SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number: 000-25887
---------
PRIVATEBANCORP, INC.
(Exact name of Registrant as specified in its charter.)
DELAWARE 36-3681151
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
TEN NORTH DEARBORN STREET
CHICAGO, ILLINOIS 60602
(Address of principal executive offices) (Zip Code)
(312) 683-7100
(Registrant's telephone number, including area code)
Indicate by checkmark 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
================================================================================
CLASS OUTSTANDING AS OF AUGUST 7, 2000
- --------------------------------------------------------------------------------
Common, no par value 4,628,532
================================================================================
PRIVATEBANCORP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page Number
-----------
Selected Financial Data ..........................................................................................1
PART I
Item 1. Financial Statements.....................................................................................3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................................23
PART II
Item 1. Legal Proceedings.......................................................................................26
Item 2. Changes in Securities and Use of Proceeds...............................................................26
Item 3. Defaults upon Senior Securities.........................................................................26
Item 4. Submission of Matters to a Vote of Security Holders.....................................................26
Item 5. Other Information.......................................................................................26
Item 6. Exhibits and Reports on Form 8-K........................................................................27
Signatures.......................................................................................................28
Exhibit Index....................................................................................................29
i
SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
information of PrivateBancorp, Inc. at or for the periods indicated. This
information should be used in conjunction with the unaudited consolidated
financial statements and related notes included pursuant to Item 1 of this
report.
QUARTER ENDED
-----------------------------------------------------------------
06/30/00 03/31/00 12/31/99 09/30/99 06/30/99
-------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA:
Interest income:
Loans, including fees............................. $ 12,167 $ 9,475 $ 7,737 $ 7,006 $ 6,218
Federal funds sold and interest-bearing
deposits....................................... 78 387 115 134 33
Securities........................................ 1,543 1,385 1,088 1,189 1,294
-------- -------- --------- --------- ---------
Total interest income.......................... $ 13,788 $ 11,247 $ 8,940 $ 8,329 $ 7,545
======== ======== ========= ========= =========
Interest expense:
Interest-bearing demand deposits.................. 218 191 178 144 140
Savings and money market deposit accounts......... 3,297 3,098 2,152 2,000 1,719
Other time deposits............................... 3,239 2,766 2,066 1,852 1,729
Funds borrowed.................................... 1,027 296 257 170 360
-------- -------- --------- --------- ---------
Total interest expense......................... $ 7,781 $ 6,351 $ 4,653 $ 4,166 $ 3,948
-------- -------- --------- --------- ---------
Net interest income............................... 6,007 4,896 4,287 4,163 3,597
Provision for loan losses......................... 662 311 437 273 213
-------- -------- --------- --------- ---------
Net interest income after provision for loan
losses......................................... 5,345 4,585 3,850 3,890 3,384
-------- -------- --------- --------- ---------
Non-interest income:
Banking and trust services........................ 720 627 535 504 512
Securities gains and other income................. 31 95 (1) 8 4
-------- -------- --------- --------- ---------
Total non-interest income...................... $ 751 $ 722 $ 534 $ 512 $ 516
-------- -------- --------- --------- ---------
Non-interest expense:
Salaries and employee benefits.................... 1,818 1,877 1,753 1,309 1,088
Occupancy expense, net............................ 764 613 437 401 373
Data processing................................... 190 163 96 135 116
Marketing......................................... 300 304 263 144 132
Amortization of goodwill.......................... 206 113 -- -- --
Professional fees................................. 596 575 404 487 273
Insurance......................................... 70 68 82 53 38
Towne Square Financial Corporation
acquisition.................................... -- -- -- 1,300 --
Other expense..................................... 508 324 181 517 359
-------- -------- --------- --------- ---------
Total non-interest expense........................ 4,452 4,037 3,216 4,237 2,379
-------- -------- --------- --------- ---------
Income before income taxes........................ 1,644 1,270 1,168 165 1,521
Income tax provision.............................. 546 421 191 366 409
-------- -------- --------- --------- ---------
Net income..................................... $ 1,098 $ 849 $ 977 $ (201) $ 1,112
=======- =======- ========- ========- =========
PER SHARE DATA:
Basic earnings..................................... $ 0.24 $ 0.18 $ 0.21 $ (0.05) $ 0.32
Diluted earnings................................... 0.23 0.18 0.20 (0.05) 0.30
Dividends.......................................... 0.025 0.025 0.025 0.025 0.025
Book value (at end of period)...................... 10.73 10.57 10.26 10.11 8.68
1
QUARTER ENDED
---------------------------------------------------------------
06/30/00 03/31/00 12/31/99 09/30/99 06/30/99
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL DATA (AT END OF PERIOD):
Total securities................................... $ 96,969 $ 89,924 $ 71,134 $ 77,269 $ 89,026
Total loans........................................ 583,522 521,188 397,277 352,236 335,306
Total assets....................................... 723,023 656,981 518,697 449,838 438,169
Total deposits..................................... 598,881 578,557 453,092 386,157 375,032
Funds borrowed..................................... 68,544 23,328 15,000 15,000 31,000
Total stockholders' equity......................... 49,545 48,498 47,080 46,351 29,966
Trust assets under administration.................. 761,829 799,000 729,904 699,000 666,636
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin(1)............................ 3.81% 3.59% 3.85% 3.87% 3.71%
Net interest spread(2)............................ 3.22 2.97 3.11 3.17 3.17
Non-interest income to average assets............. 0.44 0.49 0.44 0.45 0.48
Non-interest expense to average assets............ 2.62 2.72 2.65 3.70 2.22
Net overhead ratio(3)............................. 2.18 2.23 2.21 3.25 1.74
Efficiency ratio(4)(7)............................ 63.8 69.2 57.5 57.5 57.2
Return on average assets(5)(7).................... 0.65 0.57 0.98 1.04 1.04
Return on average equity(6)(7).................... 9.04 7.20 10.06 10.17 14.77
Dividend payout ratio............................. 10.51 13.52 11.75 NM 7.76
Asset Quality Ratios:
Non-performing loans to total loans............... 0.17 0.30 0.21 0.20 0.24
Allowance for loan losses to:
total loans.................................... 1.02 1.09 1.14 1.16 1.16
non-performing loans........................... 610 360 548 579 485
Net charge-offs to average total loans............ 0.07 0.003 0.002 0.11 0.002
Non-performing assets to total assets............. 0.13 0.24 0.16 0.16 0.18
Balance Sheet Ratios:
Loans to deposits................................. 97.44 90.08 87.68 91.22 89.41
Average interest-earning assets to average
interest-bearing liabilities................... 112.3 114.0 116.7 115.6 114.2
Capital Ratios:
Total equity to total assets...................... 6.85 7.38 9.08 10.30 6.83
Total risk-based capital ratio.................... 9.05 9.56 13.96 15.22 10.77
Tier 1 risk-based capital ratio................... 7.17 7.56 12.84 14.09 9.63
Leverage ratio.................................... 6.23 6.76 10.77 11.19 7.63
- -----------------
(1) Net interest income divided by average interest-earning assets.
(2) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(3) Non-interest expense less non-interest income divided by average total
assets.
(4) Non-interest expense divided by the sum of net interest income (tax
equivalent) plus non-interest income.
(5) Net income divided by average total assets.
(6) Net income divided by average common equity.
(7) 1999 performance ratios exclude special charges related to the Towne
Square Financial Corporation acquisition and St. Louis start-up costs
incurred in the third quarter and fourth quarter, respectively.
2
PART I
ITEM 1. FINANCIAL STATEMENTS
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
------------- ----------------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks.................................... $ 18,341 $ 14,940 $ 9,896
Short-term investments..................................... 5,076 29,243 995
---------- ----------- ----------
Total cash and cash equivalents........................... 23,417 44,183 10,891
---------- ----------- ----------
Available-for-sale securities, at fair value............... 96,969 71,134 89,026
---------- ----------- ----------
Loans net of unearned discount............................. 583,522 397,277 335,306
Allowance for loan losses.................................. (5,951) (4,510) (3,903)
---------- ----------- ----------
Net loans.................................................. 577,571 392,767 331,403
---------- ----------- ----------
Goodwill................................................... 12,031 -- --
---------- ----------- ----------
Bank premises and equipment, net........................... 3,814 2,028 1,477
---------- ----------- ----------
Accrued interest receivable................................ 4,264 2,870 2,799
---------- ----------- ----------
Other assets............................................... 4,957 5,715 2,573
---------- ----------- ----------
Total assets............................................... $ 723,023 $ 518,697 $ 438,169
---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing....................................... $ 49,950 $ 36,771 $ 34,267
Interest-bearing.......................................... 34,062 33,400 26,286
Savings and money market deposit accounts.................. 257,822 204,068 176,482
Brokered deposits.......................................... 60,755 21,696 --
Other time deposits........................................ 196,292 157,157 137,997
---------- ----------- ----------
Total deposits............................................ 598,881 453,092 375,032
Funds borrowed............................................. 68,544 15,000 31,000
Accrued interest payable................................... 2,439 1,056 721
Other liabilities.......................................... 3,614 2,469 1,450
---------- ----------- ----------
Total liabilities.......................................... $ 673,478 $ 471,617 $ 408,203
---------- ----------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized............... -- -- --
Common stock, without par value, $1 stated value;
12,000,000 shares authorized; 4,615,832;
4,590,332; and 3,451,824 shares issued and
outstanding as of June 30, 2000, December 31,
1999, and June 30, 1999, respectively..................... $ 4,616 $ 4,590 $ 3,452
Surplus.................................................... 40,048 39,761 22,600
Retained earnings.......................................... 9,142 7,425 6,880
Accumulated other comprehensive income..................... (2,294) (2,812) (1,219)
Deferred compensation...................................... (942) (759) (797)
Loans to officers.......................................... (1,025) (1,125) (950)
---------- ----------- ----------
Total stockholders' equity................................. 49,545 47,080 29,966
---------- ----------- ----------
Total liabilities and stockholders' equity................. $ 723,023 $ 518,697 $ 438,169
========== =========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
INTEREST INCOME
Loans, including fees........................................... $ 12,167 $ 6,218 $ 21,642 $ 11,854
Federal funds sold and interest bearing deposits................ 78 33 465 81
Securities...................................................... 1,543 1,294 2,928 2,864
-------- -------- -------- --------
Total interest income.......................................... 13,788 7,545 25,035 14,799
-------- -------- -------- --------
Interest Expense
Deposits:
Interest-bearing demand........................................ 218 140 409 282
Savings and money market deposit accounts...................... 3,297 1,719 6,395 3,519
Other time..................................................... 3,239 1,729 6,005 3,480
Funds borrowed.................................................. 1,027 360 1,323 505
-------- -------- -------- --------
Total interest expense.......................................... 7,781 3,948 14,132 7,786
-------- -------- -------- --------
Net interest income............................................. 6,007 3,597 10,903 7,013
Provision for loan losses....................................... 662 213 973 498
-------- -------- -------- --------
Net interest income after provision for loan losses............. 5,345 3,384 9,930 6,515
-------- -------- -------- --------
NON-INTEREST INCOME
Banking and trust services...................................... 720 512 1,347 908
Securities gains and other income............................... 31 4 126 50
-------- -------- -------- --------
Total non-interest income...................................... 751 516 1,473 958
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits.................................. 1,818 1,088 3,695 2,203
Occupancy expense, net.......................................... 764 373 1,377 725
Professional fees............................................... 596 273 1,171 404
Goodwill amortization........................................... 206 -- 319 --
Other non-interest expense...................................... 1,068 645 1,927 1,302
-------- -------- -------- --------
Total non-interest expense..................................... 4,452 2,379 8,489 4,634
-------- -------- -------- --------
Income before income taxes...................................... 1,644 1,521 2,914 2,839
Income tax provision............................................ 546 409 967 700
-------- -------- -------- --------
Net income...................................................... $ 1,098 $ 1,112 $ 1,947 $ 2,139
======== ======== ======== ========
Basic earnings per share........................................ $ 0.24 $ 0.32 $ 0.42 $ 0.62
Diluted earnings per share...................................... $ 0.23 $ 0.30 $ 0.41 $ 0.58
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
OTHER
COMPRE- DEFERRED TOTAL
COMMON RETAINED HENSIVE COMPEN- LOANS TO STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME SATION OFFICERS EQUITY
-------- --------- ---------- ------------ ---------- ---------- --------------
Balance, December 31,
1998......................... $ 3,431 $ 22,274 $ 4,913 $ 150 $ (544) $ (950) $ 29,274
Net income................... -- -- 2,139 -- -- -- 2,139
Net decrease in fair value of
Securities classified as
available-for-sale, net of
income taxes and
reclassification
adjustments.................. -- -- -- (1,369) -- -- (1,369)
------- ------- ------- ------- ------- ------- --------
Total comprehensive
income....................... -- -- 2,139 (1,369) -- 770
------- ------- ------- ------- ------- ------- --------
Cash dividends declared
($0.05 per share)............ -- -- (172) -- -- -- (172)
Issuance of common stock...... 21 326 -- -- -- -- 347
Awards granted................ -- -- -- -- (347) -- (347)
Amortization of deferred
compensation................. -- -- -- -- 94 -- 94
------- -------- ------- -------- ------- ------- --------
Balance, June 30, 1999........ $ 3,452 $ 22,600 $ 6,880 $ (1,219) $ (797) $ (950) $ 29,966
======= ======== ======= ======== ======= ======= ========
Balance, December 31,
1999......................... $ 4,590 $ 39,761 $ 7,425 $ (2,812) $ (759) $(1,125) $ 47,080
Net income.................... -- -- 1,947 -- -- -- 1,947
Net increase in fair value of
securities classified as
available-for-sale, net of
income taxes and
reclassification
adjustments.................. -- -- -- 518 -- -- 518
------- ------- ------- ------- ------- ------- --------
Total comprehensive
income....................... -- -- 1,947 518 -- -- 2,465
------- ------- ------- ------- ------- ------- --------
Cash dividends declared.......
($0.05 per share)............ -- -- (230) -- -- -- (230)
Issuance of common stock...... 26 287 -- -- -- -- 313
Awards granted................ -- -- -- -- (313) -- (313)
Amortization of deferred
compensation................. -- -- -- -- 130 -- 130
Repayment of loans to
officers..................... -- -- -- -- -- 100 100
------- -------- ------- -------- ------- ------- --------
Balance, June 30, 2000........ $ 4,616 $ 40,048 $ 9,142 $ (2,294) $ (942) $(1,025) $ 49,545
======= ======== ======= ======== ======= ======= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................... $ 1,947 $ 2,139
-------- --------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................ 371 251
Goodwill amortization.................................................................... 319 --
Johnson Bank Illinois fair value accretion, net.......................................... (175) --
Amortization of deferred compensation.................................................... 130 94
Provision for loan losses................................................................ 973 498
Gain on sale of securities............................................................... (92) (50)
Increase (Decrease) in deferred loan fees................................................ 225 (10)
(Increase) in accrued interest receivable................................................ (635) (535)
Increase in accrued interest payable..................................................... 772 --
Decrease (Increase) in other assets...................................................... 854 (447)
Increase in other liabilities............................................................ 1,137 130
-------- --------
Total adjustments....................................................................... 3,879 (69)
-------- --------
Net cash provided by operating activities............................................... 5,826 2,070
-------- --------
Cash flows from investing activities
Proceeds from maturities, paydowns, and sales of securities.............................. 14,738 35,175
Purchase of securities available-for-sale................................................ (20,072) (9,258)
Johnson Bank Illinois acquisition, net of cash received.................................. (15,753) --
Capitalization of The PrivateBank (St. Louis)............................................ (8,000) --
Net loan principal advanced.............................................................. (100,423) (53,683)
Bank premises and equipment expenditures................................................. (1,391) (140)
-------- --------
Net cash used in investing activities................................................... (130,901) (27,906)
-------- --------
Cash flows from financing activities
Net increase in total deposits........................................................... 54,237 10,038
Issuance of common stock................................................................. -- 347
Dividends paid........................................................................... (230) (172)
Net increase in funds borrowed........................................................... 50,302 11,000
-------- --------
Net cash provided by financing activities............................................... 104,309 21,213
-------- --------
Net (decrease) increase in cash and cash equivalents..................................... (20,766) (4,623)
Cash and cash equivalents at beginning of year........................................... 44,183 15,514
-------- --------
Cash and cash equivalents at end of period............................................... $ 23,417 $ 10,891
======== ========
Non-cash transactions
Loan to executive officer for purchase of common stock................................... $ -- $ --
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
6
PRIVATEBANCORP, INC. AND SUBSIDIARIES
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial information of PRIVATEBANCORP, Inc. (the
"Company") and its Subsidiaries, The PrivateBank and Trust Company (the "Bank"
or "PrivateBank") and The PrivateBank (St. Louis), included herein is unaudited;
however, such information reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation for the interim periods. The financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The annualized results of operations for the six months ended June 30,
2000, are not necessarily indicative of the results expected for the full year
ending December 31, 2000. The accompanying consolidated financial statements are
unaudited and do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, or cash flows in
accordance with generally accepted accounting principles. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended December 31, 1999 included in
the Company's Annual Report on Form 10-K (File No. 000-25887).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expense during the reported
period. Actual results could differ from these estimates.
NOTE 2 -- EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per
share (in thousands except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Income..................................................... $ 1,098 $ 1,112 $ 1,947 $ 2,139
Average common shares outstanding.............................. 4,601 3,452 4,596 3,443
Average common shares equivalent(1)............................ 151 253 171 250
Weighted average common shares and common share
equivalents................................................. 4,752 3,705 4,767 3,693
Net income per average common share - basic.................... 0.24 0.32 0.42 0.62
Net income per average common share - diluted.................. 0.23 0.30 0.41 0.58
- -----------------
(1) Common shares equivalent result from stock options being treated as if
they had been exercised and are computed by application of the treasury
stock method.
NOTE 3 - NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Related Hedging Activities", amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133--an Amendment of SFAS No. 133," and SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
will, on January 1, 2001, require all derivatives to be recorded at fair value
in the balance sheet, with changes in fair value recorded in the income
statement. If derivatives are documented and effective as hedges, the change in
the derivative fair value will be offset by an equal change in the fair value of
the hedged item. All hedge ineffectiveness will be recognized
7
immediately in earnings. The Statement may be adopted early at the start of a
calendar quarter. The Company does not plan to adopt the Statement early and
adoption is not expected to have a material impact since the Company does not
have derivative instruments or hedging activity.
Effective January 1, 2000, Statement of Financial Accounting Standards No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise", allows mortgage loans that are securitized to be classified as
trading, available for sale, or in certain circumstances, held to maturity.
Since the Company has not securitized loans, this Statement does not currently
impact the Company.
NOTE 4 - OPERATING SEGMENTS
The Company has four major lines of business: Private Banking Services
(Illinois), The PrivateBank (St. Louis), Trust Services and Holding Company
Activities. For purposes of making operating decisions and assessing
performance, management treats the Bank, The PrivateBank (St. Louis), the Trust
Department and the Holding Company as four operating segments. The Company's
investment portfolio is included in total assets of PrivateBank and reported in
the results of Private Banking Services (Illinois). The business segments
summarized below and in the following tables are primarily managed with a focus
on various performance objectives including total assets, total deposits,
borrowings, gross loans, total capital and net income. Indirect costs are
allocated to the Trust Business from the Bank based on Trust full time
equivalent employees as a percentage of total Bank employees.
PRIVATE BANKING SERVICES (ILLINOIS)
PrivateBank, through its main offices located in downtown Chicago as well
as five Illinois full-service suburban branches, provides personal and
commercial banking services primarily to affluent individuals, professionals,
entrepreneurs and their business interests. Until June 23, 2000, the date The
PrivateBank (St. Louis) was established, PrivateBank also operated a loan
production office in St. Louis and those activities are reflected in the segment
reporting for Private Banking Services (Illinois). PrivateBank's commercial
lending products include lines of credit for working capital, term loans for
equipment and letters of credit to support the commitments made by its clients.
Non-credit products include lock-box, cash concentration accounts, merchant
credit card processing, electronic funds transfer, other cash management
products and insurance. PrivateBank offers a full range of real estate lending
products including fixed and floating rate permanent and mini-permanent
mortgages and construction loans. Personal loans include installment loans and
lines of credit, home equity loans and a wide variety of home mortgage loans.
Individual banking services include interest bearing checking, money market
deposit accounts, certificates of deposit, ATM/debit cards and investment
brokerage accounts. Additionally, PrivateBank offers secured and unsecured
personal loans and lines of credit. Through PrivateBank's affiliation with
Mesirow Financial, Inc. and Sterling Investment Services, Inc., clients have
access to insurance products and securities brokerage services. PrivateBank also
offers domestic and international wire transfers and foreign currency exchange.
PRIVATE BANKING SERVICES
------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(IN THOUSANDS)
Total gross loans................... $ 578,627 $ 336,080
Total assets........................ 713,875 439,028
Total deposits...................... 598,571 375,504
Total borrowings.................... 48,044 31,000
Total capital....................... 61,573 29,209
Year-to-date net income............. $ 2,713 $ 2,354
8
THE PRIVATEBANK (ST. LOUIS)
The PrivateBank (St. Louis) was established as a new bank subsidiary of
PrivateBancorp, Inc. on June 23, 2000, upon the Company's receipt of the final
regulatory approval necessary to open a federal savings bank in St. Louis. The
revenues and expenses associated with the St. Louis loan production office that
was operated by PrivateBank prior to June 23, 2000, are included in
PrivateBanking Services (Illinois).
Commercial lending products include lines of credit for working capital,
term loans for equipment and letters of credit to support the commitments made
by its clients. Non-credit products include lock-box, cash concentration
accounts, merchant credit card processing, electronic funds transfer, other cash
management products and insurance. The PrivateBank (St. Louis) offers a full
range of real estate lending products including fixed and floating rate
permanent and mini-permanent mortgages and construction loans. Personal loans
include installment loans and lines of credit, home equity loans and a wide
variety of home mortgage loans. Individual banking services include interest
bearing checking, money market deposit accounts, certificates of deposit,
ATM/debit cards and investment brokerage accounts. Additionally, The PrivateBank
(St. Louis) offers secured and unsecured personal loans and lines of credit. The
PrivateBank (St. Louis) also offers domestic and international wire transfers
and foreign currency exchange.
THE PRIVATEBANK (ST. LOUIS)
--------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(in thousands)
Total gross loans................ $ 4,894 --
Total assets..................... 8,593 --
Total deposits................... 596 --
Total borrowings................. -- --
Total capital.................... 7,962 --
Year-to-date Net loss............ $ (38) --
TRUST SERVICES
PrivateBank's trust services include investment management, personal trust
and estate services, custodial services, retirement accounts and brokerage and
investment services. Investment management professionals work with trust clients
to define objectives, goals and strategies of the clients' investment
portfolios. PrivateBank assists its clients with the selection of an investment
manager. Trust and estate account administrators work with clients and their
attorneys to establish estate plans. Consistent with the PrivateBank philosophy,
Trust Services emphasizes a high level of personal service, including prompt
collection and reinvestment of interest and dividend income, weekly valuation,
tracking of tax information, customized reporting and ease of security
settlement.
TRUST SERVICES
---------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(in thousands)
Trust assets under administration....... $ 762,000 $ 666,636
Year-to-date Net income................. $ 87 $ 11
9
HOLDING COMPANY ACTIVITIES
Holding Company Activities consist of parent company only matters. The
holding company's most significant assets are its net investments in PrivateBank
and in The PrivateBank (St. Louis). Holding Company Activities consist primarily
of operating expenses. Recurring holding company operating expenses consist of
amortization of restricted stock awards, other salary expense and miscellaneous
professional fees.
HOLDING COMPANY
ACTIVITIES
--------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(in thousands)
Total assets............................ $ 70,375 $ 29,836
Total borrowings........................ 20,500 --
Interest expense........................ 371 --
Total capital........................... 49,545 29,966
Year-to-date net loss................... $ (814) $ (226)
The following table identifies the significant differences between the sum
of the reportable segments and the reported consolidated results for total
assets:
TOTAL ASSETS
--------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(in thousands)
Sum of reportable segments................ $ 792,843 $ 468,864
Adjustments............................... (69,820) (30,695)
---------- ----------
Consolidated PrivateBancorp, Inc.......... $ 723,023 $ 438,169
========== ==========
The adjustments to total assets presented in the table above represent the
elimination of the net investment in PrivateBank and in The PrivateBank (St.
Louis) in consolidation, the elimination of the Company's cash that is
maintained in an account at PrivateBank, the reclassification of the unearned
discount of loans and the reclassification related to deferred taxes.
NOTE 5 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENT
The carrying values and estimated fair values of financial instruments as
of June 30, 2000, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 1999.
10
NOTE 6 - OTHER COMPREHENSIVE INCOME
Change in fair value of securities available-for-sale is presented on a net
basis on the Consolidated Statement of Changes in Stockholders' Equity. The
following table discloses the changes in other comprehensive income as of June
30, 2000 and 1999, on a gross basis (in thousands):
JUNE 30, 2000
-----------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
-------- --------- ---------
Unrealized gains on securities available-for-sale--
Unrealized holding gains $ 877 $ 298 $ 579
Less: reclassification adjustment for gain
included in net income............................... 92 31 61
-------- -------- --------
Net unrealized gain................................... $ 785 $ 267 $ 518
======== ======== ========
JUNE 30, 1999
-----------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
-------- --------- ---------
Unrealized (losses) on securities available-for-sale--
Unrealized holding (losses)........................... $ (2,194) $ (856) $(1,338)
Less: reclassification adjustment for gain
included in net income............................... 50 19 31
-------- -------- --------
Net unrealized (losses)............................... $ (2,244) $ (875) $ (1,369)
======== ======== ========
NOTE 7 - CAPITAL TRANSACTIONS
On June 23, 2000, the Company established The PrivateBank (St. Louis) as a
federal savings bank in St. Louis, Missouri. The PrivateBank (St. Louis) was
initially capitalized with $8.0 million of borrowed funds drawn from the
Company's revolving credit facility. The PrivateBank (St. Louis) is a wholly
owned subsidiary of the Company, and its financial condition and results of
operations are included in the Company's consolidated financial statements.
During the third quarter of 1999, the Company completed its initial public
offering of 1,035,000 shares of its common stock. The initial public offering
price was $18 per share, and the Company received aggregate net proceeds of
approximately $16.7 million after deducting underwriting commissions and
offering expenses and including the underwriters' overallotment shares.
During March and April 1999, the Company's Board of Directors and
stockholders approved an increase in the number of authorized shares to
12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
Board also approved a change in the per share stated value of the common stock
from $2.50 to $1.00 per share. Such change in authorized shares and change in
stated value became effective prior to the effectiveness of the registration
statement relating to the Company's initial public offering. On June 24, 1999,
to effect a two-for-one stock split, the Company's Board of Directors declared a
one-for-one stock dividend on its common stock payable on June 28, 1999, to
stockholders of record as of the close of business on June 25, 1999. All
references to number of shares, per share amounts and stock option data in the
consolidated financial statements have been adjusted to reflect the stock split
on a retroactive basis.
11
NOTE 8 - ACQUISITIONS
On August 3, 1999, in a stock for stock transaction, the Company completed
its acquisition of Towne Square Financial Corporation, a company in the process
of forming a de novo bank. At closing, the Company issued 91,668 shares of
common stock and recorded a one-time $1.3 million charge that is non-deductible
for tax purposes.
On February 11, 2000, the Company completed its acquisition of Johnson Bank
Illinois, a unit of Johnson International, Inc., Racine, Wisconsin. At closing,
Johnson Bank Illinois had total assets of approximately $113 million and total
deposits of approximately $77 million. The purchase price was $20 million. $15
million was paid in cash and the remainder was paid in the form of a
LIBOR-based, floating rate subordinated note issued to Johnson International in
the principal amount of $5 million. The interest rate on the subordinated note
is set each quarter based on the 90-day LIBOR rate. The note is payable in full
on or before February 11, 2007, and provides for certain rate escalation
beginning after two years.
The cash portion of the purchase price was funded with $7.5 million out of
the remaining proceeds of the Company's initial public offering and $7.5 million
from borrowings under a new, two-year, $18 million revolving credit facility
with a commercial bank entered into at closing. The interest rate on borrowings
under this revolving line is based on, at the borrower's option, either the
lender's prime rate or a LIBOR-based rate.
At closing, Johnson Bank Illinois was merged into the Bank. The two
acquired offices, located on Chicago's North Shore in Lake Forest and Winnetka,
became additional offices of the Bank. With the completion of the acquisition,
the Bank now operates six banking offices in the greater Chicago area.
The transaction was accounted for as a purchase. All assets and liabilities
were adjusted for fair value as of the effective date of the merger creating
goodwill in the amount of $12.3 million, which was pushed-down to the Bank, and
is being amortized on the straight line basis over 15 years. Premiums and
discounts related to the Johnson Bank Illinois transaction were recorded on the
balance sheet as fair value adjustments and amounted to $20,045 and $2,344,041,
respectively.
The following table summarizes the unaudited pro forma financial results
for the six months ended June 30, 2000 and 1999 as if Johnson Bank Illinois had
been acquired on January 1, 1999.
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net interest income after provision for
loan losses............................... $ 10,360 $ 7,999
Total non-interest income.................. 1,809 1,621
Total non-interest expense................. 9,080 7,215
Income taxes............................... 1,166 590
Net income................................. 1,922 1,815
Diluted earnings per share................. 0.40 0.49
The pro forma information is not necessarily indicative of the actual
results of operations which would have occurred had the acquisition of Johnson
Bank Illinois been consummated on January 1, 1999, nor is it indicative of
future operating results.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
PRIVATEBANCORP, Inc. was organized as a Delaware corporation in 1989 to
serve as the holding company for a de novo bank designed to provide highly
personalized financial services primarily to affluent individuals,
professionals, entrepreneurs and their business interests. Through the Company's
banking subsidiaries, The PrivateBank and Trust Company and The PrivateBank (St.
Louis), the Company provides its clients with traditional personal and
commercial banking services, lending programs, and trust and asset management
services. Using the European tradition of "private banking" as the model,
PrivateBank strives to develop a unique relationship with clients, utilizing a
team of managing directors to serve the client's individual and corporate
banking needs, and tailoring products and services to meet such needs.
PrivateBank's managing directors are strategically located in seven Midwestern
United States locations. Currently, the Company has six Chicago-area offices:
Downtown Chicago, Wilmette, Illinois, Oak Brook, Illinois, St. Charles,
Illinois, Lake Forest, Illinois, and Winnetka, Illinois. The Company also
recently opened a new federal savings bank, The PrivateBank (St. Louis).
The flagship downtown Chicago location opened in 1991. The Company expanded
to Wilmette in north suburban Cook County in 1994 and the Oak Brook facility in
west suburban DuPage County was established in 1997. The Company established the
St. Charles office in January 2000, in connection with its purchase of Towne
Square Financial Corporation (a company in the process of forming a de novo
bank) on August 3, 1999. On February 11, 2000, the Company consummated its
acquisition of Johnson Bank Illinois, adding additional locations of PrivateBank
in Lake Forest and Winnetka, Illinois on Chicago's North Shore.
During the second quarter 2000, the Company received regulatory approval to
create a new subsidiary and on June 23, 2000, the Company capitalized The
PrivateBank (St. Louis). The expansion into St. Louis is consistent with the
Company's strategic objective of pursuing selective growth opportunities in
other mid-western markets. The St. Louis based bank focuses on specific niches
of clients who are seeking a higher level of service and a broad array of
personalized banking and wealth management products. The PrivateBank (St. Louis)
clients consist of individuals, small to medium-size businesses, commercial real
estate investors and professionals.
For financial information regarding the Company's four separate lines of
business, Private Banking Services, The PrivateBank (St. Louis), Trust Services
and Holding Company Activities, see "Note 4--Operating Segments" to the
consolidated financial statements of the Company included in this report.
The profitability of the Company's operations depends on net interest
income, provision for loan losses, non-interest income, and non-interest
expense. Net interest income is the difference between the income the Company
receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits and borrowings. The provision for loan
losses reflects the cost of credit risk in the loan portfolio. Non-interest
income consists primarily of trust fee income, and to a lesser extent, net
securities gains and fees for ancillary banking services. Noninterest expense
includes salaries and employee benefits as well as occupancy, data processing,
marketing, professional fees, insurance, goodwill and other expenses.
Net interest income is dependent on the amounts and yields of
interest-earning assets as compared to the amounts and rates on interest-bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and our asset/liability management procedures in coping with such
changes. The provision for loan losses is dependent on increases in the loan
portfolio, management's assessment of the collectability of the loan portfolio,
loss experience, as well as economic and market factors.
Non-interest income from fees and deposit service charges are below peer
group levels. This is largely the result of the profile of the Company's typical
client. The clients tend to have larger deposit account balances than customers
of traditional banks. Because average balances tend to be high, the Company does
not earn high service charge income typical of community banks.
Non-interest expenses are heavily influenced by the growth of operations.
Growth in the Company directly affects the majority of the Company's expense
categories. Profitability and expense ratios have been negatively
13
impacted in 2000 due to the start-up operation of St. Charles, the acquisition
of Johnson Bank Illinois, and the opening of The PrivateBank (St. Louis). It is
expected that results for the remainder of 2000 will continue to be impacted to
some extent by the start-up nature of operations in St. Charles, St. Louis and
in the new offices acquired through the Johnson Bank Illinois transaction. The
Company currently estimates that the St. Charles office will first become
profitable early in 2001 and that The PrivateBank (St. Louis) will not begin to
operate profitably until the last quarter of 2001.
On June 30, 1999, the Company priced its initial public offering of 900,000
shares of its common stock at $18 per share. The shares are listed on the Nasdaq
National Market System under the symbol PVTB. The closing date of the offering
was July 6, 1999, when the Company received net proceeds of approximately $14.4
million (after deduction of offering expenses). Offering expenses payable by the
Company were approximately $665,000. On July 26, 1999, an additional 135,000
shares were sold pursuant to the underwriters' exercise of their over allotment
option for additional net proceeds of $2.3 million.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Income for the second quarter 2000 was $1,098,000, or $0.23 per diluted
share, compared to second quarter 1999 net income of $1,112,000, or $0.30 per
diluted share. Second quarter 2000 net income includes a full quarter of
financial results of the former Johnson Bank Illinois locations subsequent to
their acquisition on February 11, 2000. Excluding the effect of goodwill
amortization and acquisition interest expense associated with this transaction,
the two offices located in Winnetka and Lake Forest have contributed $525,000 to
the Company's net income on a year-to-date basis and $349,000 for the second
quarter ended June 30, 2000.
For the six months ended June 30, 2000, net income totaled $1,947,000, or
$0.41 per diluted share, compared to $2,139,000, or $0.58 per diluted share, for
the comparable period in 1999. The decrease in net income is primarily due to
increasing operating expenses associated with the Company's expansion strategy
which more than offset the Company's growth in net interest income and
non-interest income for the six months ended 2000 as compared to the same period
in 1999. The Company expects operating expenses to increase during the third
quarter relative to second quarter 2000 levels primarily due to the opening of
The PrivateBank (St. Louis) near the end of the second quarter.
NET INTEREST INCOME
Net interest income is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings. Net interest
margin represents the net interest income on a tax equivalent basis as a
percentage of average earning assets during the period. Net interest margin
reflects the spread between average yields earned on interest earning assets and
the average rates paid on interest bearing deposits and borrowings. The volume
of non-interest bearing funds, largely comprised of demand deposits and capital,
also affects the net interest margin.
Net interest income was $6.0 million and $3.6 million during the three
months ended June 30, 2000 and 1999, respectively, an increase of 67%. Average
earning assets during the 2000 second quarter were $648.2 million, an increase
of 55.6% over the prior year second quarter. The Company's net interest margin
(tax equivalent net interest income as a percentage of earning assets) was 3.81%
for the three months ended June 30, 2000, compared to 3.71% for the prior year
period. During the second quarter 2000, increases in interest rates had an
immediate repricing effect on floating rate assets. The timing of repricing of
floating rate liabilities has lagged, resulting in an increased net interest
margin for the second quarter 2000. During the next two quarters in 2000, the
Company expects to experience margin pressure as increases in interest rates
paid on deposits and other funding sources are likely to exceed the effect of
higher rates earned on assets. In addition, the Company expects that new loan
growth in the second half of 2000 will be funded with growth in deposits,
supplemented by short-term borrowings and brokered deposits, at the higher
current market rates.
Net interest income was $10.9 and $7.0 million for the six months ended
June 30, 2000 and 1999, respectively. Average earning assets increased by $199.1
million over the prior year period in 1999. The Company's net interest margin
was 3.68% for the six months ended June 30, 2000 compared to 3.67% for the prior
year period. Although rising interest rates have improved the yield on average
earning assets, interest expense on
14
deposits and other borrowed funds has correspondingly increased, resulting in
reduced net interest spread between periods. Total net interest margin is
relatively unchanged between the six month periods due to the increase in
average non-interest bearing deposits for the six months ended June 30, 2000
compared to the six months ended June 30, 1999.
The following tables present a summary of the Company's net interest income
and related net interest margin, calculated on a tax equivalent basis (dollars
in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
---------------------------------- -------------------------------------
AVERAGE INTEREST RATE AVERAGE INTEREST RATE
----------- ------------ ------- ----------- ----------- --------
Short-term investments..................... $ 5,103 $ 78 6.08% $ 3,102 $ 33 4.23%
Investment securities(1)................... 98,938 1,763 7.13% 100,572 1,549 6.16%
Loans, net of unearned discount............ 544,207 12,167 8.91% 312,922 6,218 7.97%
--------- --------- ----- -------- -------- -----
Total earning assets....................... 648,248 14,008 8.61% 416,596 7,800 7.51%
========= ========= ===== ======== ======== =====
Interest bearing deposits.................. $ 515,103 $6,754 5.26% $342,431 $ 3,588 4.20%
Funds borrowed............................. 62,361 1,027 6.52% 22,284 360 6.39%
--------- --------- ----- -------- -------- -----
Total interest bearing liabilities......... $ 577,464 7,781 5.39% $364,715 3,948 4.34%
========= ========= ===== ======== ======== =====
Tax equivalent net interest income......... $ 6,227 $ 3,852
========= ========
Net interest spread........................ 3.22% 3.17%
Net interest margin........................ 3.81% 3.71%
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------------------------- -----------------------------------
AVERAGE INTEREST RATE AVERAGE INTEREST RATE
--------- ---------- ------ --------- ---------- ------
Short-term investments..................... $ 16,240 $ 465 5.67% $ 3,486 $ 81 4.63%
Investment securities(1)................... 95,725 3,366 7.04% 105,366 3,355 6.37%
Loans, net of unearned discount............ 498,155 21,642 8.65% 302,147 11,854 7.91%
-------- ------- ---- -------- ------- ----
Total earning assets....................... $610,120 $25,473 8.32% $410,999 $15,290 7.49%
======== ======= ==== ======== ======= ====
Interest bearing deposits.................. $500,580 $12,809 5.13% $341,112 $ 7,282 4.31%
Funds borrowed............................. 39,345 1,323 6.65% 18,756 504 5.35%
-------- ------- ---- -------- ------- ----
Total interest bearing liabilities......... $539,925 $14,132 5.24% $359,868 $ 7,786 4.36%
======== ======= ==== ======== ======= ====
Tax equivalent net interest income ........ $11,341 $ 7,504
======= =======
Net interest spread........................ 3.08% 3.13%
Net interest margin........................ 3.68% 3.67%
- -----------------
(1) Interest income on tax advantaged investment securities reflects a tax
equivalent adjustment based on a marginal federal corporate tax rate of
34%. The total tax equivalent adjustment reflected in the above table is
approximately $219,000 and $254,000 in the first three months of 2000 and
1999, respectively, and $439,000 and $491,000 for the six months ended
2000 and 1999, respectively.
15
The following table shows the dollar amount of changes in interest income
and interest expense by major categories of interest-earning assets and
interest-bearing liabilities attributable to changes in volume or rate or a mix
of both, for the periods indicated. Volume variances are computed using the
change in volume multiplied by the previous year's rate. Rate variances are
computed using the changes in rate multiplied by the previous year's volume.
THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
CHANGE CHANGE CHANGE TOTAL
DUE TO RATE DUE TO VOLUME DUE TO MIX CHANGE
----------- ------------- ---------- --------
Short-term investments............... $ 14 $ 21 $ 10 $ 45
Investment securities................ 243 (25) (4) 214
Loans, net of unearned discount...... 731 4,583 635 5,949
------ ------- ------ --------
Total interest income............... 988 4,579 641 6,208
------ ------- ------ --------
Interest bearing deposits............ 902 1,803 461 3,166
Funds borrowed....................... 10 632 25 667
------ ------- ------ --------
Total interest expense.............. 912 2,435 486 3,833
------ ------- ------ --------
Net interest income.................. $ 76 $ 2,144 $ 155 $ 2,375
====== ======= ====== ========
SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands)
CHANGE CHANGE CHANGE TOTAL
DUE TO RATE DUE TO VOLUME DUE TO MIX CHANGE
----------- ------------- ---------- ------
Short-term investments............... $ 18 $ 294 $ 72 $ 384
Investment securities................ 351 (305) (35) 11
Loans, net of unearned discount...... 1,112 7,710 966 9,788
-------- ------- ------- -------
Total interest income............. 1,481 7,699 1,003 10,183
-------- ------- ------- -------
Interest bearing deposits............ 1,391 3,418 718 5,527
Funds borrowed....................... 121 548 150 819
-------- ------- ------- -------
Total interest expense............ 1,512 3,966 868 6,346
-------- ------- ------- -------
Net interest income.................. $ (31) $ 3,733 $ 135 $ 3,837
======== ======= ======= =======
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $662,000 for the second quarter
of 2000, compared to $213,000 for the comparable period in 1999. The Company's
provision for loan losses was $973,000 for the six months ended June 30, 2000
compared to $498,000 for the comparable period in 1999. Increases in the
provision for loan losses for the six months ended June 30, 2000 as compared to
the prior year period are largely due to increasing loan volumes.
The Company provides for an adequate allowance for loan losses that are
probable and inherent in the portfolio. Increases in the provision for loan
losses reflect the latest assessment of the inherent losses in the loan
portfolio. A discussion of the allowance for loan losses and the factors on
which provisions are based begins on page 19.
16
NON-INTEREST INCOME
Non-interest income for the quarter grew to $751,000, reflecting an
increase of $235,000, or 45.5% higher than in the second quarter of 1999. The
increase is primarily attributable to increases in service charge income and
trust fee revenues. Service charge income increased $107,000 over the prior year
quarter primarily due to fees earned on accounts related to the acquisition of
Johnson Bank Illinois. Trust fee revenue increased to $551,000 as compared to
the prior year quarter of $445,000. Trust assets under administration increased
to $761.8 million at June 30, 2000 compared to $666.6 million at June 30, 1999,
an increase of 14.3 percent. The completion of the Johnson Bank Illinois
acquisition increased trust assets under administration by approximately $50.0
million and expanded the Company's trust services beyond the Chicago office with
the addition of trust staff to its suburban offices.
Non-interest income increased approximately $515,000 or 54%, to $1,473,000
for the first half of 2000, as compared to $958,000 for the comparable period in
1999. Trust income increased by $325,000 to $1,090,341 for the six months ended
June 30, 2000, reflecting an increase of 42.4% over the six months ended June
30, 1999. Service charge revenue increased by $126,000 to $256,000 for the six
months ended June 30, 2000 compared to $130,000 for the six months ended June
30, 1999. This increase is primarily attributable to the addition of the former
Johnson Bank Illinois offices in Winnetka and Lake Forest. The increase is
partially attributable to the recognition of $92,000 in securities gains during
the first quarter 2000.
NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2000 1999 2000 1999
---------- -------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Salaries and employee benefits..................... $ 1,818 $ 1,088 $ 3,695 $ 2,203
Occupancy.......................................... 764 373 1,377 725
Professional fees.................................. 596 273 1,171 404
Marketing.......................................... 300 132 609 285
Data processing.................................... 190 116 353 247
Postage, telephone and delivery.................... 167 73 283 160
Office supplies and printing....................... 122 61 235 108
Insurance.......................................... 70 38 138 79
Goodwill........................................... 206 -- 319 --
Other expense...................................... 219 225 309 423
-------- -------- ------- -------
Total non-interest expense......................... $ 4,452 $ 2,379 $ 8,489 $ 4,634
======== ======== ======= =======
Non-interest expense for the second quarter of 2000 increased by 87.1% or
$2.1 million as compared to the year earlier quarter. The increase from the
prior year level is due to expenses incurred in connection with the Company's
expansion initiatives. Non-interest expense for the second quarter 2000 includes
operating expenses of $309,000 and $413,000 related to the St. Charles and the
St. Louis offices, respectively. The Company expects operating expenses for The
PrivateBank (St. Louis) to increase for the remainder of 2000. Additionally, the
second quarter 2000 results reflect the addition of the two new locations
acquired through the Johnson Bank Illinois transaction which increased operating
expenses by $620,000 for the six months ended June 30, 2000 compared to the
prior year period. Operating expenses for these locations have almost doubled
since the first quarter, because the acquisition was consummated during the
middle of the first quarter 2000. Goodwill expense contributed to the increase
in non-interest expense in the amount of $206,000 for the second quarter 2000
reflecting a full quarter of amortization resulting from the Johnson Bank
Illinois acquisition. The remaining increase in non-interest expense is due to
overall growth in salaries and benefits, professional services and marketing
costs at the existing PrivateBank offices.
The Company's efficiency ratio increased to 63.8% for the second quarter
2000 from 57.2% for the 1999 second quarter. While the efficiency ratio has
improved from the first quarter of 2000, the increase over the prior year
quarter indicates that on a tax-equivalent basis, in the second quarter of 2000
the Company spent 63.8 cents to
17
generate each dollar of revenue, compared to only 57.2 cents in the second
quarter of 1999. The increased level of operating expenses are primarily the
result of the Company's expansion strategy. The Company expects the efficiency
ratio to remain high until business development efforts at the new offices
generate revenue sufficient to offset the growth in operating expenses.
For the second quarter of 2000, salaries and benefits increased by
approximately $1.5 million reflecting the Company's increased level of full time
equivalent employees to 133 people versus 83 at June 30, 1999. The increase is
due primarily to the increased number of employees, including the senior
officers responsible for opening the St. Charles and St. Louis offices, as well
as the addition of employees from the Johnson Bank Illinois acquisition. The
main office in Chicago has also experienced growth in personnel during the
second quarter 2000 in response to the overall growth of the organization and to
increased staffing needs to support a public company.
During the quarter ended June 30, 2000, professional fees increased by
$323,000 over the prior year quarter. The increase in professional fees reflects
increased legal, accounting and information-system consultation services.
Marketing expenses increased by $168,000 due to the use of a public relations
firm and investments in new marketing materials describing the Company's new
offices and products.
INCOME TAXES
The following table shows the Company's income before income taxes,
applicable income taxes and effective tax rate for the six months ended June 30,
2000 and 1999, respectively (in thousands):
SIX MONTHS ENDED
JUNE 30,
----------------------
2000 1999
-------- ---------
Income before taxes.............................. $2,914 $2,839
Income tax provision............................. 967 700
Effective tax rate............................... 33.2% 24.7%
The effective income tax rate varies from statutory rates principally due
to certain interest income which is tax-exempt for federal or state purposes,
and certain expenses which are disallowed for tax purposes. During 1999, the
Company initiated a tax-advantaged investment program and increased the
Company's municipal bond portfolio as a percentage of total investments. This
tax strategy had the effect of lowering the Company's effective tax rate during
the first and second quarters of 1999 and throughout the entire year. The
effective tax rate for 1999 was 30.1%. During the first quarter 2000, the
Johnson Bank Illinois acquisition caused the Company's effective tax rate to
increase since the acquired investment portfolio did not include federally
tax-exempt municipal securities.
FINANCIAL CONDITION
Total assets were $723.0 million at June 30, 2000, an increase of $284.8
million, or 65.0% over the $438.2 million a year earlier, and an increase of
$204.3 million, or 39.4% over the $518.7 million at December 31, 1999. The
balance sheet growth was accomplished mainly through the acquisition of Johnson
Bank Illinois, loan growth throughout the Company, and increased borrowings used
to capitalize The PrivateBank (St. Louis).
LOANS
Total loans increased $248.2 million, or 74.0%, from $335.3 million at June
30, 1999, and $186.2 million, or 46.9%, from $397.3 million at December 31,
1999.
18
The following table sets forth the Company's loan portfolio net of unearned
discount by category (in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
--------- ----------- ---------
LOANS:
Commercial real estate.............. $ 200,088 $ 146,368 $ 116,802
Residential real estate............. 92,006 72,972 62,085
Commercial.......................... 153,416 67,026 63,520
Personal(1)......................... 99,191 81,893 72,131
Construction........................ 38,821 29,018 20,768
Total loans........................ $ 583,522 $ 397,277 $ 335,306
========= ========= =========
- ----------------
(1) Includes home equity loans and overdraft lines.
ALLOWANCE FOR LOAN LOSSES
Loan quality is continually monitored by management and reviewed by the
loan/investment committee of the Boards of Directors of the banks on a monthly
basis. The amount of additions to the allowance for loan losses which is charged
to earnings through the provision for loan losses is determined based on a
variety of factors, including assessment of the credit risk of the portfolio,
delinquent loans, evaluation of current economic conditions in the market area,
actual charge-offs during the year and historical loss experience.
The Company maintains an allowance for loan losses sufficient to absorb
credit losses inherent in the loan portfolio. The allowance for loan losses
represents the Company's estimate of probable losses in the portfolio at each
balance sheet date and is supported by all available and relevant information.
The allowance for the loan losses contains provisions for probable losses that
have been identified relating to specific borrowing relationships as well as
probable losses inherent in the loan portfolio and credit undertakings that are
not specifically identified. The Company believes that the allowance for loan
losses is adequate to provide for estimated probable credit losses inherent in
the loan portfolio.
The allowance for loan losses as a percentage of total loans was 1.0% as of
June 30, 2000, 1.1% as of December 31, 1999 and 1.2% as of June 30, 1999. The
decrease in the allowance for loan losses as a percentage of total loans as of
June 30, 2000 is primarily attributable to the charge-off of a commercial credit
during the second quarter 2000. Net charge-offs for the six months ended June
30, 2000 and 1999 were $396,000 and $5,000, respectively. The increase in net
charge-offs during 2000 is due primarily to a single commercial credit. In
management's judgment, an adequate allowance for loan losses has been
established. Management judges the adequacy of the allowance by formally
reviewing and analyzing potential problem credits, which entails assessing
current and historical loss experience, loan portfolio trends, prevailing
economic and business conditions, specific loan review and other relevant
factors.
Following is a summary of changes in the allowance for loan losses for the
six months ended June 30, 2000 and 1999 (in thousands):
2000 1999
---------- ----------
Balance, January 1...................................... $ 4,510 $ 3,410
Johnson Bank Illinois acquisition allowance for loan
loss................................................... 864 --
Provision charged to operations......................... 973 498
Loans charged-off (net)................................. (396) (5)
Balance, June 30........................................ $ 5,951 $ 3,903
========= ========
19
NONACCRUAL AND NONPERFORMING LOANS
Nonaccrual loans were relatively stable at $635,000 as of June 30, 2000,
compared to $600,000 as of December 31, 1999, up from $94,000 at June 30, 1999.
Nonperforming loans include nonaccrual loans and accruing loans which are
90 days or more delinquent. Nonperforming loans were $975,000 as of June 30,
2000, compared to $823,000 at December 31, 1999 and $804,000 at June 30, 1999.
Nonperforming loans were .17%, .21% and .24% of total loans as of June 30, 2000,
December 31, 1999 and June 30, 1999, respectively. Nonperforming loans were
.13%, .16% and .18% of total assets as of June 30, 2000, December 31, 1999 and
June 30, 1999, respectively.
INVESTMENT SECURITIES
The amortized cost and the estimated fair value of securities as of June
30, 2000, December 31, 1999 and June 30, 1999, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
---------------------------------------------------------
JUNE 30, 2000
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
U.S. Treasury............................. $ 500 $ 1 $ -- $ 501
U.S. Government Agency Obligations........ 50,259 91 (638) 49,712
Municipals................................ 37,059 3 (2,882) 34,180
Other(1).................................. 12,914 -- (339) 12,575
--------- -------- ------- --------
$ 100,732 $ 95 $(3,859) $ 96,968
========= ======== ======= ========
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
---------------------------------------------------------
DECEMBER 31, 1999
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
U.S. Government Agency Obligations........ $ 26,695 $ -- $ (708) $ 25,987
Municipals................................ 37,116 9 (3,511) 33,614
Other(1).................................. 11,933 -- (400) 11,533
--------- -------- -------- --------
$ 75,744 $ 9 $ (4,619) $ 71,134
========= ======== ======== ========
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
---------------------------------------------------------
JUNE 30, 1999
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
U.S. Treasury............................. $ 5,007 $ 12 $ -- $ 5,019
U.S. Government Agency Obligations........ 34,219 70 (265) 34,024
Municipals................................ 39,911 84 (1,821) 38,174
Other(1).................................. 11,887 -- (78) 11,809
--------- ------ -------- --------
$ 91,024 $ 166 $ (2,164) $ 89,026
========= ====== ======== ========
- ----------------
(1) Represents corporate and equity securities.
All securities are classified as available-for-sale and may be sold as part
of the Company's asset/liability management strategy in response to changes in
interest rates, liquidity needs or significant prepayment risk. Securities
available-for-sale are carried at fair value, with related unrealized net gains
or losses, net of deferred
20
income taxes, recorded as an adjustment to equity capital. As of June 30, 2000,
net unrealized losses of $2.3 million resulted in a decrease in reported
stockholders' equity. This was an increase of $1.1 million from net unrealized
losses of $1.2 million recorded as part of equity at June 30, 1999, and a
decrease of $500,000 from net unrealized losses of $2.8 million recorded as part
of stockholders' equity as of December 31, 1999.
Securities available for sale increased to $97.0 million as of June 30,
2000, up 36.3% from $71.1 million as of December 31, 1999 and up 9.0% from $89.0
million as of June 30, 1999. The general increase in investment securities is
the result of the acquisition of the Johnson Bank Illinois portfolio. Following
the acquisition of Johnson Bank Illinois, the Company sold approximately $9.7
million of the former Johnson Bank Illinois investment securities portfolio as
part of the Company's realignment of its available-for-sale investment
securities portfolio. The sale resulted in the recognition of $92,000 of
investment securities gains during the first half of 2000. The proceeds from the
sale of investment securities were reinvested in U.S. government agency
securities.
U.S. government agency securities and collateralized mortgage obligations
increased 91.3% and 46.1% to $49.7 million as of June 30, 2000 from $26.0 and
$34.0 million as of December 31, 1999 and June 30, 1999, respectively. The
increase in U.S. government agency securities resulted primarily from the
Johnson Bank Illinois acquisition. Municipal securities remained relatively
unchanged at June 30, 2000 from the year-end amount of $33.6 million. Municipal
securities decreased 10.5% to $34.2 million as of June 30, 2000 compared to the
prior year period. The decrease is due to securities that were called or matured
during the period. The gross unrealized loss in the Municipal portfolio
increased because of higher interest rates at June 30, 2000 compared to June 30,
1999. Corporate and equity securities increased slightly due to the Johnson Bank
Illinois acquisition. Management does not consider any of these changes to
represent a change in the management philosophy of the investment portfolio.
DEPOSITS AND FUNDS BORROWED
Total deposits of $598.9 million as of June 30, 2000 represent an increase
of $145.8 million or 32.2% from $453.1 million as of December 31, 1999, and a
59.7% increase from $375.0 million as of June 30, 1999. Non-interest-bearing
deposits were $50.0 million as of June 30, 2000, approximately $13.2 million
more than the $36.8 million reported as of December 31, 1999, and $15.7 million
more than at June 30, 1999. Interest-bearing demand deposits increased 2.1% to
$34.1 million as of June 30, 2000 compared to December 31, 1999, and 29.7% over
June 30, 1999. Savings and money market deposit accounts increased by
approximately $53.7 million to $257.8 million at June 30, 2000 as compared to
December 31, 1999, and $81.3 million more than the amount reported as of June
30, 1999. Other time deposits increased by approximately $39.1 million to $196.3
million as compared with the December 31, 1999 balance of $157.2 million, and
$58.3 million over the June 30, 1999 balance of $138.0 million. Brokered
deposits increased to $60.8 million at June 30, 2000 from $21.7 million at
December 31, 1999. There were no brokered deposits as of June 30, 1999.
The Company's membership in the Federal Home Loan Bank System gives it the
ability to borrow funds from the Federal Home Loan Bank of Chicago (FHLB) for
short- or long-term purposes under a variety of programs. The Company has
periodically used services of the FHLB for short-term funding needs and other
correspondent services.
FHLB borrowings totaled $15.0 million and $28.0 million as of December 31,
1999 and June 30, 1999, respectively, and represented fixed advances maturing in
less than three months. As of June 30, 2000, the Company had $44.0 million of
FHLB borrowings outstanding as follows:
DEBT TYPE AMOUNT CONTRACTUAL RATE MATURITY CALLABLE
--------- ------ ---------------- -------- --------
Fixed advance $30,000,000 6.91% 12/06/00 N/A
Callable floating-rate advance 10,000,000 LIBOR minus 5 basis points 05/01/01 11/01/00
Callable fixed advance 4,000,000 5.40% 08/27/04 08/27/00
As of June 30, 2000, repurchase agreements of approximately $1.5 million
were outstanding in addition to $2.4 million of fed funds purchased. As of June
30, 1999, no repurchase agreements were outstanding and fed funds purchased of
$3.0 million were included in Funds Borrowed.
21
On February 11, 2000, to effect the Johnson Bank Illinois acquisition, the
Company borrowed $7.5 million under a new, two-year, $18.0 million revolving
credit facility at an initial rate of 7.20%. During the second quarter 2000, the
Company increased borrowings under the revolving credit facility by
approximately $8.0 million in order to capitalize The PrivateBank (St. Louis).
The interest rate on borrowings under the revolving line is based on, at the
borrower's option, either the lender's prime rate or a LIBOR-based rate. The
Company also entered into a subordinated note issued to Johnson International in
the principal amount of $5.0 million as part of the $20.0 million purchase
price. The interest rate on the subordinated note is set each quarter based on
the 90-day LIBOR rate. The initial rate of interest on the subordinated note was
6.60%. The interest rate on the revolving line reset to 7.49% on April 1, 2000
and the interest rate on the subordinated note reset to 7.22% on May 11, 2000.
CAPITAL RESOURCES
Stockholders' equity rose to $49.5 million, an increase of $2.4 million
from the 1999 year-end level, due to year-to-date 2000 net income and to an
increase in Accumulated Other Comprehensive Income. The change in the fair value
of the available-for-sale investment portfolio increased stockholders' equity by
$0.5 million net of tax as of June 30, 2000 as compared to December 31, 1999.
The Company and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors, and the regulators can lower classifications in certain areas. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If the Bank is
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is asset
growth and expansion and plans for capital restoration are required.
The following table reflects various consolidated measures of capital at
June 30, 2000 and December 31, 1999:
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
------------- ----------------- -------------
Leverage ratio................................. 6.23% 10.77% 7.63%
Tier 1 risk-based capital ratio................ 7.17% 12.84% 9.63%
Total risk-based capital ratio................. 9.05% 13.96% 10.77%
Total equity to total assets.................. 6.85% 9.08% 6.83%
To be considered "well capitalized," an entity must maintain a leverage
ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and
a total risk-based capital ratio of at least 10.0%. To be "adequately
capitalized," an entity must maintain a leverage ratio of at least 4.0%, a Tier
1 risk-based capital ratio of at least 4.0%, and a total risk-based capital
ratio of at least 8.0%.
At June 30, 2000, the Company continued to exceed the minimum levels of all
regulatory capital requirements, and was considered "adequately-capitalized"
under regulatory standards. At June 30, 2000, the Company's total risk based
capital ratio was 9.05%. With the exception of the total risk-based capital
ratio, the Company exceeded the well capitalized levels of all regulatory
capital requirements. The Company has committed to the Federal Reserve Bank of
Chicago to raising all capital ratios above the "well-capitalized" thresholds
under all regulatory standards by March 31, 2001. The Bank was considered
"well-capitalized" under all regulatory standards, including total risk based
capital ratio.
22
LIQUIDITY
Liquidity measures the ability of the Company to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund its operations and to provide for clients' credit needs. The liquidity of
the Company principally depends on cash flows from operating activities,
investment in and maturity of assets, changes in balances of deposits and
borrowings and its ability to borrow funds in the money or capital markets.
Net cash inflows provided by operations were $5.8 million in the first six
months of 2000 compared to a net inflow of $2.1 million a year earlier. Net cash
outflows from investing activities were $130.9 million in the first six months
of 2000 compared to a net cash outflow of $27.9 million a year earlier. Cash
inflows from financing activities in the first six months of 2000 were $104.3
million compared to a net inflow of $21.2 million in the first six months of
1999.
In the event of short-term liquidity needs, the Bank may purchase federal
funds from correspondent banks. The Company's membership in the Federal Home
Loan Bank System gives it the ability to borrow funds from the FHLB for short-
or long-term purposes under a variety of programs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT POLICY
As a continuing part of its financial strategy, the Company attempts to
manage the impact of fluctuations in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest rate
risk, credit risk, liquidity risk and maintenance of yield. Asset/liability
management policy is established by the Board of Directors and is monitored by
management. The Company's asset/liability policy sets standards within which it
is expected to operate. These standards include guidelines for exposure to
interest rate fluctuations, liquidity, loan limits as a percentage of funding
sources, exposure to correspondent banks and brokers, and reliance on non-core
deposits. The policy also states the reporting requirements to its Board of
Directors. The investment policy compliments the asset/liability policy by
establishing criteria by which the Company may purchase securities. These
criteria include approved types of securities, brokerage sources, terms of
investment, quality standards, and diversification.
The Company measures the impact of interest rate changes on its income
statement through the use of gap analysis. The gap represents the net position
of assets and liabilities subject to repricing in specified time periods. During
any given time period, if the amount of rate sensitive liabilities exceeds the
amount of rate sensitive assets, a company would generally be considered
negatively gapped and would benefit from falling rates over that period of time.
Conversely, a positively gapped company would generally benefit from rising
rates.
23
The following tables illustrate the estimated interest rate sensitivity and
periodic and cumulative gap positions calculated as of June 30, 2000 and 1999:
JUNE 30, 2000
---------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
0-90 DAYS 91-365 DAYS 1-5 YEARS OVER 5 YEARS TOTAL
--------- ----------- --------- ------------ ---------
INTEREST-EARNING ASSETS
Loans................................. $ 315,724 $ 48,714 $ 202,213 $ 16,871 $ 583,522
Investments........................... 4,695 2,312 35,558 54,404 96,969
Federal funds sold.................... 5,076 -- -- -- 5,076
-------- ----------- --------- --------- ---------
Total interest-earning assets......... $325,495 $ 51,026 $ 237,771 $ 71,275 $ 685,567
======== =========== ========= ========= =========
INTEREST-BEARING LIABILITIES
Interest-bearing demand............... $ -- $ -- $ -- $ 34,062 $ 34,062
Savings and money market.............. 147,244 103,177 -- 7,401 257,822
Time deposits......................... 102,622 108,973 42,215 3,237 257,047
Funds borrowed........................ 23,044 45,500 -- -- 68,544
-------- ----------- --------- --------- ---------
Total interest-bearing liabilities.... $272,910 $ 257,650 $ 42,215 $ 44,700 $ 617,475
======== =========== ========= ========= =========
CUMULATIVE
Rate sensitive assets (RSA).......... $325,495 $ 376,521 $ 614,292 $ 685,567
Rate sensitive liabilities (RSL)..... $272,910 $ 530,560 $ 572,775 $ 617,475
GAP (GAP=RSA-RSL)................. $ 52,585 $ (154,039) $ 41,517 $ 68,092
RSA/RSL............................... 119.27% 70.97% 107.25% 111.03%
RSA/Total assets...................... 45.02% 52.08% 84.96% 94.82%
RSL/Total assets...................... 37.75% 73.38% 79.22% 85.40%
GAP/Total assets...................... 7.27% 21.30% 5.74% 9.42%
GAP/Total RSA......................... 16.16% 40.91% 6.76% 9.93%
JUNE 30, 1999
-------------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
-------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
0-90 DAYS 91-365 DAYS 1-5 YEARS OVER 5 YEARS TOTAL
--------- ----------- --------- ------------ ---------
INTEREST-EARNING ASSETS
Loans................................. $ 183,041 $ 21,709 $ 116,639 $ 13,304 $ 334,693
Investments........................... 9,372 21,645 23,041 36,966 91,024
Federal funds sold.................... 995 -- -- -- 995
---------- ---------- --------- ---------- ----------
Total interest-earning assets......... $ 193,408 $ 43,354 $ 139,680 $ 50,270 $ 426,712
========== ========== ========= ========== ==========
INTEREST-BEARING LIABILITIES
Interest-bearing demand............... -- -- -- $ 26,286 $ 26,286
Savings and money market.............. $ 133,888 $ 41,887 -- 707 176,482
Time deposits......................... 92,557 40,868 4,572 -- 137,997
Funds borrowed........................ 31,000 -- -- -- 31,000
--------- ---------- --------- ---------- ----------
Total interest-bearing liabilities.... $ 257,445 $ 82,755 $ 4,572 $ 26,993 $ 371,765
========== ========== ========= ========== ==========
CUMULATIVE
Rate sensitive assets (RSA).......... $ 193,408 $ 236,762 $ 376,442 $ 426,712
Rate sensitive liabilities (RSL)..... $ 257,445 $ 340,200 $ 344,772 $ 371,765
GAP (GAP=RSA-RSL)................. $ (64,037) $ (103,438) $ 31,670 $ 54,947
RSA/RSL............................... 75.1% 69.6% 109.2% 114.8%
RSA/Total assets...................... 44.1% 54.0% 85.9% 97.4%
RSL/Total assets...................... 58.8% 77.6% 78.7% 84.8%
GAP/Total assets...................... 14.6% 23.6% 7.2% 12.5%
GAP/Total RSA......................... 15.0% 24.2% 7.4% 12.9%
24
The following table shows the impact of an immediate 200 basis point change
in interest rates, assessed through the use of a simulation model, that attempts
to measure the effect of rising and falling interest rates over the next
two-year horizon in a rapidly changing rate environment.
JUNE 30, 2000 JUNE 30, 1999
--------------------------- ------------------------------
+200 BASIS -200 BASIS +200 BASIS -200 BASIS
POINTS POINTS POINTS POINTS
---------- ---------- -------------- -----------
Percentage change in net interest income due
to an immediate 200 basis point change in
interest rates over a two-year time horizon..... -2.28% 6.36% -8.1% 10.4%
This table shows that if there had been an instantaneous parallel shift in
the yield curve of +200 basis points as of June 30, 2000 and June 30, 1999, the
Company would suffer a decline in net interest income of 2.28% and 8.1%,
respectively, over a two-year horizon based on its net earning asset portfolios
as of such dates. Conversely, a like shift of -200 basis points would increase
net interest income by 6.36% over a two-year horizon based on June 30, 2000
balances, down from 10.4% measured on the basis of the June 30, 1999 portfolio.
Changes in the effect on net interest income from a 200 basis point
movement as of June 30, 2000 as compared to June 30, 1999 are due partially to
the addition of assets and liabilities from the Johnson Bank Illinois
acquisition. As these assets and liabilities are more fixed rate in nature the
impact of changed rates over a two-year horizon shows a reduced effect at June
30, 2000 as compared to June 30, 1999. In addition, the Company increased its
term borrowings and brokered deposits during the second quarter 2000. These
additional funding sources mature or reprice within three months to three years.
As a result, changed rates show a reduced dollar impact over a two-year horizon
as of June 30, 2000 compared to June 30, 1999. In addition, management's likely
reaction to changes in interest rates is incorporated in assumptions made in
these calculations. Differences in these assumptions between the reporting
periods have also had the effect of reducing the impact of a changing interest
rate environment.
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, changes in deposit levels,
pricing decisions on loans and deposits, reinvestment/replacement of asset and
liability cash flows and others. While assumptions are developed based upon
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how client
preferences or competitor influences might change.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
these safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, can generally be identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar expressions.
The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations and future prospects of the Company include, but are
not limited to, fluctuations in market rates of interest and loan and deposit
pricing; a deterioration of general economic conditions in the Company's market
areas; legislative or regulatory changes; adverse developments in the Company's
loan or investment portfolios; lower than expected business levels or higher
than anticipated costs relating to the Company's newly established St. Louis,
Missouri office; significant increases in competition; and the possible dilutive
effect of potential acquisitions or expansions. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
25
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiary is a party other than ordinary routine litigation incidental to their
respective businesses.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 25, 2000.
(b) At the Annual Meeting of Stockholders, the following matters were
submitted to and approved by a vote of Stockholders:
(1) The election of five Class II directors for a term ending at the
Annual Meeting of Stockholders to be held in 2003:
Directors Votes For Votes Withheld
--------- --------- --------------
Donald Beal 4,041,100 13,205
John Gorman 4,042,300 12,005
Caren Reed 3,998,112 56,193
Donald Roubitchek 3,999,212 55,093
Michael Susman 4,026,300 28,005
(2) Approval of an amendment to the PrivateBancorp, Inc., Amended
and Restated Stock Incentive Plan
Votes For Votes Against Abstentions
--------- ------------- -----------
3,793,908 222,407 37,990
(3) Ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors:
Votes For Votes Against Abstentions
--------- ------------- -----------
4,020,490 31,335 2,480
ITEM 5. OTHER INFORMATION
None.
26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibits 10.1 - PrivateBancorp, Inc. Amended and Restated Stock
Incentive Plan (filed as Appendix A to the Company's Proxy Statement
for its 2000 Annual Meeting of Stockholders and incorporated herein by
reference).
Exhibit 27 - Financial Data Schedule.
(b) Filings on Form 8-K.
(1) Current Report on Form 8-K dated April 24, 2000, filed with the
SEC on April 24, 2000.
(2) Current Report on Form 8-K/A dated February 11, 2000 filed with
the SEC on April 26, 2000.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIVATEBANCORP, INC.
(Registrant)
By: /s/ Ralph B. Mandell
------------------------------
Ralph B. Mandell,
Chairman, President and
Chief Executive Officer
By: /s/ Donald A. Roubitchek
------------------------------
Donald A. Roubitchek,
Chief Financial Officer
(principal financial officer)
By: /s/ Lisa M. O'Neill
------------------------------
Lisa M. O'Neill,
Controller
(principal accounting officer)
Date: August 14, 2000
28
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan
(filed as Appendix A to the Company's Proxy Statement for its
2000 Annual Meeting of Stockholders and incorporated herein by
reference).
27 Financial Data Schedule