”), an investment management firm and wholly-owned subsidiary of the Bank, is included in our Trust and Investments segment.

Organizational changes we made in our investment management business as part of a strategic repositioning led to the recent departure of two relationship managers. As a result, we may experience a decline in fee revenue in our trusts and investment business segment in the short-term, although we do not anticipate a material impact to full year net income as we continue to implement our plans in 2012.

Net income from Trust and Investments decreased to $137,000 for the quarter ended March 31, 2012 from $316,000 (before noncontroling interest expense) in the prior year period due primarily to a decrease in fee revenue. Contributing to this decline in fee revenue was our exit from certain non-strategic client relationships in connection with the repositioning of this business during the past year. In addition, the first quarter 2011 benefitted from fees associated with the administration of a large estate. AUMA was $4.9 billion as of March 31, 2012 compared to $4.3 billion as of December 31, 2011 and included the addition of $463.7 million in new custody assets as a result of expanded product offerings. Refer to the trust and investment revenue discussion within the non-interest income section of Management’s Discussion and Analysis for further details regarding custody assets and impact on fee income.

Holding Company Activities

The Holding Company Activities segment consists of parent company-only activity and intersegment eliminations. The Holding Company’s most significant asset is its investment in its bank subsidiary. Undistributed earnings relating to this investment are not included in the Holding Company financial results. Holding Company financial results are represented primarily by interest expense on borrowings and operating expenses. Recurring operating expenses consist primarily of share-based compensation and professional fees. The Holding Company Activities segment reported a net loss of $7.4 million for the quarter ended March 31, 2012, compared to a net loss of $6.5 million for the prior year period. The year-over-year increase in due to higher share-based compensation costs.

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FINANCIAL CONDITION

Investment Portfolio Management

We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to attempt to serve as some protection of net interest income levels against the impact of changes in interest rates.

We may adjust the size and composition of our securities portfolio according to a number of factors, including expected liquidity needs, the current and forecasted interest rate environment, our actual and anticipated balance sheet growth rate, the relative value of various segments of the securities markets, and the broader economic and regulatory environment.

Investments are comprised of debt securities and non-marketable equity investments. Our debt securities portfolio is primarily comprised of residential mortgage-backed pools, collateralized mortgage obligations, U.S. Treasury and Agency securities, and state and municipal bonds.

Debt securities that are classified as available-for-sale are carried at fair value and may be sold as part of our asset/liability management strategy in response to changes in interest rates, liquidity needs or significant prepayment risk. Unrealized gains and losses on available-for-sale securities represent the difference between the aggregated cost and fair value of the portfolio and are reported, on an after-tax basis, as a separate component of equity in accumulated other comprehensive income. This balance sheet component will fluctuate as current market interest rates and conditions change, which changes affect the aggregate fair value of the portfolio. In periods of significant market volatility we may experience significant changes in other comprehensive income. Accumulated other comprehensive income is not included in the calculation of regulatory capital.

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

Non-marketable equity investments include Federal Home Loan Bank (“FHLB”) stock and various other equity securities. At March 31, 2012 and December 31, 2011, our investment in FHLB stock was $40.7 million. FHLB stock holdings are necessary to maintain FHLB advances and availability. In April 2012, we purchased an additional $3.1 million in FHLB stock in compliance with membership requirements. Also included in non-marketable equity investments are certain interests we have in investment funds that make qualifying investments for purposes of supporting our community reinvestment initiatives. Such investments had a carrying amount of $2.9 million at March 31, 2012.

We do not own any Freddie Mac or Fannie Mae preferred stock or subordinated debt obligations, bank trust preferred securities, or any sub-prime mortgage-backed securities.

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Table 6

Investment Securities Portfolio Valuation Summary

(Dollars in thousands)

	As of March 31, 2012						As of December 31, 2011
	Fair Value		Amortized Cost		% of Total		Fair Value		Amortized Cost		% of Total
Available-for-Sale
U.S. Treasury securities	$	87,942	$	87,499		3.8	$	61,521	$	60,590		2.7
U.S. Agency securities		—		—		—		10,034		10,014		0.4
Collateralized mortgage obligations		329,559		317,651		14.0		356,000		344,078		15.3
Residential mortgage-backed securities		1,112,722		1,062,052		47.3		1,189,213		1,140,555		51.3
State and municipal securities		174,926		164,086		7.4		166,197		154,080		7.2
Foreign sovereign debt		500		500		*		500		500		*
Total available-for-sale		1,705,649		1,631,788		72.5		1,783,465		1,709,817		76.9
Held-to-Maturity
Residential mortgage-backed securities		602,284		597,995		25.6		493,159		490,072		21.2
State and municipal securities		71		71		*		71		71		*
Total held-to-maturity		602,355		598,066		25.6		493,230		490,143		21.2
Non-Marketable Equity Investments
FHLB stock		40,695		40,695		1.8		40,695		40,695		1.8
Other		3,187		3,187		0.1		2,909		2,909		0.1
Total non-marketable equity investments		43,882		43,882		1.9		43,604		43,604		1.9
Total securities	$	2,351,886	$	2,273,736		100.0	$	2,320,299	$	2,243,564		100.0

* Less than 0.1%

As of March 31, 2012, our securities portfolio totaled $2.4 billion, an increase from $2.3 billion at December 31, 2011. Since year end 2011, purchases of securities totaled $166.7 million with $47.0 million in the available-for sale-portfolio, $119.5 million in the held-to-maturity portfolio and the remaining $235,000 in nonmarketable equity securities. The current year purchases in the investment portfolio primarily represented the reinvestment of proceeds from sales, maturities and paydowns in largely similar residential mortgage-backed securities as well as purchases of U.S. Treasury securities and state and municipals.

In conjunction with ongoing portfolio management and rebalancing activities, we sold $812,000 of tax-exempt municipal securities during the first quarter 2012, resulting in a net securities gain of $62,000. In addition, we recognized $43,000 in gains on other non-marketable securities during the first quarter 2012.

Investments in collateralized mortgage obligations and residential mortgage-backed securities comprise 87% of the total portfolio at March 31, 2012. All of the mortgage securities are backed by U.S. Government agencies or issued by U.S. Government-sponsored enterprises. All mortgage securities are composed of fixed-rate, fully-amortizing collateral with final maturities of 30 years or less.

Investments in debt instruments of state and local municipalities comprised 7% of the total portfolio at March 31, 2012. This type of security has historically experienced very low default rates and provided a predictable cash flow since it generally is not subject to significant prepayment. Insurance companies regularly provide credit enhancement to improve the credit rating and liquidity of a municipal bond issuance. Management considers the credit enhancement and underlying municipality credit rating when evaluating a purchase or sale decision.

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At March 31, 2012, our reported equity reflected unrealized net securities gains on available-for-sale securities, net of tax, of $45.2 million, approximating levels at December 31, 2011.

The following table presents the maturities of the different types of investments that we owned at March 31, 2012, and the corresponding interest rates.

Table 7

Repricing Distribution and Portfolio Yields

(Dollars in thousands)

	As of March 31, 2012
	One Year or Less					One Year to Five Years					Five Years to Ten Years					After 10 years
	Amortized Cost		Yield to Maturity			Amortized Cost		Yield to Maturity			Amortized Cost		Yield to Maturity			Amortized Cost		Yield to Maturity
Available-for-Sale
U.S. Treasury securities	$	—		—		$	87,499		0.95	%	$	—		—		$	—		—
Collateralized mortgage obligations (1)		75,643		3.16	%		180,481		3.33	%		57,188		3.20	%		4,339		3.34	%
Residential mortgage-backed securities (1)		274,767		3.35	%		591,925		3.25	%		171,839		3.26	%		23,521		3.27	%
State and municipal securities (2)		6,019		6.55	%		68,274		5.43	%		88,007		4.32	%		1,786		6.77	%
Foreign sovereign debt		500		1.30	%		—		—			—		—			—		—
Total available-for-sale		356,929		3.36	%		928,179		3.21	%		317,034		3.54	%		29,646		3.49	%
Held-to-Maturity
Residential mortgage-backed securities (1)		78,002		2.14	%		337,791		2.15	%		142,833		2.18	%		39,369		2.26	%
State and municipal securities (2)		23		2.95	%		48		3.56	%		—		—			—		—
Total held-to-maturity		78,025		2.14	%		337,839		2.15	%		142,833		2.18	%		39,369		2.26	%
Non-Marketable Equity Investments
FHLB stock (3)		40,695		1.04	%		—		—			—		—			—		—
Other		3,187		n/a			—		—			—		—			—		—
Total non-marketable equity investments		43,882		0.96	%		—		—			—		—			—		—
Total securities	$	478,836		2.94	%	$	1,266,018		2.93	%	$	459,867		3.12	%	$	69,015		2.79	%

⁽¹⁾  The repricing distributions and yields to maturity of collateralized mortgage obligations and mortgage-backed securities are based on estimated future cash flows and prepayments. Actual repricings and yields of the securities may differ from those reflected in the table depending upon actual interest rates and prepayment speeds.

⁽²⁾  Yields on state and municipal securities are reflected on a tax-equivalent basis, assuming a federal income tax rate of 35%. The maturity date of state and municipal bonds is based on contractual maturity, unless the bond, based on current market prices, is deemed to have a high probability that a call right will be exercised, in which case the call date is used as the maturity date.

⁽³⁾  The yield on FHLB stock is based on dividend announcements.

n/a Not applicable.

LOAN PORTFOLIO AND CREDIT QUALITY (excluding covered assets)

Portfolio Composition

The following discussion of our loan portfolio and credit quality excludes covered assets. Covered assets represent assets acquired through an FDIC-assisted transaction that are subject to a loss share agreement and are presented separately on the Consolidated Statements of Financial Condition. For additional discussion of covered assets, refer to Note 6 of “Notes to Consolidated Financial Statements” and the “Covered Assets” section presented later in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Total loans, excluding covered assets, were $9.2 billion as of March 31, 2012, compared to $9.0 billion at December 31, 2011, increasing $213.7 million during the quarter with most of the growth in our commercial loan portfolio. Funding of new loans to new client relationships during first quarter 2012 totaled $378 million and was offset by our ongoing problem loan disposition activities. As a result of the current period loan growth, commercial loans (including commercial owner-occupied CRE loans) increased by $177.5 million during the quarter and increased as a proportion of total loans to 60% at March 31, 2012, a slight increase over 59% at December 31, 2011. In line with our ongoing strategy to grow middle market commercial business, we may also seek to exit accounts that no longer align strategically or do not meet return or other performance hurdles.

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The following table presents the composition of our loan portfolio at the dates shown.

Table 8

Loan Portfolio

(Dollars in thousands)

	March 31, 2012		% of Total		December 31, 2011		% of Total		% Change
Commercial and industrial	$	4,325,558		46.9	$	4,192,842		46.5		3.2
Commercial – Owner-occupied CRE		1,175,729		12.7		1,130,932		12.6		4.0
Total commercial		5,501,287		59.6		5,323,774		59.1		3.3
Commercial real estate		2,378,640		25.8		2,233,851		24.8		6.5
Commercial real estate – multi-family		493,218		5.3		452,595		5.0		9.0
Total commercial real estate		2,871,858		31.1		2,686,446		29.8		6.9
Construction		127,837		1.4		287,002		3.2		-55.5
Total commercial real estate and construction		2,999,695		32.5		2,973,448		33.0		0.9
Residential real estate		308,880		3.4		297,229		3.3		3.9
Home equity		175,972		1.9		181,158		2.0		-2.9
Personal		236,419		2.6		232,952		2.6		1.5
Total loans	$	9,222,253		100.0	$	9,008,561		100.0		2.4

Table 9

Commercial Loan Portfolio Composition

by Industry Segment

(Dollars in thousands)

	March 31, 2012				December 31, 2011
	Amount		% of Total		Amount		% of Total
Manufacturing	$	1,301,681		24	$	1,257,973		24
Healthcare		1,343,017		24		1,218,205		23
Wholesale trade		506,840		9		482,386		9
Finance and insurance		493,103		9		454,830		8
Real estate, rental and leasing		269,647		5		342,860		6
Professional, scientific and technical services		348,907		6		350,677		7
Administrative, support, waste management and remediation services		328,370		6		321,912		6
Architecture, engineering and construction		209,998		4		195,875		4
All other (1)		699,724		13		699,056		13
Total commercial (2)	$	5,501,287		100	$	5,323,774		100

⁽¹⁾  All other consists of numerous smaller balances across a variety of other industries.

⁽²⁾ Includes owner-occupied commercial real estate of $1.2 billion at March 31, 2012 and $1.1 billion at December 31, 2011.

Within our commercial lending business, we have a specialized niche in the “assisted living,” nursing and residential care segment of the healthcare industry. At March 31, 2012, 24% of the commercial loan portfolio had been extended primarily to operators in this segment to finance the working capital needs and cost of facilities providing such services. These loans tend to be larger extensions of credit and are primarily to for-profit businesses. To date, this portfolio segment has experienced minimal defaults and losses.

Total commercial real estate and construction increased $26.2 million from year end as we selectively add to the portfolio.

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The collateral underlying our commercial real estate portfolio is principally located in and around our core markets and is significantly concentrated in the Chicago metropolitan area.

The following table summarizes our commercial real estate and construction loan portfolios by collateral type at March 31, 2012 and December 31, 2011.

Table 10

Commercial Real Estate and Construction Loan Portfolios

by Collateral Type

(Dollars in thousands)

	March 31, 2012								December 31, 2011
	Amount Outstanding		% of Total		Amount Non- performing		% Non- performing (1)		Amount Outstanding		% of Total		Amount Non- performing		% Non- performing (1)
Commercial Real Estate
Land	$	238,326		8	$	30,016		13	$	230,579		9	$	14,702		6
Residential 1-4 family		119,772		4		16,709		14		105,919		4		24,306		23
Multi-family		493,218		17		5,983		1		452,595		17		4,102		1
Industrial/warehouse		370,200		13		7,596		2		350,282		13		11,788		3
Office		617,871		22		20,157		3		585,183		22		21,137		4
Retail		489,960		17		60,006		12		431,200		16		32,590		8
Healthcare		144,239		5		—		—		144,529		5		—		—
Mixed use/other		398,272		14		18,788		5		386,159		14		24,632		6
Total commercial real estate	$	2,871,858		100	$	159,255		6	$	2,686,446		100	$	133,257		5
Construction
Land	$	39,735		31	$	369		1	$	23,422		8	$	369		2
Residential 1-4 family		19,033		15		1,223		6		21,906		8		3,073		14
Multi-family		10,793		8		—		—		64,892		23		—		—
Industrial/warehouse		2,861		2		—		—		15,216		5		—		—
Office		27,757		22		336		1		43,403		15		336		1
Retail		4,687		4		—		—		61,469		21		12,490		20
Mixed use/other		22,971		18		852		4		56,694		20		5,611		10
Total construction	$	127,837		100	$	2,780		2	$	287,002		100	$	21,879		8

⁽¹⁾  Calculated as nonperforming loans in the respective collateral type divided by total loans of the corresponding collateral type presented above.

Of the combined commercial real estate and construction portfolios, the single largest category at March 31, 2012 was office real estate, which represented 21% of the combined portfolios. Our total exposure to land loans in the combined portfolios totaled $278.1 million at March 31, 2012 and $254.0 million at December 31, 2011. Our longer-term goal is to reduce land loans as a percentage of the loan portfolio, although further meaningful reduction of our land loan exposure may be challenging in the near term due to the current illiquidity of this asset class. As a percentage of the total commercial real estate and construction portfolios, land loans were 9% at March 31, 2012 and December 31, 2011.

64

Maturity and Interest Rate Sensitivity of Loan Portfolio

The following table summarizes the maturity distribution of our loan portfolio as of March 31, 2012, by category, as well as the interest rate sensitivity of loans in these categories that have maturities in excess of one year.

Table 11

Maturities and Sensitivities of Loans

to Changes in Interest Rates

(Amounts in thousands)

	As of March 31, 2012
	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years		Total
Commercial	$	1,458,187	$	3,938,767	$	104,333	$	5,501,287
Commercial real estate		1,120,556		1,684,546		66,756		2,871,858
Construction		45,170		79,097		3,570		127,737
Residential real estate		16,521		34,065		258,294		308,880
Home equity		46,310		84,365		45,297		175,972
Personal		153,953		80,821		1,645		236,419
Total	$	2,840,697	$	5,901,661	$	479,895	$	9,222,253
Loans maturing after one year:
Predetermined (fixed) interest rates			$	490,144	$	63,978
Floating interest rates				5,411,517		415,917
Total			$	5,901,661	$	479,895

Of the $5.8 billion in loans maturing after one year with a floating interest rate, $1.4 billion are subject to interest rate floors under the loan agreement with $1.2 billion that have such floors in effect at March 31, 2012.

Delinquent Loans, Special Mention and Potential Problem Loans and Nonperforming Assets

Loans are reported delinquent if the required principal and interest payments have not been received within 30 days of the date such payment is due. Delinquency can be driven by either failure of the borrower to make payments within the term of the loan or failure to make the final payment at maturity. The majority of our loans are not fully amortizing over the term. As a result, a sizeable final repayment is often required at maturity. If a borrower lacks refinancing options or the ability to pay, the loan may become delinquent in connection with its maturity. Of total commercial loans outstanding at March 31, 2012, $486.3 million are scheduled to mature in the second quarter of 2012, 98% of this amount were performing at March 31, 2012. Of total commercial real estate and construction loans outstanding at March 31, 2012, $224.0 million are scheduled to mature in the second quarter of 2012, 92% of this amount were performing at March 31, 2012.

Loans considered special mention are performing in accordance with the contractual terms but demonstrate potential weakness that if left unresolved, may result in deterioration in the Company’s credit position and/or the repayment prospects for the credit. Borrowers rated special mention may exhibit adverse operating trends, high leverage, tight liquidity, or other credit concerns.

Potential problem loans are loans that are performing in accordance with contractual terms, but for which management has some level of concern (greater than that of special mention loans) about the ability of the borrowers to meet existing repayment terms in future periods. These loans continue to accrue interest but the ultimate collection of these loans is questionable due to the same conditions that characterize a special mention credit. These credits may also have somewhat increased risk profiles as a result of the current net worth and/or paying capacity of the obligor or guarantors or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize collection of the debt and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not resolved. Although these loans are generally identified as potential problem loans and require additional attention by management, they may never become nonperforming.

Special mention and potential problem loans as of March 31, 2012 and December 31, 2011 are presented in Tables 13 and 18.

65

Nonperforming assets include nonperforming loans and real estate that has been acquired primarily through foreclosure proceedings and are awaiting disposition and are presented in Table 13. Nonperforming loans consist of nonaccrual loans, including restructured loans that remain on nonaccrual. We specifically exclude certain restructured loans that accrue interest from our definition of nonperforming loans if the borrower has demonstrated the ability to meet the new terms of the restructuring as evidenced by a minimum of at least six months of performance in compliance with the restructured terms or if the borrower’s performance prior to the restructuring or other significant events at the time of the restructuring supports returning or maintaining the loan on accrual status. All loans are placed on nonaccrual status when principal or interest payments become 90 days past due or earlier if management deems the collectability of the principal or interest to be in question rather than waiting until the loans become 90 days past due. When interest accruals are discontinued, accrued but uncollected interest is reversed reducing interest income. Subsequent receipts on nonaccrual loans are recorded in the financial statements as a reduction of principal, and interest income is only recorded on a cash basis after principal recovery is reasonably assured. Classification of a loan as nonaccrual does not necessarily preclude the ultimate collection of loan principal and/or interest. Nonperforming loans are presented in Tables 13, 14, 16, and 18.

Foreclosed assets represent property acquired as the result of borrower defaults on loans secured by a mortgage on real property. Foreclosed assets are recorded at the lesser of current carrying value or estimated fair value, less estimated selling costs at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On a periodic basis, the carrying values of these properties are adjusted based upon new appraisals and/or market indications. Write-downs are recorded for subsequent declines in net realizable value and are included in non-interest expense along with other expenses related to maintaining the properties. Additional information on our OREO assets is presented in Tables 19 through 21.

As part of our ongoing risk management practices and in certain circumstances, we may extend or modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties. The modification may consist of reduction in interest rate, extension of the maturity date, reduction in the principal balance, or other action intended to minimize potential losses that would otherwise not be considered in order to improve the chance of a more successful recovery on the loan. Such concessions as part of a modification are accounted for as troubled debt restructurings (“TDRs”). Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. We may utilize a multiple note structure as a workout alternative for certain loans. The multiple note structure typically bifurcates a troubled loan into two separate notes, where the first note is reasonably assured of repayment and performance according to the modified terms, and the second note of the troubled loan that is not reasonably assured of repayment is charged-off. TDRs accrue interest as long as the borrower complies with the revised terms and conditions and has historically demonstrated repayment performance at a level commensurate with the modified terms; otherwise, the restructured loan will be classified as nonaccrual. The composition of our restructured loans accruing interest by loan category, current period activity and stratification is presented in Tables 13, 15 and 17.

Nonperforming loans were $233.2 million at March 31, 2012, down 10% from $259.9 million at December 31, 2011. The amount of nonperforming loan inflows, which is primarily composed of potential problem loans moving through the workout process (i.e., moving from potential problem to nonperforming status), were $69.6 million during the first quarter 2012 compared to $67.5 million during the fourth quarter 2011. Inflows to nonperforming loans were more than offset by problem loan resolutions (paydowns, payoffs and return to accruing status), dispositions, charge-offs and transfers to OREO during the quarter. As shown in Table 16 which provides the nonperforming loan stratification by size, eleven nonperforming loans in excess of $5.0 million comprised 50% of our total nonperforming loans at March 31, 2012. Commercial real estate and construction loans were 69% of our total nonperforming loans at March 31, 2012, reflecting the continuing stress in the sector.

Total nonperforming assets declined 7.5% to $356.7 million at March 31, 2012 from $385.6 million at December 31, 2011, reflecting steady progress in improving the overall asset quality of the portfolio and reducing problem assets. Nonperforming assets were 2.83% of total assets at March 31, 2012, compared to 3.11% at December 31, 2011. During the first quarter 2012, total nonperforming loans declined by $26.6 million, or 10%, due to disposition activity and movement of nonperforming loans to OREO. OREO decreased $2.2 million, or 2%, from December 31, 2011. Meaningful declines in OREO balances in the near term are unlikely as problem loans continue to progress through the workout process and disposition activity is limited to some degree by illiquidity of land, the Company’s largest OREO category.

During the first quarter 2012, we executed a variety of resolution strategies which included a combination of asset sale dispositions, loan restructurings and arrangements for pay-offs at par, all occurring with loans in the problem loan portfolio. Disposition activity during the first quarter 2012 included the sale of $56.2 million in problem loans, including $27.5 million in nonperforming loans and $11.2 million in OREO at a 14% net incremental charge based on the carrying value net of specific reserves at the time of disposition, consistent with historical execution levels. In addition to these dispositions, we restructured $47.7 million of problem loans, to intentionally address those specific credits and in an effort to potentially avoid future problems and maximize collection amounts. We also had $18 million in targeted problem loan pay-offs, with full interest and principal, resulting from the efforts of our dedicated loan resolution team. These activities drove a reduction in special mention and potential problem loans. Loans in these early stage problem loan categories were down $54.2 million, or 14%, from December 31, 2011 to $327.8 million at March 31, 2012.

66

We continue to source all dispositions opportunistically, preferring to execute direct sales to end-users or other identified interested parties in particular assets and limiting the use of brokered or pooled transactions. We believe this approach has worked well and our expectation is that dispositions will remain at meaningful levels in the near term as we continue to assess the market for the best disposition strategy and to maximize liquidation proceeds of the individual assets sold. We will also continue to use various other strategies mentioned above, including restructuring, that are consistent with our goal to maximize economic recovery on the asset.

Restructured loans accruing interest totaled $136.5 million at March 31, 2012, increasing $35.6 million from $100.9 million at December 31, 2011. During first quarter 2012, ten loans were restructured totaling $47.7 million with 88%, or $41.8 million consisting of three commercial borrowers. Of total restructured loans accruing interest that were modified during the current quarter, 68% were modified to extend the maturity date and 32% were multiple note restructurings. During the first quarter 2012, $735,000 in loans that were previously classified as restructured loans accruing interest were subsequently re-underwritten as pass rated credits which is evidence that the borrower would no longer be considered “troubled,” and as such, the TDR classification was removed.

As discussed above, our focused asset management activities have led to declines in total special mention and potential problem loans over recent quarters as we have worked to improve overall credit quality. Since the majority of inflows to nonperforming loans have been migrating from the special mention or potential problem loan categories, we expect that future nonperforming loan inflows will likely continue to moderate. However, because many of our potential problem loans are commercial real estate-related, a highly-stressed loan sector, and because the potential problem loan population contains some larger-sized credits, our total nonperforming loans may fluctuate over the next several quarters as we continue to execute remediation plans and work through the credit cycle. In addition, credit quality trends may also be impacted by the uncertainty in global economic conditions and market turmoil that could disrupt workout plans, adversely affect clients, or negatively impact collateral valuations. Further, net nonperforming asset levels and levels of restructured loans could fluctuate depending on the mix and timing of dispositions or other remediation actions. Our efforts to continue to dispose of nonperforming and problem assets in future quarters may be impacted by a number of factors, including but not limited to, the pace and timing of the overall recovery of the economy, activity levels in the real estate market and real estate inventory coming into the market for sale. OREO is likely to remain elevated as nonperforming commercial real estate loans continue to move through the collection process.

67

The following table breaks down our loan portfolio at March 31, 2012 between performing, delinquent and nonperforming status.

Table 12

Delinquency Analysis

(Dollars in thousands)

				Delinquent
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due and Accruing		Nonaccrual			Total Loans
As of March 31, 2012
Loan Balances:
Commercial	$	5,453,922		$	3,216		$	3,963		$	—	$	40,186		$	5,501,287
Commercial real estate		2,703,932			6,590			2,081			—		159,255			2,871,858
Construction		124,988			—			68			—		2,781			127,837
Residential real estate		290,716			4,960			1,135			—		12,069			308,880
Personal and home equity		391,453			1,754			253			—		18,931			412,391
Total loans	$	8,965,011		$	16,520		$	7,500		$	—	$	233,222		$	9,222,253
% of Loan Balance:
Commercial		99.14	%		0.06	%		0.07	%		—		0.73	%		100.00	%
Commercial real estate		94.15	%		0.23	%		0.07	%		—		5.55	%		100.00	%
Construction		97.77	%		—			0.05	%		—		2.18	%		100.00	%
Residential real estate		94.11	%		1.61	%		0.37	%		—		3.91	%		100.00	%
Personal and home equity		94.92	%		0.43	%		0.06	%		—		4.59	%		100.00	%
Total loans		97.21	%		0.18	%		0.08	%		—		2.53	%		100.00	%

				Delinquent
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due and Accruing		Nonaccrual			Total Loans
As of December 31, 2011
Loan Balances:
Commercial	$	5,250,875		$	6,018		$	923		$	—	$	65,958		$	5,323,774
Commercial real estate		2,539,889			3,523			9,777			—		133,257			2,686,446
Construction		262,742			—			2,381			—		21,879			287,002
Residential real estate		278,195			3,800			645			—		14,589			297,229
Personal and home equity		388,686			446			809			—		24,169			414,110
Total loans	$	8,720,387		$	13,787		$	14,535		$	—	$	259,852		$	9,008,561
% of Loan Balance:
Commercial		98.63	%		0.11	%		0.02	%		—		1.24	%		100.00	%
Commercial real estate		94.55	%		0.13	%		0.36	%		—		4.96	%		100.00	%
Construction		91.55	%		—			0.83	%		—		7.62	%		100.00	%
Residential real estate		93.59	%		1.28	%		0.22	%		—		4.91	%		100.00	%
Personal and home equity		93.85	%		0.11	%		0.20	%		—		5.84	%		100.00	%
Total loans		96.81	%		0.15	%		0.16	%		—		2.88	%		100.00	%

68

The following table provides a comparison of our nonperforming assets, restructured loans accruing interest, special mention, potential problem and past due loans for the past five periods.

Table 13

Nonperforming Assets, Restructured, Special Mention, Potential Problem and Past Due Loans

(Dollars in thousands)

	2012			2011
	March 31			December 31			September 30			June 30			March 31
Nonaccrual loans:
Commercial	$	40,186		$	65,958		$	61,399		$	51,634		$	66,529
Commercial real estate		159,255			133,257			168,078			192,778			202,836
Construction		2,781			21,879			29,997			37,140			41,643
Residential real estate		12,069			14,589			18,007			18,496			16,869
Personal and home equity		18,931			24,169			27,266			30,400			29,055
Total nonaccrual loans		233,222			259,852			304,747			330,448			356,932
90 days past due loans (still accruing interest)		—			—			—			—			—
Total nonperforming loans		233,222			259,852			304,747			330,448			356,932
OREO		123,498			125,729			116,364			123,997			93,770
Total nonperforming assets	$	356,720		$	385,581		$	421,111		$	454,445		$	450,702
Restructured loans accruing interest:
Commercial	$	82,669		$	42,569		$	44,933		$	52,787		$	9,785
Commercial real estate		37,557			41,348			46,303			47,262			72,685
Construction		—			—			—			9,012			3,094
Residential real estate		1,115			3,238			1,063			1,167			796
Personal and home equity		15,180			13,754			14,031			14,386			14,535
Total restructured loans accruing interest	$	136,521		$	100,909		$	106,330		$	124,614		$	100,895
Special mention loans	$	143,790		$	204,965		$	218,561		$	227,413		$	275,519
Potential problem loans	$	184,029		$	177,095		$	277,125		$	392,019		$	518,144
30-89 days past due loans	$	24,020		$	28,322		$	23,320		$	24,860		$	45,167
Nonperforming loans to total loans (excluding covered assets)		2.53	%		2.88	%		3.51	%		3.81	%		3.95	%
Nonperforming loans to total assets		1.85	%		2.09	%		2.54	%		2.73	%		2.86	%
Nonperforming assets to total assets		2.83	%		3.11	%		3.50	%		3.75	%		3.61	%
Allowance for loan losses as a percent of nonperforming loans		79	%		74	%		66	%		62	%		61	%

69

The following two tables present changes in our nonperforming loans and loans classified as restructured loans accruing interest portfolio for the past five periods.

Table 14

Nonperforming Loans Rollforward

(Amounts in thousands)

	Quarter Ended			Quarters Ended
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Balance at beginning of period	$	259,852		$	304,747		$	330,448		$	356,932		$	365,880
Additions:
New nonaccrual loans (1)		69,581			67,512			68,298			110,438			95,275
Reductions:
Return to performing status		(14,291	)		(2,072	)		(1,608	)		(2,781	)		(11,059	)
Paydowns and payoffs, net of advances		(4,806	)		(8,950	)		(13,166	)		(8,258	)		(16,301	)
Net sales		(27,479	)		(27,178	)		(20,432	)		(38,129	)		(11,288	)
Transfer to OREO		(13,513	)		(33,695	)		(24,373	)		(49,667	)		(23,655	)
Charge-offs, net		(36,122	)		(40,512	)		(34,420	)		(38,087	)		(41,920	)
Total reductions		(96,211	)		(112,407	)		(93,999	)		(136,922	)		(104,223	)
Balance at end of period	$	233,222		$	259,852		$	304,747		$	330,448		$	356,932

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

Table 15

Restructured Loans Accruing Interest Rollforward

(Amounts in thousands)

	Quarter Ended			Quarters Ended
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Balance at beginning of period	$	100,909		$	106,330		$	124,614		$	100,895		$	87,576
Additions:
New restructured loans accruing interest (1)		47,673			8,803			8,592			54,663			19,328
Restructured loans returned to accruing status		—			1,099			1,029			—			—
Reductions:
Paydowns and payoffs, net of advances		(4,661	)		(3,334	)		(20,545	)		(7,915	)		(1,535	)
Transferred to nonperforming loans		(6,665	)(2)		(5,735	)		(4,716	)		(9,930	)		(4,474	)
Net sales		—			—			(2,260	)		(9,600	)		—
Removal of restructured loan status (3)		(735	)		(6,254	)		(340	)		—			—
Charge-offs, net		—			—			(44	)		(3,499	)		—
Balance at end of period	$	136,521		$	100,909		$	106,330		$	124,614		$	100,895

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

⁽²⁾  This amount includes a $97,000 TDR that was restructured within the past twelve months while the remaining balance pertains to TDRS that were restructured prior to that time period.

⁽³⁾  Loan was previously classified as an accruing TDR and subsequently re-underwritten as a pass rated credit. Per our TDR policy, the TDR classification is removed.

70

The following table presents the stratification of our nonperforming loans as of March 31, 2012 and December 31, 2011.

Table 16

Nonperforming Loans Stratification

(Dollars in thousands)

	Stratification
	$10.0 Million or More		$5.0 Million to $9.9 Million		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of March 31, 2012
Amount:
Commercial	$	—	$	14,164	$	7,737	$	5,751	$	12,534	$	40,186
Commercial real estate		77,770		19,374		11,493		25,689		24,929		159,255
Construction		—		—		—		—		2,781		2,781
Residential real estate		—		—		4,789		—		7,280		12,069
Personal and home equity		—		5,827		—		1,615		11,489		18,931
Total nonperforming loans	$	77,770	$	39,365	$	24,019	$	33,055	$	59,013	$	233,222
Number of Borrowers:
Commercial		—		2		2		3		35		42
Commercial real estate		5		3		3		12		48		71
Construction		—		—		—		—		6		6
Residential real estate		—		—		1		—		20		21
Personal and home equity		—		1		—		1		31		33
Total		5		6		6		16		140		173
As of December 31, 2011
Amount:
Commercial	$	30,226	$	16,820	$	3,448	$	3,434	$	12,030	$	65,958
Commercial real estate		56,969		10,257		15,740		21,549		28,742		133,257
Construction		12,490		—		4,760		1,547		3,082		21,879
Residential real estate		—		—		4,789		2,473		7,327		14,589
Personal and home equity		—		7,108		—		3,795		13,266		24,169
Total nonperforming loans	$	99,685	$	34,185	$	28,737	$	32,798	$	64,447	$	259,852
Number of Borrowers:
Commercial		2		2		1		2		39		46
Commercial real estate		4		2		4		10		56		76
Construction		1		—		1		1		5		8
Residential real estate		—		—		1		1		19		21
Personal and home equity		—		1		—		2		37		40
Total		7		5		7		16		156		191

71

The following table presents the stratification of our restructured loans accruing interest as of March 31, 2012 and December 31, 2011.

Table 17

Restructured Loans Accruing Interest Stratification

(Dollars in thousands)

	Stratification
	$10.0 Million or More		$5.0 Million to $9.9 Million		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of March 31, 2012
Amount:
Commercial	$	55,205	$	20,050	$	3,259	$	—	$	4,155	$	82,669
Commercial real estate		20,576		5,178		—		7,217		4,586		37,557
Residential real estate		—		—		—		—		1,115		1,115
Personal and home equity		12,593		—		—		—		2,587		15,180
Total restructured loans accruing interest	$	88,374	$	25,228	$	3,259	$	7,217	$	12,443	$	136,521
Number of Borrowers:
Commercial		4		3		1		—		10		18
Commercial real estate		1		1		—		3		9		14
Residential real estate		—		—		—		—		4		4
Personal and home equity		1		—		—		—		4		5
Total		6		4		1		3		27		41
As of December 31, 2011
Amount:
Commercial	$	15,279	$	19,065	$	4,331	$	—	$	3,894	$	42,569
Commercial real estate		21,273		10,364		—		4,944		4,767		41,348
Residential real estate		—		—		—		2,213		1,025		3,238
Personal and home equity		12,691		—		—		—		1,063		13,754
Total restructured loans accruing interest	$	49,243	$	29,429	$	4,331	$	7,157	$	10,749	$	100,909
Number of Borrowers:
Commercial		1		3		1		—		10		15
Commercial real estate		1		2		—		2		10		15
Residential real estate		—		—		—		1		2		3
Personal and home equity		1		—		—		—		2		3
Total		3		5		1		3		24		36

The following table presents the credit quality of our loan portfolio as of March 31, 2012 and December 31, 2011, segmented by our transformational and legacy portfolios. We have reduced the level of problem loans, with an overall reduction of 13% from December 31, 2011. Legacy loans, which represent approximately 21% of our total loan portfolio and 52% of nonperforming loans at March 31, 2012, decreased by $147.0 million, or 7% from December 31, 2011.

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Table 18

Credit Quality

(Dollars in thousands)

	Special Mention		% of Portfolio Loan Type		Potential Problem Loans		% of Portfolio Loan Type		Non- Performing Loans		% of Portfolio Loan Type		Total Loans
As of March 31, 2012
Transformational
Commercial	$	61,382		1.2	$	49,229		1.0	$	22,765		0.4	$	5,065,103
Commercial real estate		26,466		1.5		33,251		1.9		87,228		4.9		1,782,434
Construction		7,272		6.1		—		—		—		—		118,394
Residential real estate		4,309		2.9		5,983		4.0		1,057		0.7		149,639
Home equity		—		—		1,659		2.8		424		0.7		59,946
Personal		—		—		765		0.5		311		0.2		149,951
Total transformational	$	99,429		1.4	$	90,887		1.2	$	111,785		1.5	$	7,325,467
Legacy
Commercial	$	11,198		2.6	$	8,557		2.0	$	17,421		4.0	$	436,184
Commercial real estate		30,355		2.8		62,880		5.8		72,027		6.6		1,089,424
Construction		—		—		—		—		2,781		29.5		9,443
Residential real estate		2,384		1.5		15,027		9.4		11,012		6.9		159,241
Home equity		420		0.4		5,613		4.8		9,954		8.6		116,026
Personal		4		*		1,065		1.2		8,242		9.5		86,468
Total legacy	$	44,361		2.3	$	93,142		4.9	$	121,437		6.4	$	1,896,786
Total	$	143,790		1.6	$	184,029		2.0	$	233,222		2.5	$	9,222,253
As of December 31, 2011
Transformational
Commercial	$	41,995		0.9	$	66,279		1.4	$	49,220		1.0	$	4,889,734
Commercial real estate		59,031		3.8		1,769		0.1		49,031		3.2		1,549,862
Construction		7,272		3.6		9,283		4.6		12,489		6.2		201,879
Residential real estate		4,490		3.5		5,450		4.2		2,844		2.2		129,161
Home equity		—		—		381		0.7		78		0.1		54,530
Personal		—		—		866		0.6		330		0.2		139,643
Total transformational	$	112,788		1.6	$	84,028		1.2	$	113,992		1.6	$	6,964,809
Legacy
Commercial	$	12,331		2.8	$	13,049		3.0	$	16,738		3.9	$	434,040
Commercial real estate		73,884		6.5		60,424		5.3		84,226		7.4		1,136,584
Construction		—		—		—		—		9,390		11.0		85,123
Residential real estate		4,854		2.9		12,481		7.4		11,745		7.0		168,068
Home equity		758		0.6		6,003		4.7		11,525		9.1		126,628
Personal		350		0.4		1,110		1.2		12,236		13.1		93,309
Total legacy	$	92,177		4.5	$	93,067		4.6	$	145,860		7.1	$	2,043,752
Total	$	204,965		2.3	$	177,095		2.0	$	259,852		2.9	$	9,008,561

* Less than 0.01%

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Foreclosed real estate

OREO is recorded at the lower of the recorded investment in the loan at the time of acquisition or the fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. The decision to foreclose on real property collateral is based on a number of factors, including but not limited to: our determination of the probable success of further collection from the borrower, location of the property, borrower attention to the property’s maintenance and condition and other factors unique to the situation and asset. In all cases, the decision to foreclose represents management’s judgment that ownership of the property will likely result in the best repayment and collection potential on the nonperforming exposure. Updated appraisals on OREO are typically obtained every twelve months and evaluated internally at least every six months.

OREO totaled $123.5 million at March 31, 2012, compared to $125.7 million at December 31, 2011, and is comprised of 400 properties. The decrease in OREO properties from year end 2011 is due to $11.2 million in sales and $4.5 million in valuations adjustments, offset by inflows migrating from the nonperforming loan portfolio. Given current economic conditions and the difficult real estate market, the time required to sell these properties in an orderly fashion has increased, and OREO is likely to remain elevated as nonperforming commercial real estate loans continue to move through the collection process.

Table 19 presents a rollforward of OREO for the three months ended March 31, 2012 and 2011. Table 20 presents the composition of OREO properties at March 31, 2012 and December 31, 2011 and Table 21 presents OREO property by geographic location at March 31, 2012 and December 31, 2011.

Table 19

OREO Rollforward

(Amounts in thousands)

	Quarters Ended March 31,
	2012			2011
Balance at beginning of period	$	125,729		$	88,728
New foreclosed properties		13,513			23,661
Valuation adjustments		(4,522	)		(4,762	)
Disposals:
Sale proceeds		(9,078	)		(12,277	)
Net loss on sale		(2,144	)		(1,580	)
Balance at end of period	$	123,498		$	93,770

Table 20

OREO Properties by Type

(Dollars in thousands)

	March 31, 2012						December 31, 2011
	Number of Properties		Amount		% of Total		Number of Properties		Amount		% of Total
Single-family homes		69	$	21,074		17		71	$	26,866		21
Land parcels		260		49,706		40		262		51,465		41
Multi-family		13		4,665		4		14		3,327		3
Office/industrial		47		39,983		32		44		37,019		29
Retail		11		8,070		7		9		7,052		6
Total OREO properties		400	$	123,498		100		400	$	125,729		100

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Table 21

OREO Property Type by Location

(Dollars in thousands)

	Illinois			Georgia			Michigan			South Eastern(1)			Mid Western(2)			Other			Total
As of March 31, 2012
Single-family homes	$	18,497		$	—		$	1,718		$	—		$	618		$	241		$	21,074
Land parcels		27,487			3,438			2,137			9,568			7,076			—			49,706
Multi-family		1,335			—			—			460			2,870			—			4,665
Office/industrial		19,670			1,058			1,197			6,411			8,253			3,394			39,983
Retail		4,872			2,262			936			—			—			—			8,070
Total OREO properties	$	71,861		$	6,758		$	5,988		$	16,439		$	18,817		$	3,635		$	123,498
% of Total		58	%		6	%		5	%		13	%		15	%		3	%		100	%
As of December 31, 2011
Single-family homes	$	23,277		$	385		$	1,718		$	—		$	608		$	878		$	26,866
Land parcels		29,370			2,898			3,171			9,568			6,458			—			51,465
Multi-family		3,327			—			—			—			—			—			3,327
Office/industrial		18,430			1,656			548			3,762			9,228			3,395			37,019
Retail		4,501			1,615			936			—			—			—			7,052
Total OREO properties	$	78,905		$	6,554		$	6,373		$	13,330		$	16,294		$	4,273		$	125,729
% of Total		63	%		5	%		5	%		11	%		13	%		3	%		100	%

⁽¹⁾ Represents the southeastern states of Arkansas and Florida.

⁽²⁾ Represents the Midwestern states of Kansas, Missouri, Wisconsin, Indiana and Ohio.

At March 31, 2012, OREO land parcels, currently a fairly illiquid asset class, consisted of 260 properties and represented the largest portion of OREO at 40% of the total OREO carrying value with a total value of $49.7 million. Office/industrial properties represented 32% of the total OREO carrying value and consisted of 47 properties. Single-family homes represented 17% of the total OREO carrying value and consisted of 69 properties.

Credit Quality Management and Allowance for Loan Losses

We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for loan losses is assessed quarterly and represents an accounting estimate of probable losses in the portfolio at each balance sheet date based on a review of available and relevant information at that time. The allowance is not a prediction of our actual credit losses going forward based on current and available information. The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships that are considered to be impaired (the “specific component” of the allowance), as well as probable losses inherent in the loan portfolio that are not specifically identified (the “general allocated component” of the allowance), which is determined using a methodology that is a function of quantitative and qualitative factors and management judgment applied to defined segments of our loan portfolio.

The specific component of the allowance relates to impaired loans. Impaired loans consist of nonaccrual loans (which include nonaccrual TDRs) and loans classified as accruing TDRs. A loan is considered nonaccrual when, based on current information and events, management believes that it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement. All loans that are over 90 days past due in principal or interest are by definition considered “impaired” and placed on nonaccrual status. Management may also place some loans on nonaccrual status before they are 90 days past due if they meet the above definition of “impaired.” Once a loan is determined to be impaired, the amount of impairment is measured based on the loan’s observable fair value, the fair value of the underlying collateral less selling costs if the loan is collateral-dependent, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Impaired loans exceeding $500,000 are evaluated individually while smaller loans are evaluated as pools using historical loss experience as well as management’s loss expectations for the respective asset class and product type. If the estimated fair value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees and costs and unamortized premium or discount), impairment is recognized by creating a specific reserve as a component of the allowance for loan losses. The recognition of any reserve required on new impaired loans is recorded in the same quarter in which the transfer of the loan to nonaccrual status occurred. All impaired loans are reviewed quarterly for any changes that would affect the specific reserve. Any impaired loan in which a determination has been made that the economic value is permanently reduced is charged-off against the allowance for loan losses to reflect its current economic value in the period in which the determination has been made.

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When collateral-dependent real estate loans are determined to be impaired, updated appraisals are typically obtained every twelve months and evaluated internally at least every six months. In addition, both borrower and market-specific factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement. The Company generally obtains “as is” appraisal values for use in the evaluation of collateral dependent impaired loans. Any appraisal with a value in excess of $250,000, but less than $500,000 will be reviewed upon request only. Appraisals received with a value in excess of $1.0 million require a technical review. Appraisals are either reviewed internally or sent to an outside firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the loan and its collateral. We consider other factors or recent developments which could adjust the valuations indicated in the appraisals or internal reviews. As of March 31, 2012, the average appraisal age used in the impaired loan valuation process was approximately 180 days. The amount of impaired assets which, by policy, requires an independent appraisal, but does not have a current external appraisal at March 31, 2012 due to the timing of the receipt of the appraisal is not material to the overall reserve. In situations such as this, we establish a probable impairment reserve for the account based on our experience in the related asset class and type.

The general allocated component of the allowance is determined using a methodology that is a function of quantitative and qualitative factors applied to segments of our loan portfolio. The methodology takes into account at a product level the originating line of business and vintage (transformational or legacy), the risk rating migration of the loan, and historical default and loss history of similar products. Using this information, the methodology produces a range of possible reserve amounts by product type. We consider the appropriate balance of the general allocated component of the reserve within these ranges based on a variety of internal and external quantitative and qualitative factors to reflect data or timeframes not captured by the model as well as market and economic data and management judgment. In certain instances, these additional factors and judgments may lead to management’s conclusion that the appropriate level of the reserve is outside the range determined through the framework. In our evaluation of the quantitatively-determined range and the adequacy of the allowance at March 31, 2012, we considered a number of factors for each product that included, but were not limited to, the following: for the commercial portfolio, the pace of growth in the commercial loan sector, the existence of larger individual credits and specialized industry concentrations, comparison of our default rates to overall US industry averages at industry subsets, and general macroeconomic indicators, such as GDP, employment trends and manufacturing activity, which overall show some signs of improvement in recent months, but still are susceptible to sustainability risk and possible negative ramifications from the European debt crisis and other factors; for the commercial real estate portfolio, the potential impact of general commercial real estate trends, particularly occupancy and leasing rate trends, charge-off severity, default likelihood in our book vs. the general US averages, and collateral value changes; for the construction portfolio, construction employment, industry experience on construction loan losses, and construction spending rates; and for the residential, home equity, and personal portfolios, home price indices and sales volume, vacancy rates, delinquency rates, and general economic conditions and interest rate trends which impact these products. The Bank has limited exposure with a related junior collateral position in any product type with the exception of home equity lines of credit (“HELOCs”). This product is by definition usually secured in the junior position to the first mortgage on the related property. The Bank evaluates the allowance for loan losses for HELOCs as one of our six primary, segregated product types and considers the potential impact of the junior security position (as opposed to our generally senior position in all other product types) in setting final allocated reserve amounts for this product. Default rates on our HELOC portfolio have historically been below industry averages and our allowance reflects the performance and loss history unique to our portfolio. Management also considers the amount and characteristics of the accruing TDRs removed from the general allocation reserve formulas in establishing final reserve requirements.

The establishment of the allowance for loan losses involves a high degree of judgment and includes an inherent level of imprecision given the difficulty of identifying all the factors impacting loan repayment and the timing of when losses actually occur. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control, including, but not limited to, client performance, the economy, changes in interest rates and property values, and the interpretation by regulatory authorities of loan classifications.

Although we determine the amount of each element of the allowance separately and consider this process to be an important credit management tool, the entire allowance for loan losses is available for the entire loan portfolio.

Management evaluates the adequacy of the allowance for loan losses and reviews the allowance for loan losses and the underlying methodology with the Audit Committee of the Board of Directors quarterly. As of March 31, 2012, management concluded the allowance for loan losses was adequate (i.e., sufficient to absorb losses that are inherent in the portfolio at that date, including those not yet identifiable).

76

As an integral part of their examination process, various federal and state regulatory agencies also review the allowance for loan losses. These agencies may require that certain loan balances be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

The accounting policies underlying the establishment and maintenance of the allowance for loan losses through provisions charged to operating expense are discussed in Note 1 of “Notes to Consolidated Financial Statements” of our 2011 Annual Report on Form 10-K.

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

Table 22

Quarterly Allowance for Loan Losses

and Summary of Loan Loss Experience

(Dollars in thousands)

	Quarters ended
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Change in allowance for loan losses:
Balance at beginning of period	$	191,594		$	200,041		$	206,286		$	218,237		$	222,821
Loans charged-off:
Commercial		(9,549	)		(12,991	)		(5,039	)		(10,512	)		(4,200	)
Commercial real estate		(25,280	)		(24,083	)		(29,920	)		(25,402	)		(29,409	)
Construction		(1,245	)		(1,526	)		(1,419	)		(8,275	)		(62	)
Residential real estate		(1,084	)		(1,203	)		(234	)		(186	)		(386	)
Home equity		(483	)		(1,340	)		(3,291	)		(508	)		(1,447	)
Personal		(2,085	)		(290	)		(2,083	)		(434	)		(6,787	)
Total charge-offs		(39,726	)		(41,433	)		(41,986	)		(45,317	)		(42,291	)
Recoveries on loans previously charged-off:
Commercial		1,679			830			2,278			707			465
Commercial real estate		1,882			1,410			969			511			272
Construction		41			109			29			56			97
Residential real estate		11			10			9			40			2
Home equity		26			300			12			15			10
Personal		702			544			103			312			155
Total recoveries		4,341			3,203			3,400			1,641			1,001
Net charge-offs		(35,385	)		(38,230	)		(38,586	)		(43,676	)		(41,290	)
Provisions charged to operating expense		27,635			29,783			32,341			31,725			36,706
Balance at end of period	$	183,844		$	191,594		$	200,041		$	206,286		$	218,237
Total loans, excluding covered assets at period end	$	9,222,253		$	9,008,561		$	8,674,955		$	8,672,642		$	9,037,067
Allowance as a percent of loans at period end		1.99	%		2.13	%		2.31	%		2.38	%		2.41	%
Average loans, excluding covered assets	$	9,049,389		$	8,838,512		$	8,686,201		$	8,981,987		$	9,162,389
Ratio of net charge-offs (annualized) to average loans outstanding for the period		1.57	%		1.72	%		1.76	%		1.95	%		1.83	%

Our allowance for loan losses declined $7.8 million from $191.6 million at December 31, 2011 to $183.8 million at March 31, 2012. The decrease in the allowance is the result of lower reserve requirements on impaired loans which require a specific reserve as well as an improved credit risk profile for the performing portfolio as reflected in the reduced levels of special mention and potential problem loans and improving loan portfolio mix due to the strategic reshaping activities previously discussed. The ratio of the allowance for loan losses to total loans (excluding covered assets) was 1.99% at March 31, 2012, down from 2.13% as of December 31, 2011. The loan loss allowance as a percentage of nonperforming loans was 79% compared to the December 31, 2011 level of 74%. The provision for loan losses was $27.6 million for the three months ended March 31, 2012, compared to $36.7 million in the prior year period.

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For the first quarter 2012, net charge-offs totaled $35.4 million as compared to $38.2 million in the fourth quarter 2011 and $41.3 million in the first quarter 2011. Continued high levels of charge-offs reflect real estate collateral values, particularly land values, which have remained low. Commercial real estate and construction combined comprised 69% of net charge-offs in the first quarter 2012, reflecting the challenging market conditions associated with these loan types.

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

Table 23

Allocation of Allowance for Loan Losses

(Dollars in thousands)

	General Allocated Reserve			Specific Reserve			Total		% of Total Allowance		% of Loan Balance
As of March 31, 2012
Commercial	$	45,850		$	14,061		$	59,911		33		1.1
Commercial real estate		57,750			39,271			97,021		53		3.4
Construction		1,900			1,280			3,180		2		2.5
Residential real estate		5,400			1,160			6,560		3		2.1
Home equity		4,700			1,901			6,601		3		3.8
Personal		3,295			7,276			10,571		6		4.5
Total	$	118,895		$	64,949		$	183,844		100		2.0
Percentage of total reserve		65	%		35	%
As of December 31, 2011
Commercial	$	46,500		$	14,163		$	60,663		32		1.1
Commercial real estate		56,000			38,905			94,905		49		3.5
Construction		7,650			5,202			12,852		7		4.5
Residential real estate		5,400			976			6,376		3		2.1
Home equity		2,750			1,272			4,022		2		2.2
Personal		3,350			9,426			12,776		7		5.5
Total	$	121,650		$	69,944		$	191,594		100		2.1
Percentage of total reserve		63	%		37	%

Under our methodology, the allowance for loan losses is comprised of the following components:

General Allocated Component of the Allowance

The general allocated component of the allowance decreased by $2.8 million during the first three months of 2012, from $121.7 million at December 31, 2011 to $118.9 million at March 31, 2012. The reduction in the general allocated reserve was primarily influenced by the improved risk profile of the performing portfolio during the period, as exposure in special mention and potential problem loans declined, due in part to the sale of these problem credits. In addition, lower loss rates are being applied to a larger proportion of the total loan portfolio. As the portfolio is becoming more weighted in transformational and commercial loans, where our historical credit performance has been better, and less weighted in legacy and commercial real estate loans, where historical performance has been weaker. This changing mix has resulted in lower loss rates applied to a larger portion of the total loan portfolio which positively impacts reserve requirements. The continuing improvement in the asset quality position of the loan portfolio supports a lower general reserve,

The general allocated reserve for our combined commercial real estate and construction portfolios, which represented 32% of our total general allocated reserve at March 31, 2012, declined $4.0 million, or 6%, from December 31, 2011. The decrease in this allocation is primarily due to a reduction in construction loan balances and improvement in commercial real estate. The combined coverage ratio (general allocated reserve as a percentage of loans) of the general allocated reserve for these portfolios was 2.0% at March 31, 2012 and 2.1% at December 31, 2011.

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Specific Component of the Allowance

At March 31, 2012, the specific component of the allowance decreased by $5.0 million to $65.0 million from $69.9 million at December 31, 2011. The specific reserve requirements are the summation of individual reserves analyzed on an account by account basis at the balance sheet date, as well as changes to collateral values. Our impaired loans are primarily collateral-dependent with such loans totaling $286.9 million of the total $369.7 million in impaired loans at March 31, 2012. Both the level of nonperforming loans and the related reserves associated with our nonperforming loans declined in first quarter 2012.

Reserve for Unfunded Commitments

In addition to the allowance for loan losses, we maintain a reserve for unfunded commitments at a level we believe to be sufficient to absorb estimated probable losses related to unfunded credit facilities. At March 31, 2012, our reserve for unfunded commitments increased $933,000 from December 31, 2011 to $8.2 million as a result of an increase in certain product level loss factors, larger unfunded commitment levels and an increase in the likelihood of certain product categories to draw on unused lines. Net adjustments to the reserve for unfunded commitments are included in other non-interest expense in the Consolidated Statements of Income. Unfunded commitments, excluding covered assets, totaled $4.5 billion and $4.0 billion at March 31, 2012 and 2011, respectively.

COVERED ASSETS

Covered assets represent purchased loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC as a result of the 2009 FDIC-assisted acquisition of the former Founders Bank from the FDIC. Under the loss share agreement, the FDIC generally will assume 80% of the first $173 million of credit losses and 95% of the credit losses in excess of $173 million, in both cases relating to assets existing at the date of acquisition.

The carrying amounts of covered assets are presented in the following table:

Table 24

Covered Assets

(Amounts in thousands)

	March 31, 2012			December 31, 2011
Commercial loans	$	29,324		$	31,568
Commercial real estate loans		135,331			150,210
Residential mortgage loans		49,894			50,403
Consumer installment and other loans		5,672			6,123
Foreclosed real estate		26,384			30,342
Estimated loss reimbursement by the FDIC		29,929			38,161
Total covered assets		276,534			306,807
Allowance for covered loan losses		(26,323	)		(25,939	)
Net covered assets	$	250,211		$	280,868

Total covered assets decreased by $30.3 million, or 10%, from $306.8 million at December 31, 2011 to $276.5 million at March 31, 2012. The reduction is primarily attributable to $13.7 million in principal paydowns, net of advances, as well as the resulting impact of such on the evaluation of expected cash flows and discount accretion levels. In addition, the estimated loss reimbursement by the FDIC (“the FDIC indemnification receivable”) further contributed to the reduction as a result of loss claims paid by the FDIC. The allowance for covered loan losses increased by $384,000 to $26.3 million at March 31, 2012 from $25.9 million at December 31, 2011, reflecting further credit deterioration in expected cash flows on certain pools of covered loans since the date of acquisition. Of the total increase in the allowance for covered loan losses, 80% was offset through the FDIC indemnification receivable and the remaining 20% representing the non-reimbursable portion of the loss share agreement recognized as a charge to provision for loan and covered loan losses on the Consolidated Statements of Income. As of March 31, 2012, the FDIC had reimbursed the Company $95.9 million in losses under the loss share agreement.

The following table presents covered loan delinquencies and nonperforming covered assets as of March 31, 2012 and December 31, 2011 and excludes purchased impaired loans which are accounted for on a pool basis. Since each purchased impaired pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past due status of the pools, or that of individual loans within the pools, is not meaningful. Because we are recognizing interest income on each pool of such loans, they are all considered to be performing. Covered assets are excluded from the asset quality presentation of our originated loan portfolio, given the loss share indemnification from the FDIC.

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Table 25

Past Due Covered Loans and Nonperforming Covered Assets

(Amounts in thousands)

	March 31, 2012		December 31, 2011
30-59 days past due	$	7,334	$	7,221
60-89 days past due		582		3,479
90 days or more past due and still accruing		—		—
Nonaccrual		22,892		19,894
Total past due and nonperforming covered loans		30,808		30,594
Foreclosed real estate		26,384		30,342
Total past due and nonperforming covered assets	$	57,192	$	60,936

FUNDING AND LIQUIDITY MANAGEMENT

We have implemented various policies to manage our liquidity position in order to meet our cash flow requirements and maintain sufficient capacity to meet our clients’ needs and accommodate fluctuations in asset and liability levels due to changes in our business operations as well as unanticipated events. We also have in place contingency funding plans designed to allow us to operate through a period of stress when access to normal sources of funding may be constrained. As part of our asset/liability management strategy, we utilize a variety of funding sources in an effort to optimize the balance of duration risk, cost, liquidity risk and contingency planning.

The Bank’s principal sources of funds are client deposits, including large institutional deposits, broker deposits, wholesale borrowings, and cash from operations. The Bank’s principal uses of funds include funding growth in the core asset portfolios, including loans, and to a lesser extent, our investment portfolio, which is used primarily to manage interest rate and liquidity risk. The primary sources of funding for the holding company include dividends when received from its bank subsidiary, intercompany tax reimbursements from the Bank, and proceeds from the issuance of senior, subordinated and convertible debt, as well as equity. Primary uses of funds for the parent company, which approximates $35.0 million annually, include interest paid to our debt holders, general operating costs for corporate activities and dividends paid to stockholders (common and preferred). The parent company generally retains two years’ funding coverage in net liquid assets on its balance sheet. Net liquid assets at the parent company totaled $146.6 million at March 31, 2012 and $149.7 million at December 31, 2011.

We consider client deposits our core funding source. At March 31, 2012, 80% of our total assets were funded by client deposits, compared to 84% at December 31, 2011. We define client deposits as all deposits other than traditional brokered deposits and non-client CDARS^® (as described in the footnotes to Table 26 below). While we expect overall liquidity in the banking system to remain high until economic recovery and market factors improve, the level of our client deposits may fluctuate based on client needs, seasonality and other economic or market factors. If the client deposits fluctuate due to any of these factors, we will utilize other external sources of liquidity, including wholesale funding.

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. Thirteen client relationships, each with greater than $75 million in deposits accounted for $2.2 billion, or 21% of total deposits at March 31, 2012. A majority of the deposits greater than $75 million are 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. Thirty client relationships, each with greater than $50 million in deposits, accounted for $3.2 billion, or 31% or total deposits at March 31, 2012. We take deposit concentration risk into account in managing our liquid asset levels. Liquid assets refer to cash on hand, federal funds sold and securities. Net liquid assets represent the sum of the liquid asset categories less the amount of assets pledged to secure public funds and certain deposits that require collateral. Net liquid assets at the Bank were $1.5 billion at March 31, 2012 and $1.6 billion at December 31, 2011. We maintain liquidity at levels we believe sufficient to meet anticipated client liquidity needs, fund anticipated loan growth, selectively purchase securities and investments and opportunistically pay down wholesale funds.

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While we first look toward internally generated deposits as our funding source, we also utilize wholesale funding, including brokered deposits, as needed to enhance liquidity and to fund asset growth. Brokered deposits are deposits that are sourced from external and unrelated financial institutions by a third party. Brokered deposits can vary in term from one month to several years and have the benefit of being a source of longer-term funding. Our asset/liability management policy currently limits our use of brokered deposits, excluding client CDARS^®, to levels no more than 25% of total deposits, and total brokered deposits to levels no more than 40% of total deposits. At March 31, 2012, brokered deposits exclusive of client CDARS^® were 3% of total deposits while total brokered deposits were 9% of total deposits.

Our cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows from operating activities primarily include results of operations for the period, adjusted for items in net income that did not impact cash. Net cash provided by operating activities decreased by $18.8 million to $28.8 million for the quarter ended March 31, 2012, which was primarily due to decreases in the allowances for loan losses and loans held for sale from the prior quarter, offset by a decrease in other liabilities. Cash flows from investing activities reflect the impact of loans and investments acquired for our interest-earning asset portfolios and asset sales. For the quarter ended March 31, 2012, net cash used in investing activities was $255.9 million, compared to net cash provided by investing activities of $49.0 million for the prior year period. This change in cash flows represents larger amounts of cash redeployed towards the purchase of investments and the funding of loans in the current period than the prior comparative period. Cash flows from financing activities include transactions and events whereby cash is obtained from depositors, creditors or investors. Net cash provided by financing activities for the quarter ended March 31, 2012 was $224.9 million, compared to $52.3 million for the prior year period. This change in cash flows represents the net proceeds and repayments of FHLB advances and the decreased level of deposit additions in the current year period as compared to the prior year comparative period.

For information regarding our investment portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Investment Portfolio Management.”

Deposits

Middle-market commercial client relationships from a diversified industry base in our markets are the primary source of our deposit base. Due to our middle-market commercial banking focused business model, our client deposit base provides access to larger deposit balances that result in a concentrated deposit base. The deposits are held in different deposit products such as noninterest-bearing and interest-bearing demand deposits, CDARS^® and traditional time deposits, savings and money market accounts.

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

Table 26

Deposits

(Dollars in thousands)

	As of
	March 31, 2012		% of Total		December 31, 2011		% of Total		% Change in Balance
Noninterest-bearing deposits	$	3,054,536		29.3	$	3,244,307		31.2		-5.8
Interest-bearing demand deposits		714,522		6.9		595,238		5.7		20.0
Savings deposits		225,300		2.2		210,138		2.0		7.2
Money market accounts		4,122,532		39.5		4,168,082		40.1		-1.1
Brokered deposits:
Traditional		191,023		1.8		20,499		0.2		n/m
Client CDARS® (1)		695,458		6.7		795,452		7.7		-12.6
Non-client CDARS® (1)		75,000		0.7		—		—		100
Total brokered deposits		961,481		9.2		815,951		7.9		17.8
Time deposits		1,344,341		12.9		1,359,138		13.1		-1.1
Total deposits	$	10,422,712		100.0	$	10,392,854		100.0		0.3
Client deposits (2)	$	10,156,689		97.4	$	10,372,355		99.8		-2.1

⁽¹⁾  The CDARS^® deposit program is a deposit services arrangement that effectively achieves FDIC deposit insurance for jumbo deposit relationships. These deposits are classified as brokered deposits for regulatory deposit purposes; however, we classify certain of these deposits as client CDARS^® due to the source being our client relationships and are, therefore, not traditional brokered deposits. We also participate in a non-client CDARS^® program that is more like a traditional brokered deposit program.

⁽²⁾  Total deposits, net of traditional brokered deposits and non-client CDARS^®.

n/m Not meaningful

Total deposits at March 31, 2012 increased by $29.9 million from year end 2011 as interest-bearing demand deposits, traditional brokered deposits, and non-client CDARS^® increased, partially offset by declines primarily in noninterest-bearing deposits. Client deposits decreased by $215.7 million from December 31, 2011 and client deposits as a percentage of total deposits also decreased from 99% of deposits at December 31, 2011 to 97% at March 31, 2012. We anticipate client deposits to fluctuate in line with client needs and usage of liquidity. Noninterest-bearing deposits at March 31, 2012 were 29% of total deposits, a decrease from 31% at December 31, 2011. The decrease in noninterest-bearing deposits is attributed to anticipated, typical compensation payout outflows during the first quarter on certain larger commercial clients.

Brokered deposits totaled $961.5 million at March 31, 2012, increasing $145.5 million from December 31, 2011 due to an increased use of traditional brokered deposits and non-client CDARS^® deposits to fund the balance sheet. Brokered deposits included $695.5 million in client-related CDARS^®. Brokered deposits, excluding client CDARS^®, increased by $245.5 million from the prior year end and were 3% of total deposits at March 31, 2012 compared to less than 1% at December 31, 2011. Fluctuations in the brokered deposits are primarily due to the price sensitivity of large depositors as well as deposit flows from clients.

Public balances, denoting the funds held on account for municipalities and other public entities, are included as a part of our total deposits. We enter into specific agreements with certain public customers to pledge collateral, primarily securities, in support of the balances on account. These relationships may provide cross-sell opportunities with treasury management, as well as other business referral opportunities. At March 31, 2012, we had public funds on account totaling $931.1 million, of which approximately 31% were collateralized with securities. Quarter-to-quarter changes in balances are influenced by the tax collection activities of the various municipalities as well as the general level of interest rates.

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The following tables present our brokered and time deposits as of March 31, 2012, with scheduled maturity dates during the period specified.

Table 27

Scheduled Maturities of Brokered and Time Deposits

(Amounts in thousands)

	Brokered		Time		Total
Year ending December 31, 2012:
Second quarter	$	432,678	$	297,804	$	730,482
Third quarter		296,618		272,999		569,617
Fourth quarter		137,668		194,505		332,173
2013		77,188		386,171		463,359
2014		13,669		53,199		66,868
2015		3,660		108,697		112,357
2016		—		16,248		16,248
2017 and thereafter		—		14,718		14,718
Total	$	961,481	$	1,344,341	$	2,305,822

The following table presents our time deposits of $100,000 or more as of March 31, 2012, with scheduled maturity dates during the period specified.

Table 28

Maturities of Time Deposits of $100,000 or More ⁽¹⁾

(Amounts in thousands)

	March 31, 2012
Maturing within 3 months	$	674,239
After 3 but within 6 months		516,293
After 6 but within 12 months		483,147
After 12 months		343,303
Total	$	2,016,982

⁽¹⁾  Includes brokered deposits.

Over the past several years in the generally low interest rate environment, our clients have tended to keep the maturities of their deposits short and short-term certificates of deposit have generally been renewed on terms and with maturities of similar duration. In the event that time deposits are not renewed, we expect to replace those deposits with traditional deposits, brokered deposits, or borrowed money sufficient to meet our funding needs.

Short-term Borrowings and Long-term Debt

Short-term borrowings, at March 31, 2012 and December 31, 2011, consisted solely of FHLB advances that mature in one year or less, which increased by $199.0 million during first quarter 2012 to $355.0 million from $156.0 million at year end 2011. At March 31, 2012, $325.0 million represented advances which will mature in less than four days as the Company increased its use of FHLB advances for short-term funding needs. The remaining $30.0 million in outstanding short-term advances will mature late in third quarter 2012. We may continue to use FHLB advances to meet our funding needs.

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The following table provides a comparison of short-term borrowings by category for the periods presented.

Table 29

Short-term Borrowings

(Dollars in thousands)

	March 31, 2012					December 31, 2011
	Amount		Rate			Amount		Rate
Outstanding:
FHLB advances	$	355,000		0.16	%	$	156,000		0.33	%
Other Information:
Unused overnight federal funds availability (1)	$	300,000				$	200,000
Borrowing capacity through the Federal Reserve Bank’s (“FRB”) discount window’s primary credit program (2)	$	974,853				$	1,074,687
Unused FHLB advances availability	$	285,867				$	261,490
Weighted average remaining maturity of FHLB advances at period end (in months)		0.6					1.8

⁽¹⁾  Our total availability of overnight federal fund borrowings is not a committed line of credit and is dependent upon lender availability.

⁽²⁾  Includes federal term auction facilities. Our borrowing capacity changes each quarter subject to available collateral and FRB discount factors.

Long-term debt which is comprised of junior subordinated debentures, a subordinated debt facility and the long-term portion of FHLB advances, remained unchanged at $379.8 million at March 31, 2012 and December 31, 2011.

In addition to on-balance sheet funding and other liquid assets such as cash and investment securities, we maintain access to various external sources of funding, which assist in the prudent management of funding costs, interest rate risk, and anticipated funding needs or other considerations. Some sources of funding are accessible same-day while others require advance notice. Funds that are immediately accessible include Federal Fund counterparty lines, which are uncommitted lines of credit from other financial institutions, and the borrowing term is typically overnight. Availability of Federal Fund lines fluctuate based on market conditions and counterparty relationship strength. Unused overnight Fed Funds borrowings available for use totaled $300.0 million and $200.0 million, respectively, at March 31, 2012 and December 31, 2011. Repurchase agreements (“Repos”) are also an immediate source of funding in which we pledge assets to a counterparty against which we can borrow with the agreement to repurchase at a specified date in the future. Repos can vary in term, from overnight to longer, but are regarded as short-term in nature. An additional source of overnight funding is the discount window at the FRB. We maintain access to the discount window by pledging loans as collateral to the FRB. Funding availability is primarily dictated by the amount of loans pledged, but also impacted by the margin applied to the loans by the FRB. The amount of loans pledged to the FRB can fluctuate due to the availability of loans eligible under the FRB’s criteria which include stipulations of documentation requirements, credit quality, payment status and other criteria. At March 31, 2012, we had $974.9 million in borrowing capacity through the FRB discount window’s primary credit program compared to $1.1 billion at December 31, 2011. In addition, we have borrowing capacity of $611.2 million with the FHLB Chicago at March 31, 2012 of which $285.9 million was available.

CAPITAL

Equity totaled $1.3 billion at March 31, 2012, increasing by $15.4 million from December 31, 2011 and was largely attributable to current period net income.

Capital Management

Under applicable regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements adopted and administered by the federal banking agencies. These guidelines specify minimum capital ratios calculated in accordance with the definitions in the guidelines, including the leverage ratio which is Tier 1 capital as a percentage of adjusted average assets, and the Tier 1 capital ratio and the total capital ratio each as a percentage of risk-weighted assets and off-balance sheet items that have been weighted according to broad risk categories. These minimum ratios are shown in the table below.

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To satisfy safety and soundness standards, banking institutions are expected to maintain capital levels in excess of the regulatory minimums depending on the risk inherent in the balance sheet, regulatory expectations and the changing risk profile of business activities and plans. Under our capital planning policy, we target capital ratios at levels we believe are appropriate based on such risk considerations, taking into account the current operating and economic environment, internal risk guidelines, and our strategic objectives as well as regulatory expectations. At the Bank, primarily due to our credit loss experience and recent levels of nonperforming loans, our policy currently calls for minimum capital ratios of 8.25% Tier 1 leverage and 12.0% total risk-based capital.

We have not set a timetable for repaying Troubled Asset Relief Program (“TARP”) funds but are continuing to evaluate the best timing and approach for the shareholders and the Company.

The following table presents information about our capital measures and the related regulatory capital guidelines.

Table 30

Capital Measurements

(Dollars in thousands)

	Actual						FRB Guidelines For Minimum Regulatory Capital					Regulatory Minimum For “Well Capitalized” under FDICIA
	March 31, 2012			December 31, 2011			Ratio			Excess Over Regulatory Minimum at 3/31/12		Ratio			Excess Over “Well Capitalized” under FDICIA at 3/31/12
Regulatory capital ratios:
Total risk-based capital:
Consolidated		14.20	%		14.28	%		8.00	%	$	705,735		n/a			n/a
The PrivateBank		12.68			12.66			n/a			n/a		10.00	%	$	303,939
Tier 1 risk-based capital:
Consolidated		12.31			12.38			4.00			945,585		n/a			n/a
The PrivateBank		10.79			10.76			n/a			n/a		6.00			542,795
Tier 1 leverage:
Consolidated		11.35			11.33			4.00			907,102		n/a			n/a
The PrivateBank		9.95			9.85			n/a			n/a		5.00			608,360
Other capital ratios (consolidated) (1):
Tier 1 common equity to risk-weighted assets (2)		8.04			8.04
Tangible common equity to tangible assets (2)		7.69			7.69
Tangible equity to tangible assets (2)		9.61			9.64
Tangible equity to risk-weighted assets (2)		10.58			10.60
Total equity to total assets		10.39			10.44

⁽¹⁾  Ratios are not subject to formal FRB regulatory guidance.

⁽²⁾  Ratios are non-U.S. GAAP financial measures. Refer to Table 31, “Non-U.S. GAAP Financial Measures” for reconciliation to U.S. GAAP presentation.

n/a Not applicable.

As of March 31, 2012, all of our $244.8 million of outstanding junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities (“Debentures”) are included in Tier 1 capital. The Tier 1 qualifying amount is limited to 25% of Tier 1 capital under FRB regulations. Further, of the $120 million in outstanding subordinated debt facility at March 31, 2012, 60% of the balance qualified as Tier II capital. Effective in the third quarter 2010, Tier II capital qualification was reduced by 20% of the total balance outstanding and annually thereafter will be reduced by an additional 20%. For a full description of our Debentures and subordinated debt, refer to Notes 9 and 10 of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q.

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Dividends

We declared dividends of $0.01 per common share during the first quarter 2012. Based on the closing stock price at March 31, 2011 of $15.17, the annualized dividend yield on our common stock was 0.26%. The dividend payout ratio, which represents the percentage of common dividends declared to stockholders to basic earnings per share, was 6.67% for the first quarter ending 2012. We have no current plans to seek to raise dividends on our common stock.

For additional information regarding limitations and restrictions on our ability to pay dividends, refer to the “Supervision and Regulation” and “Risk Factors” sections of our 2011 Annual Report on Form 10-K.

NON-U.S. GAAP FINANCIAL MEASURES

This report contains both U.S. GAAP and non-U.S. GAAP based financial measures. These non-U.S. GAAP measures include net interest income, net interest margin, net revenue, operating profit, and efficiency ratio all on a fully taxable-equivalent basis, Tier 1 common equity to risk-weighted assets, tangible common equity to tangible assets, tangible equity to risk-weighted assets, tangible equity to tangible assets, and tangible book value. We believe that presenting these non-U.S. GAAP financial measures will provide information useful to investors in understanding our underlying operational performance, our business, and performance trends and facilitates comparisons with the performance of others in the banking industry.

We use net interest income on a taxable-equivalent basis in calculating various performance measures by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments assuming a 35% tax rate. Management believes this measure to be the preferred industry measurement of net interest income as it enhances comparability to net interest income arising from taxable and tax-exempt sources, and accordingly believes that providing this measure may be useful for peer comparison purposes.

In addition to capital ratios defined by banking regulators, we also consider various measures when evaluating capital utilization and adequacy, including Tier 1 common equity to risk-weighted assets, tangible common equity to tangible assets, tangible equity to tangible assets, tangible equity to risk-weighted assets, and tangible book value. These calculations are intended to complement the capital ratios defined by banking regulators for both absolute and comparative purposes. All of these measures exclude the ending balances of goodwill and other intangibles while certain of these ratios exclude preferred capital components. Because U.S. GAAP does not include capital ratio measures, we believe there are no comparable U.S. GAAP financial measures to these ratios. We believe these non-U.S. GAAP financial measures are relevant because they provide information that is helpful in assessing the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of our capitalization to other companies. However, because there are no standardized definitions for these ratios, our calculations may not be comparable with other companies, and the usefulness of these measures to investors may be limited.

Non-U.S. GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-U.S. GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under U.S. GAAP. As a result, we encourage readers to consider our Consolidated Financial Statements in their entirety and not to rely on any single financial measure.

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

Table 31

Non-U.S. GAAP Financial Measures

(Amounts in thousands except per share data)

(Unaudited)

	Quarters ended
	2012			2011
	March 31			December 31			September 30			June 30			March 31
Taxable-equivalent interest income
U.S. GAAP net interest income	$	104,376		$	102,982		$	101,089		$	100,503		$	102,553
Taxable-equivalent adjustment		680			671			680			716			790
Taxable-equivalent net interest income (a)	$	105,056		$	103,653		$	101,769		$	101,219		$	103,343
Average Earnings Assets (b)	$	11,796,499		$	11,696,741		$	11,446,323		$	11,916,038		$	11,930,751
Net Interest Margin ((a)annualized) / (b)		3.53	%		3.48	%		3.49	%		3.36	%		3.46	%
Net Revenue
Taxable-equivalent net interest income (a)	$	105,056		$	103,653		$	101,769		$	101,219		$	103,343
U.S. GAAP non-interest income		27,504			25,393			27,635			21,592			23,627
Net revenue	$	132,560		$	129,046		$	129,404		$	122,811		$	126,970
Operating Profit
U.S. GAAP income before income taxes	$	23,950		$	20,534		$	21,075		$	15,338		$	13,253
Provision for loan and covered loan losses		27,701			31,611			32,615			31,093			37,578
Taxable-equivalent adjustment		680			671			680			716			790
Operating profit	$	52,331		$	52,816		$	54,370		$	47,147		$	51,621
Efficiency Ratio
U.S. GAAP non-interest expense (c)	$	80,229		$	76,230		$	75,034		$	75,664		$	75,349
Taxable-equivalent net interest income (a)	$	105,056		$	103,653		$	101,769		$	101,219		$	103,343
U.S. GAAP non-interest income		27,504			25,393			27,635			21,592			23,627
Net revenue (d)	$	132,560		$	129,046		$	129,404		$	122,811		$	126,970
Efficiency ratio (c) / (d)		60.52	%		59.07	%		57.98	%		61.61	%		59.34	%

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

	2012			2011
	March 31			December 31			September 30			June 30			March 31
Tier 1 Common Capital
U.S. GAAP total equity	$	1,312,154		$	1,296,752		$	1,286,176		$	1,260,648		$	1,238,132
Trust preferred securities		244,793			244,793			244,793			244,793			244,793
Less: accumulated other comprehensive income, net of tax		47,152			46,697			46,051			32,535			19,121
Less: goodwill		94,559			94,571			94,584			94,596			94,609
Less: other intangibles		14,683			15,353			15,715			16,089			16,464
Tier 1 risk-based capital		1,400,553			1,384,924			1,374,619			1,362,221			1,352,731
Less: preferred stock		240,791			240,403			240,020			239,642			239,270
Less: trust preferred securities		244,793			244,793			244,793			244,793			244,793
Less: noncontrolling interests		—			—			—			163			105
Tier 1 common capital (e)	$	914,969		$	899,728		$	889,806		$	877,623		$	868,563
Tangible Common Equity
U.S. GAAP total equity	$	1,312,154		$	1,296,752		$	1,286,176		$	1,260,648		$	1,238,132
Less: goodwill		94,559			94,571			94,584			94,596			94,609
Less: other intangibles		14,683			15,353			15,715			16,089			16,464
Tangible equity (f)		1,202,912			1,186,828			1,175,877			1,149,963			1,127,059
Less: preferred stock		240,791			240,403			240,020			239,642			239,270
Tangible common equity (g)	$	962,121		$	946,425		$	935,857		$	910,321		$	887,789
Tangible Assets
U.S. GAAP total assets	$	12,623,164		$	12,416,870		$	12,019,861		$	12,115,377		$	12,497,442
Less: goodwill		94,559			94,571			94,584			94,596			94,609
Less: other intangibles		14,683			15,353			15,715			16,089			16,464
Tangible assets (h)	$	12,513,922		$	12,306,946		$	11,909,562		$	12,004,692		$	12,386,369
Risk-weighted Assets (i)	$	11,374,212		$	11,191,298		$	10,665,256		$	10,518,850		$	10,903,625
Period-end Common Shares Outstanding (j)		72,415			71,745			71,789			71,808			71,428
Ratios:
Tier 1 common equity to risk-weighted assets (e) / (i)		8.04	%		8.04	%		8.34	%		8.34	%		7.97	%
Tangible equity to tangible assets (f) / (h)		9.61	%		9.64	%		9.87	%		9.58	%		9.10	%
Tangible equity to risk-weighted assets (f) / (i)		10.58	%		10.60	%		11.03	%		10.93	%		10.34	%
Tangible common equity to tangible assets (g) / (h)		7.69	%		7.69	%		7.86	%		7.58	%		7.17	%
Tangible book value (g) / (j)	$	13.29		$	13.19		$	13.04		$	12.68		$	12.43

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

As a continuing part of our financial strategy and in accordance with our asset/liability management policies, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Our asset/liability management policies also authorize us to enter into derivative instruments as a tool to further manage the interest rate risk in the Bank’s balance sheet. We may manage interest rate risk by structuring the asset and liability characteristics of our balance sheet and/or by executing derivatives designated as cash flow hedges.

Interest rate changes do not affect all categories of assets and liabilities equally or simultaneously. There are other factors that are difficult to measure and predict that would influence the effect of interest rate fluctuations on our Consolidated Statements of Income.

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Commencing in July 2011, we initiated the use of interest rate derivatives as part of our asset liability management strategy to hedge interest rate risk in our primarily floating-rate loan portfolio and, depending on market conditions, we may expand this program and enter into additional interest rate swaps.

The majority of our interest-earning assets are floating rate instruments. To manage the interest rate risk of our balance sheet, we have the ability to use a combination of financial instruments, including medium-term and short-term financings, variable-rate debt instruments, fixed rate loans and securities and interest rate swaps. Approximately 63% of the total loan portfolio is indexed to LIBOR, 21% of the total loan portfolio is indexed to the prime rate, and another 6% of the total loan portfolio otherwise adjusts with other reference interest rates. Of the $5.8 million in loans maturing after one year with a floating interest rate, 24% are subject to interest rate floors under the terms of the loan agreements, the majority of which are in effect at March 31, 2012 and are reflected in the interest sensitivity analysis below.

We use a simulation model to estimate the potential impact of various interest rate changes on our income statement and our interest-earning asset and interest-bearing liability portfolios, assuming the size and nature of these portfolios remain constant throughout the twelve-month measurement period. The simulation assumes that assets and liabilities accrue interest on their current pricing basis. Assets and liabilities then re-price based on current terms and assuming instantaneous parallel shifts in the applicable yield curves and remain at that new interest rate through the end of the measurement period. The model attempts to illustrate the potential change in annual net interest income if the foregoing occurred.

The following table shows the estimated impact of an immediate change in interest rates as of March 31, 2012 and December 31, 2011.

Analysis of Net Interest Income Sensitivity

(Dollars in thousands)

	Immediate Change in Rates
	-50			+50			+100			+200			+300
March 31, 2012:
Dollar change	$	(10,792	)	$	13,082		$	29,098		$	61,903		$	98,010
Percent change		-2.9	%		3.5	%		7.7	%		16.3	%		25.8	%
December 31, 2011:
Dollar change	$	(13,906	)	$	16,526		$	33,347		$	67,447		$	104,766
Percent change		-3.6	%		4.3	%		8.7	%		17.6	%		27.4	%

The estimated impact to our net interest income over a one-year period is reflected in dollar terms and percentage change. As an example, this table illustrates that if there had been an instantaneous parallel shift in all of the applicable yield curves of +100 basis points on March 31, 2012, net interest income would increase by $29.1 million or 7.7% over a twelve-month period, as compared to a net interest income increase of $33.3 million or 8.7% if there had been an instantaneous parallel shift of +100 basis points at December 31, 2011.

Changes in the effect on forecasted twelve-month net interest income at March 31, 2012 compared to December 31, 2011 are due to changes in the composition and nature of the repricing of interest rate-sensitive assets relative to rate-sensitive liabilities since year end 2011. Interest rate sensitivity decreased during 2012 due to several factors, but was primarily due to liability compositional changes. Non-interest sensitive deposits decreased while rate sensitive deposits and liabilities, such as interest bearing demand deposits and short-term borrowings, increased. Rate-sensitive liabilities mitigate rate-sensitive assets. Accordingly, as rate-sensitive liabilities increase, more asset sensitivity is offset by the liabilities as a whole, producing an overall decrease in asset sensitivity.

The preceding sensitivity analysis is based on numerous assumptions including: the nature and timing of interest rate levels including the shape of the yield curve, prepayments on loans and securities, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. While our assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how client preferences or competitor influences might change.

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ITEM 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of March 31, 2012, there were various legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. Management does not believe that the outcome of these proceedings will have, individually or in the aggregate, a material adverse effect on the Company’s results of operations, financial condition or cash flows.

ITEM 1A. RISK FACTORS

You should carefully consider the information discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, regarding our business, financial condition or future results, together with the information set forth in this report. There have been no material changes from the risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table summarizes purchases we made during the quarter ended March 31, 2012 in the administration of our employee share-based compensation plans. Under the terms of these plans, we accept shares of common stock from plan participants if they elect to surrender previously-owned shares upon exercise of options to cover the exercise price or, in the case of both restricted shares of common stock and stock options, the withholding of shares to satisfy tax withholding obligations associated with the vesting of restricted shares or exercise of stock options.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
January 1 – January 31, 2012		12,153	$	14.28		—		—
February 1 – February 29, 2012		2,097		14.26		—		—
March 1 – March 31, 2012		6,303		14.50		—		—
Total		20,553	$	14.35		—		—

⁽¹⁾  Does not include any shares forfeited by departing employees that were surrendered pursuant to the terms of non-compete provisions.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Description of Documents
3.1	Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., dated June 24, 1999, as amended, is incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 000-25887) filed on May 14, 2003.
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., as amended, dated June 17, 2009, is incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-34066) filed on June 19, 2009.
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., as amended, dated June 15, 2010, is incorporated herein by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q (File No. 001-34066) filed on August 9, 2010.
3.4	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., as amended, dated June 17, 2009, amending and restating the Certificate of Designations of the Series A Junior Non-Voting Preferred Stock of PrivateBancorp, Inc., is incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-34066) filed on June 19, 2009.
3.5	Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, dated January 28, 2009 is incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-34066) filed on February 3, 2009.
3.6	Amended and Restated By-laws of PrivateBancorp, Inc. are incorporated herein by reference to Exhibit 3.5 to the Annual Report on Form 10-K (File No. 001-34066) filed on March 1, 2010.
4.1	Certain instruments defining the rights of the holders of certain securities of PrivateBancorp, Inc. and certain of its subsidiaries, none of which authorize a total amount of securities in excess of 10% of the total assets of PrivateBancorp, Inc. and its subsidiaries on a consolidated basis, have not been filed as exhibits. PrivateBancorp, Inc. hereby agrees to furnish a copy of any of these agreements to the Securities and Exchange Commission upon request.
4.2	Form of Preemptive and Registration Rights Agreement dated as of November 26, 2007 is incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-34066) filed on November 27, 2007.
4.3	Amendment No. 1 to Preemptive and Registration Rights Agreement dated as of June 17, 2009 by and among PrivateBancorp, Inc., GTCR Fund IX/A, L.P., GTCR Fund IX/B, L.P., and GTCR Co-Invest III, L.P., is incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-34066) filed on June 19, 2009.
4.4	Warrant dated January 30, 2009, as amended, issued by PrivateBancorp, Inc. to the United States Department of the Treasury to purchase shares of common stock of PrivateBancorp, Inc. is herein incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No. 001-34066) filed on February 3, 2009.

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10.1 (a)	TARP Compensation Agreement, dated March 15, 2012, between the Company and Larry D. Richman.
10.2 (a)	TARP Compensation Agreement, dated March 15, 2012, between the Company and Kevin M. Killips.
10.3 (a)	TARP Compensation Agreement, dated March 15, 2012, between the Company and Bruce S. Lubin.
11	Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per share is included in Note 12 of the Company’s Notes to Consolidated Financial Statements included in “Item 7. Financial Statements” of this report on Form 10-Q.
12 (a)	Statement re: Computation of Ratio of Earnings to Fixed Charges.
15.1 (a)	Acknowledgment of Independent Registered Public Accounting Firm.
31.1 (a)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 (a)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1) (a) (b)	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 (b)	Report of Independent Registered Public Accounting Firm.
101 (a) (c)	The following financial statements from the PrivateBancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 8, 2012, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated statements of financial condition, (ii) consolidated statements of income, (iii) consolidated statement of changes in equity, (iv) consolidated statements of cash flows, and (v) the notes to consolidated financial statements.
(a)	Filed herewith.
(b)	This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(c)	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

PrivateBancorp, Inc.

/s/ Larry D. Richman

Larry D. Richman

President and Chief Executive Officer

/s/ Kevin M. Killips

Kevin M. Killips

Chief Financial Officer and Principal Financial  Officer

Date: May 8, 2012

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