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 March 31, 2001
[ ] 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
(State or other jurisdiction of 36-3681151
incorporation or organization) (I.R.S. Employer Identification Number)
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 MAY 9, 2001
- --------------------------------------------------------------------------------
Common, no par value 4,686,268
================================================================================
PRIVATEBANCORP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
Number
------
Selected Financial Data........................................................1
PART I
Item 1. Financial Statements..................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........24
PART II
Item 1. Legal Proceedings....................................................28
Item 2. Changes in Securities and Use of Proceeds............................28
Item 3. Defaults upon Senior Securities......................................28
Item 4. Submission of Matters to a Vote of Security Holders..................28
Item 5. Other Information....................................................28
Item 6. Exhibits and Reports on Form 8-K.....................................28
Signatures....................................................................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 read in conjunction with the unaudited consolidated
financial statements and related notes included pursuant to Item 1 of this
report.
QUARTER ENDED
----------------------------------------------------------------
3/31/01 12/31/00 9/30/00 6/30/00 3/31/00
----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA:
Interest income:
Loans, including fees ..................... $ 13,061 $ 13,451 $ 13,540 $ 12,167 $ 9,475
Federal funds sold and interest-bearing
deposits ............................... 177 236 357 78 387
Securities ................................ 3,202 2,714 1,813 1,543 1,385
--------- --------- --------- --------- ---------
Total interest income .................. $ 16,440 $ 16,401 $ 15,710 $ 13,788 $ 11,247
--------- --------- --------- --------- ---------
Interest expense:
Interest-bearing demand deposits .......... 220 228 231 218 191
Savings and money market deposit accounts . 3,552 3,773 3,543 3,297 3,098
Other time deposits ....................... 4,431 4,263 4,368 3,239 2,766
Funds borrowed ............................ 1,507 1,557 1,236 1,027 296
Trust Preferred interest expense .......... 269 -- -- -- --
--------- --------- --------- --------- ---------
Total interest expense ................. $ 9,979 $ 9,821 $ 9,378 $ 7,781 $ 6,351
--------- --------- --------- --------- ---------
Net interest income ....................... 6,461 6,580 6,332 6,007 4,896
Provision for loan losses ................. 339 334 383 662 311
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses ............................ 6,122 6,246 5,949 5,345 4,585
--------- --------- --------- --------- ---------
Non-interest income:
Banking, trust services and other income .. 894 951 745 751 630
Securities gains .......................... 186 -- -- -- 92
--------- --------- --------- --------- ---------
Total non-interest income .............. $ 1,080 $ 951 $ 745 $ 751 $ 722
--------- --------- --------- --------- ---------
Non-interest expense:
Salaries and employee benefits ............ 2,434 2,268 2,211 1,818 1,877
Severance charge .......................... -- -- 562 -- --
Occupancy expense, net .................... 888 807 803 764 613
Data processing ........................... 304 249 218 190 163
Marketing ................................. 349 357 241 300 304
Amortization of goodwill .................. 206 206 206 206 113
Professional fees ......................... 538 484 480 596 575
Insurance ................................. 93 81 84 70 68
Other expense ............................. 481 438 422 508 324
--------- --------- --------- --------- ---------
Total non-interest expense ................ $ 5,293 $ 4,890 $ 5,227 $ 4,452 $ 4,037
--------- --------- --------- --------- ---------
Income before income taxes ................ 1,909 2,307 1,467 1,644 1,270
Income tax provision ...................... 576 797 499 546 421
--------- --------- --------- --------- ---------
Net income ................................... $ 1,333 $ 1,510 $ 968 $ 1,098 $ 849
========= ========= ========= ========= =========
PER SHARE DATA:
Basic earnings ............................... $ 0.29 $ 0.33 $ 0.21 $ 0.24 $ 0.18
Diluted earnings ............................. 0.28 0.32 0.20 0.23 0.18
Dividends .................................... 0.025 0.025 0.025 0.025 0.025
Book value (at end of period) ................ 12.15 11.73 11.04 10.73 10.57
QUARTER ENDED
----------------------------------------------------------------
3/31/01 12/31/00 9/30/00 6/30/00 3/31/00
----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL DATA (AT END OF PERIOD):
Total securities ............................. $ 210,840 $ 172,194 $ 132,814 $ 96,969 $ 89,924
Total loans .................................. 626,900 599,429 584,919 583,522 521,188
Total assets ................................. 873,693 829,509 763,815 723,023 656,981
Total deposits ............................... 695,571 670,246 633,007 598,881 578,557
Funds borrowed ............................... 90,397 96,879 71,258 68,544 23,328
Long-term debt-Trust Preferred Securities .... 20,000 -- -- -- --
Total stockholders' equity ................... 56,946 54,249 51,066 49,545 48,498
Trust assets under administration ............ $ 693,176 $ 777,800 $ 785,738 $ 761,829 $ 798,953
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin(1) .................... 3.35% 3.60% 3.59% 3.81% 3.59%
Net interest spread(2) .................... 2.84 3.00 3.00 3.22 2.97
Non-interest income to average assets ..... 0.52 0.48 0.39 0.44 0.49
Non-interest expense to average assets .... 2.55 2.48 2.76 2.62 2.72
Net overhead ratio(3) ..................... 2.03 2.00 2.37 2.18 2.23
Efficiency ratio (excluding special
charges)(4)(7) ......................... 67.8 63.0 63.9 63.8 69.2
Return on average assets (excluding
special charges)(5)(7) ................. 0.64 0.77 0.71 0.65 0.57
Return on average equity (excluding
special charges)(6)(7) ................. 9.86 11.35 10.55 9.04 7.20
Dividend payout ratio ..................... 8.79 7.66 11.97 10.51 13.52
Asset Quality Ratios:
Non-performing loans to total loans ....... 0.47% 0.24% 0.10% 0.17% 0.30%
Allowance for loan losses to:
total loans ............................ 1.03 1.02 1.02 1.02 1.09
non-performing loans ................... 218 423 1,058 610 360
Net charge-offs (recoveries) to average
total loans ............................ (0.01) 0.15 0.23 0.28 0.003
Non-performing assets to total assets ..... 0.34 0.17 0.07 0.13 0.24
Balance Sheet Ratios:
Loans to deposits ......................... 90.1% 89.4% 92.4% 97.4% 90.1%
Average interest-earning assets to average
interest-bearing liabilities ........... 110.0 111.5 111.5 112.3 114.0
Capital Ratios:
Total equity to total assets .............. 6.52% 6.53% 6.69% 6.85% 7.38%
Total risk-based capital ratio ............ 11.00 8.15 8.51 9.05 9.56
Tier 1 risk-based capital ratio ........... 9.14 6.47 6.72 7.17 7.56
Leverage ratio ............................ 7.60 5.54 5.54 6.23 6.76
Ratio of Earnings to Fixed Charges: (8)
Including deposit interest ................ 1.19x 1.23x 1.16x 1.21x 1.20x
Excluding deposit interest ................ 2.07 2.48 2.19 2.60 5.29
- --------------
(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.
2
(5) Earnings before special charges divided by average total assets.
(6) Earnings before special charges divided by average common equity.
(7) 2000 performance ratios exclude a third quarter one-time severance and
recruitment of new executive officers charge.
PRE-TAX AFTER-TAX
--------- -----------
One-time charges.... $562 $377
Performance ratios for the third quarter of 2000, including the special
charges described above, are as follows:
9/30/00
---------
Efficiency ratio........................ 71.6%
Return on average assets................ 0.51
Return on average equity................ 7.60
(8) In computing the ratio of earnings to fixed charges: (a) earnings have
been based on income before income taxes and fixed charges, and (b)
fixed charges consist of interest and amortization of debt discount and
expense including amounts capitalized and the estimated interest portion
of rents.
3
PART I
ITEM 1. FINANCIAL STATEMENTS
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31, MARCH 31,
2001 2000 2000
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks ....................................................... $ 18,045 $ 28,637 $ 16,629
Short-term investments ........................................................ 81 11,876 10,632
--------- --------- ---------
Total cash and cash equivalents ............................................ 18,126 40,513 27,261
--------- --------- ---------
Available-for-sale securities, at fair value .................................. 210,840 172,194 89,924
Loans, net of unearned discount ............................................... 626,900 599,429 521,188
Allowance for loan losses ..................................................... (6,455) (6,108) (5,670)
--------- --------- ---------
Net loans ..................................................................... 620,445 593,321 515,518
--------- --------- ---------
Goodwill ...................................................................... 11,423 11,629 12,237
Bank premises and equipment, net .............................................. 3,924 4,138 3,211
Accrued interest receivable ................................................... 5,820 5,524 3,945
Other assets .................................................................. 3,115 2,190 4,885
--------- --------- ---------
Total assets .................................................................. $ 873,693 $ 829,509 $ 656,981
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing ........................................................ $ 52,286 $ 61,789 $ 51,451
Interest-bearing ........................................................... 37,213 51,301 36,926
Savings and money market deposit accounts ..................................... 301,569 300,107 277,747
Brokered deposits ............................................................. 86,471 43,842 5,000
Other time deposits ........................................................... 218,032 213,207 207,433
--------- --------- ---------
Total deposits ............................................................. 695,571 670,246 578,557
Funds borrowed ................................................................ 90,397 96,879 23,328
Long term debt - Trust Preferred Securities ................................... 20,000 -- --
Accrued interest payable ...................................................... 3,567 3,552 1,614
Other liabilities ............................................................. 7,212 4,583 4,984
--------- --------- ---------
Total liabilities ............................................................. $ 816,747 $ 775,260 $ 608,483
--------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized .................................. -- -- --
Common stock, without par value, $1 stated value;
12,000,000 shares authorized; 4,685,768, 4,623,532, and 4,590,332 shares
issued and outstanding as of March 31, 2001, December 31, 2000 and March 31,
2000, respectively ......................................................... $ 4,686 $ 4,624 $ 4,590
Surplus ....................................................................... 40,646 40,107 39,761
Retained earnings ............................................................. 12,604 11,388 8,159
Accumulated other comprehensive income (loss) ................................. 1,011 (118) (2,292)
Deferred compensation ......................................................... (1,051) (802) (695)
Loans to officers ............................................................. (950) (950) (1,025)
--------- --------- ---------
Total stockholders' equity .................................................... 56,946 54,249 48,498
--------- --------- ---------
Total liabilities and stockholders' equity .................................... $ 873,693 $ 829,509 $ 656,981
========= ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-----------------
2001 2000
------- --------
INTEREST INCOME
Loans, including fees ............................................... $13,061 $ 9,475
Federal funds sold and interest bearing deposits .................... 177 387
Securities .......................................................... 3,202 1,385
------- -------
Total interest income ............................................ 16,440 11,247
------- -------
INTEREST EXPENSE
Deposits:
Interest-bearing demand .......................................... 220 191
Savings and money market deposit accounts ........................ 3,552 3,098
Other time ....................................................... 4,431 2,766
Funds borrowed ...................................................... 1,507 296
Trust Preferred Securities interest expense ......................... 269 --
------- -------
Total interest expense .............................................. 9,979 6,351
------- -------
Net interest income ................................................. 6,461 4,896
Provision for loan losses ........................................... 339 311
------- -------
Net interest income after provision for loan losses ................. 6,122 4,585
NON-INTEREST INCOME
Banking, trust services and other income ............................ 894 630
Securities gains .................................................... 186 92
------- -------
Total non-interest income ........................................ 1,080 722
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits ...................................... 2,434 1,877
Occupancy expense, net .............................................. 888 613
Professional fees ................................................... 538 575
Goodwill amortization ............................................... 206 113
Other non-interest expense .......................................... 1,227 859
------- -------
Total non-interest expenses ...................................... 5,293 4,037
------- -------
Income before income taxes .......................................... 1,909 1,270
Income tax provision ................................................ 576 421
------- -------
Net income .......................................................... $ 1,333 $ 849
======= =======
Basic earnings per share ............................................ 0.29 0.18
Diluted earnings per share .......................................... 0.28 0.18
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE DEFERRED LOANS TO STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME COMPENSATION OFFICERS EQUITY
------ ------- -------- ------------- ------------ -------- -------------
Balance, January 1,
2000................ $4,590 $39,761 $ 7,425 $(2,812) $ (759) $(1,125) $47,080
Net income............. -- -- 849 -- -- -- 849
Net decrease in fair
value of Securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- 520 -- -- 520
------ -------- ------- ------- ------- ------- -------
Total comprehensive
income.............. -- -- 849 520 -- -- 1,369
------ -------- ------- ------- ------- ------- -------
Cash dividends
declared ($0.025
per share).......... -- -- (115) -- -- -- (115)
Amortization of
deferred
compensation........ -- -- -- -- 64 -- 64
Repayment of loans to
officers............ -- -- -- -- -- 100 100
------ ------- ------- ------- ------- ------- -------
Balance, March 31, 2000 $4,590 $39,761 $ 8,159 $(2,292) $ (695) $(1,025) $48,498
====== ======= ======= ======= ======= ======= =======
Balance, January 1,
2001................ $4,624 $40,107 $11,388 $ (118) $ (802) $ (950) $54,249
Net income............. -- -- 1,333 -- -- -- 1,333
Net increase in fair
value of securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- 1,129 -- -- 1,129
------ ------- ------- ------- ------- ------- -------
Total comprehensive
income.............. -- -- 1,333 1,129 -- -- 2,462
------ ------- ------- ------- ------- ------- -------
Cash dividends
declared ($0.025
per share).......... -- -- (117) -- -- -- (117)
Issuance of common
stock............... 39 232 -- -- -- -- 271
Awards granted......... 23 307 -- -- (332) -- (2)
Amortization of
deferred
compensation........ -- -- -- -- 83 -- 83
Repayment of loans to
officers............ -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- -------
Balance, March 31, 2001 $4,686 $40,646 $12,604 $ 1,011 $(1,051) $ (950) $56,946
====== ======= ======= ======= ======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
6
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 1,333 $ 849
--------- --------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization.................................................. 325 167
Goodwill amortization.......................................................... 206 113
Johnson Bank Illinois fair value accretion, net................................ (73) (83)
Amortization of deferred compensation.......................................... 83 64
Provision for loan losses...................................................... 339 311
Gain on sale of securities..................................................... (186) (92)
(Decrease) in deferred loan fees............................................... (6) --
(Increase) in accrued interest receivable...................................... (296) (316)
(Decrease) Increase in accrued interest payable................................ 15 (52)
Decrease (Increase) in other assets............................................ (1,506) 1,039
Increase in other liabilities.................................................. 2,629 2,507
--------- --------
Total adjustments........................................................... 1,530 3,658
--------- --------
Net cash provided by operating activities................................... 2,863 4,507
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, paydowns, and sales of securities.................... 20,971 11,770
Purchase of securities available-for-sale...................................... (57,720) (9,681)
Johnson Bank Illinois acquisition, net of cash received........................ -- (15,753)
Net loan principal advanced.................................................... (27,411) (37,530)
Bank premises and equipment expenditures....................................... (89) (1,116)
--------- --------
Net cash used in investing activities....................................... (64,249) (52,310)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits................................................. 25,329 33,908
Issuance of common stock....................................................... 271 --
Issuance of Trust Preferred Securities......................................... 20,000 --
Dividends paid................................................................. (117) (115)
Net increase (decrease) in funds borrowed...................................... (6,484) (2,912)
--------- --------
Net cash provided by financing activities................................... 38,999 30,881
--------- --------
Net (decrease) increase in cash and cash equivalents........................... (22,387) (16,922)
Cash and cash equivalents at beginning of year................................. 40,513 44,183
--------- --------
Cash and cash equivalents at end of period..................................... $ 18,126 $ 27,261
========= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
7
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 (Chicago)") 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 three months ended March 31,
2001, are not necessarily indicative of the results expected for the full year
ending December 31, 2001. 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, 2000 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
MARCH 31,
-----------------------
2001 2000
------ -----
Net Income........................................................... $1,333 $ 849
------ -----
Average common shares outstanding.................................... 4,648 4,590
Average common shares equivalent(1).................................. 135 187
------ -----
Weighted average common shares and common share equivalents.......... 4,783 4,777
------ -----
Net income per average common share - basic.......................... $ 0.29 $0.18
------ -----
Net income per average common share - diluted........................ $ 0.28 $0.18
------ -----
- ------------------
(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.
Net income for the first quarter ended March 31, 2001 was $1,333,000, or
$0.28 per diluted share, an increase of 57.0% as compared to the first quarter
2000 net income of $849,000 or $0.18 per diluted share.
NOTE 3 -- NEW ACCOUNTING STANDARDS
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," effective on January 1, 2001, standardize the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the balance sheet and measure them at fair value. Changes in fair
value of these instruments must be recorded in the income statement unless
8
specific hedge accounting criteria are met. Adoption of this standard did not
have a material impact since the Company does not hold derivative instruments or
engage in hedging activity.
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 140 ("FAS No. 140"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", a replacement of FASB Statement No. 125. The new statement, while
largely including the provisions of FAS 125, revises the standards for
accounting for securitizations and requires certain disclosures. FAS No. 140 is
effective for all transfers of financial assets occurring after March 31, 2001
and for disclosures relating to securitization transactions for fiscal years
ending after December 15, 2000. The adoption of FAS 140 is not expected to have
a material impact on the Company.
NOTE 4 - OPERATING SEGMENTS
The Company manages its operations in four lines of business: The
PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth Management and
Holding Company Activities. For purposes of making operating decisions and
assessing performance, management treats The PrivateBank (Chicago), The
PrivateBank (St. Louis), Wealth Management and the Holding Company as four
operating segments. The Company's investment portfolios are included in total
assets and reported in the results of The PrivateBank (Chicago) and The
PrivateBank (St. Louis). 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.
THE PRIVATEBANK (CHICAGO)
The PrivateBank (Chicago) segment, through its main office located in
downtown Chicago as well as five full-service Chicago suburban locations,
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, operations
in St. Louis for 2000 consisted of a loan production office of The PrivateBank
(Chicago) and those activities are reflected in the segment reporting for The
PrivateBank (Chicago). The PrivateBank (Chicago)'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. The PrivateBank (Chicago) offers a full range of real estate lending
products including fixed and floating rate permanent and mini-permanent
mortgages, construction and commercial real estate 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
accounts, certificates of deposit, ATM/debit cards and investment brokerage
accounts. Additionally, The PrivateBank (Chicago) offers secured and unsecured
personal loans and lines of credit. Through The PrivateBank (Chicago)'s
affiliations with Mesirow Financial, Inc. and Sterling Investment Services,
Inc., clients have access to insurance products and securities brokerage
services. The PrivateBank (Chicago) also offers domestic and international wire
transfers and foreign currency exchange.
THE PRIVATEBANK (CHICAGO)
-------------------------
MARCH 31,
-------------------------
2001 2000
-------- -------
(IN THOUSANDS)
Total gross loans.................. $593,927 $521,664
Total assets....................... 835,516 657,241
Total deposits..................... 677,316 579,526
Total borrowings................... 73,897 10,828
Total capital...................... 72,540 59,940
Year-to-date net income............ 2,055 1,111
9
THE PRIVATEBANK (ST. LOUIS)
The PrivateBank (St. Louis), a federal savings bank, was established as a
new bank subsidiary of PrivateBancorp, Inc. on June 23, 2000. The revenues and
expenses for 2000 associated with the St. Louis loan production office that was
operated by The PrivateBank (Chicago) prior to June 23, 2000 are included in The
PrivateBank (Chicago) segment.
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.
Commercial lending products provided by The PrivateBank (St. Louis) 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.
Individual banking services include interest bearing checking, money market
deposit accounts, certificates of deposit, ATM/debit cards and investment
brokerage accounts. The PrivateBank (St. Louis) also offers domestic and
international wire transfers and foreign currency exchange.
THE PRIVATEBANK (ST. LOUIS)
---------------------------
MARCH 31,
---------------------------
2001 2000
------- -------
(IN THOUSANDS)
Total gross loans................... $33,156 $--
Total assets........................ 38,526 --
Total deposits...................... 19,744 --
Total borrowings.................... 11,500 --
Total capital....................... 6,979 --
Year-to-date net loss............... (210) --
WEALTH MANAGEMENT
Wealth Management includes investment management, personal trust and estate
services, custodial services, retirement accounts and brokerage and investment
services. Investment management professionals work with wealth management
clients to define objectives, goals and strategies of the clients' investment
portfolios. Wealth Management personnel assist trust clients with the selection
of an outside portfolio manager to direct account investments. Trust and estate
account administrators work with clients and their attorneys to establish estate
plans. Consistent with the Company's philosophy, Wealth Management 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.
WEALTH MANAGEMENT
-------------------------
MARCH 31,
-------------------------
2001 2000
------- --------
(IN THOUSANDS)
Trust assets under administration... $693,176 $798,953
Trust fee revenue................... 691 539
Year-to-date net income............. 182 53
10
The following table indicates the break-down of our trust assets under
administration at March 31, 2001 by account classification and related gross
revenue for the three months ended March 31, 2001:
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, 2001
----------------------------
MARKET VALUE REVENUE
------------ -------
ACCOUNT TYPE (IN THOUSANDS)
------------
Personal trust--managed.............. $253,461 $376
Agency--managed...................... 102,803 148
Custody............................. 303,557 151
Employee benefits--managed........... 33,355 16
-------- ----
Total............................ $693,176 $691
======== ====
HOLDING COMPANY ACTIVITIES
Holding Company Activities consist of parent company only matters. The
Holding Company's most significant assets are its net investments in its two
banking subsidiaries, The PrivateBank (Chicago) and The PrivateBank (St. Louis).
During the first quarter 2001, the Holding Company issued $20.0 million in Trust
Preferred Securities which are accounted for as long-term debt and also qualify
as Tier 1 and Tier 2 capital. The Tier 1 qualifying amount is limited to 25.0%
of Tier 1 capital under Federal Reserve regulations. The excess amount qualifies
as Tier 2 capital. Holding Company Activities are reflected primarily by
interest expense on borrowings and operating expenses. Recurring holding company
operating expenses consist of compensation (amortization of restricted stock
awards, other salary expense) and miscellaneous professional fees.
HOLDING COMPANY ACTIVITIES
--------------------------
MARCH 31,
--------------------------
2001 2000
--------- --------
(IN THOUSANDS)
Total assets........................ $82,356 $60,977
Total borrowings.................... 5,000 12,500
Long term debt - Trust Preferred
Securities....................... 20,000 --
Interest expense.................... 497 113
Total capital....................... 56,946 48,498
Year-to-date net loss............... (695) (315)
The following table identifies the significant differences between the sum
of the reportable segments and the reported consolidated results for total
assets:
TOTAL ASSETS
-------------------------
MARCH 31,
-------------------------
2001 2000
-------- --------
(IN THOUSANDS)
Sum of reportable segments.......... $956,398 $718,218
Adjustments......................... (82,705) (61,237)
--------- ---------
Consolidated PrivateBancorp, Inc.... $873,693 $656,981
======== ========
The adjustments to total assets presented in the table above represent the
elimination of the net investment in banking subsidiaries in consolidation, the
elimination of the Company's cash that is maintained in a subsidiary bank
account, the reclassification of the unearned discount of loans and the
reclassification related to current and deferred taxes.
11
NOTE 5 -- ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENT
The carrying values and estimated fair values of financial instruments as
of March 31, 2001, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 2000.
NOTE 6 -- OTHER COMPREHENSIVE INCOME
Change in the 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 for the
three months ended March 31, 2001 and 2000, on a gross basis (in thousands):
MARCH 31, 2001
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains.......................... $1,804 $545 $1,259
Less: reclassification adjustment for gain
included in net income......................... 186 56 130
------ ---- ------
Net unrealized gains.............................. $1,618 $489 $1,129
====== ==== ======
MARCH 31, 2000
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains.......................... $ 870 $288 $ 582
Less: reclassification adjustment for gain
included in net income......................... 92 30 62
------ ---- ------
Net unrealized gains.............................. $ 778 $258 $ 520
====== ==== ======
NOTE 7 -- CAPITAL TRANSACTIONS
The PrivateBank (St. Louis) was capitalized on June 23, 2000 with $8.0
million of borrowed funds drawn from the Company's revolving credit facility.
See Note 9. 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.
NOTE 8 - ACQUISITIONS
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, of
which $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. See Note 9.
The cash portion of the purchase price was funded with $7.5 million out of
the remaining proceeds of the Company's 1999 initial public offering and $7.5
million from borrowings under the Company's revolving credit facility with a
commercial bank entered into at closing. See Note 9.
At closing, Johnson Bank Illinois was merged into The PrivateBank
(Chicago). The two acquired offices, located on Chicago's North Shore in Lake
Forest and Winnetka, became additional offices of The PrivateBank (Chicago). The
Johnson Bank Illinois transaction was accounted for as a purchase. All assets
and liabilities were adjusted to 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 PrivateBank (Chicago), and is being amortized on the straight line basis
over 15 years.
12
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.
NOTE 9 -- FUNDS BORROWED
A summary of all funds borrowed and outstanding at March 31, 2001, December
31, 2000 and March 31, 2000 is presented in the table below:
CURRENT MARCH 31, DECEMBER 31, MARCH 31,
RATE(1) MATURITY 2001 2000 2000
------- -------- --------- ------------ ---------
FUNDS BORROWED: (DOLLARS IN THOUSANDS)
Borrowings under revolving line of
credit.............................. 7.60% 02/11/02 $ -- $18,000 $ 7,500
Subordinated note...................... 5.89 02/11/07 5,000 5,000 5,000
FHLB floating rate advanced(2)......... 5.23 05/01/01 10,000 10,000 --
FHLB fixed advance..................... 6.50 10/23/05 25,000 25,000 --
FHLB fixed advance..................... 6.21 12/05/03 30,000 30,000 --
FHLB fixed advance..................... 6.49 11/13/01 2,000 2,000 --
FHLB fixed advance..................... 5.91 06/21/02 500 500 --
FHLB fixed advance..................... 5.89 12/20/02 1,000 1,000 --
FHLB fixed advance..................... 5.21 1/22/02 1,000 -- --
FHLB fixed advance..................... 5.33 7/22/02 1,000 -- --
FHLB fixed advance..................... 5.02 3/06/02 1,000 -- --
FHLB fixed advance..................... 5.83 5/22/00 -- -- 2,000
FHLB fixed advance(4).................. 5.40 8/08/02 -- -- 2,000
FHLB fixed advance(4).................. 5.40 8/27/04 -- -- 4,000
Fed funds purchased.................... 5.75 daily 10,000 2,700 --
Demand repurchase agreements........... 3.50 daily 3,897 2,679 2,828
------- ------- -------
Total funds borrowed................ $90,397 $96,879 $23,328
======= ======= =======
- ------------------
(1) Reflects the rate in effect as of March 31, 2001.
(2) The rate on this FHLB floating rate advance is set at one-month LIBOR minus
five basis points.
(3) Demand repurchase agreements are a form of retail repurchase agreements
offered to certain clients of The PrivateBank (Chicago). Funds are swept
each business day from the client's demand deposit account. These amounts
are not deposits and are not insured, but are secured by a pool of
securities pledged specifically for this purpose.
(4) These advances were callable at the option of the issuer. FHLB called these
advances in 2000.
On February 11, 2000, the Company entered into a two-year, $18.0 million
revolving credit facility with a commercial bank. The interest rate on
borrowings under this revolving line resets quarterly, and is based on, at our
option, either the lender's prime rate or three-month LIBOR plus 120 basis
points. The Company has elected to pay interest based on the three-month LIBOR
rate plus 120 basis points. The initial rate of interest on the revolver was
7.20%, and most recently reset to 7.60% on January 2, 2001. The collateral for
this borrowing consists of the common stock of The PrivateBank (Chicago) and The
PrivateBank (St. Louis), which is held in custody by the lender. Upon issuing
$20.0 million of trust preferred securities on February 8, 2001, the Company
repaid the $18.0 million outstanding under the revolving credit facility and no
amounts are outstanding on the credit facility as of March 31, 2001.
On February 11, 2000, the Company entered into a subordinated note issued
to Johnson International, Inc. in the principal amount of $5.0 million. The
interest on the subordinated note is set each quarter based on the three-month
LIBOR rate. The note is payable in full on or before February 11, 2007, and
provides for certain rate escalation beginning after February 11, 2002. The
initial rate of interest on the subordinated note was 6.60% and most recently
reset to 5.89% on February 12, 2001. The Company has the right to repay the
subordinated note at any time after giving at least 30 days, but not more than
60 days' advance notice.
13
NOTE 10 -- LONG TERM DEBT -- TRUST PREFERRED SECURITIES
Effective February 8, 2001, PrivateBancorp Capital Trust I, a newly created
Delaware business trust and wholly-owned finance subsidiary of the Company,
issued 2,000,000 shares (including the underwriters' over-allotment) of 9.50%
trust preferred securities, which represent preferred undivided interests in the
assets of the trust. The sole assets of the trust are 9.50% junior subordinated
debentures issued by the Company with a maturity date of December 31, 2030.
Subject to certain limitations, the Company has the right to defer payment
of interest on the debentures at any time, or from time to time, for a period
not to exceed 20 consecutive quarters. The trust preferred securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
debentures at maturity or their earlier redemption. At the option of the
Company, the debentures may be redeemed in whole or in part prior to maturity on
or after December 31, 2005, if certain conditions are met, and only after the
Company has obtained Federal Reserve approval, if then required under applicable
guidelines or regulations.
The Company has guaranteed the payment of distributions and payments upon
liquidation or redemption of the trust preferred securities, in each case to the
extent of funds held by the trust. The Company and the trust believe that, taken
together, the obligations of the Company under the guarantee, the debentures and
other related agreements provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of all of the obligations of
the trust under the trust preferred securities.
The trust preferred securities are recorded as long-term debt of the
Company. The trust received net proceeds of approximately $18.9 million after
deducting underwriting commissions and offering expenses and including the
underwriters' over-allotment shares. The preferred securities are eligible for
treatment as Tier I capital as allowed by the Federal Reserve.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
PrivateBancorp, Inc. ("the Company") was organized as a Delaware
corporation in 1989 to serve as the holding company for a Chicago-based 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
("The PrivateBank (Chicago)") and The PrivateBank (St. Louis), the Company
provides its clients with traditional personal and commercial banking services,
lending programs, and wealth management services. Using the European tradition
of "private banking" as the model, the Company strives to develop a unique
relationship with clients, utilizing a team of managing directors to serve the
clients' individual and corporate banking needs, and tailoring products and
services to meet such needs. Currently, the Company has six Chicago-area
offices: Downtown Chicago, Wilmette, Illinois, Oak Brook, Illinois, St. Charles,
Illinois, Lake Forest, Illinois, and Winnetka, Illinois. During 2000, the
Company expanded to the St. Louis market where it opened a new federal savings
bank, The PrivateBank (St. Louis) in June 2000. Managing directors are
strategically located at all of these locations. During the first quarter 2001,
the Company applied for regulatory approval to establish a new office of The
PrivateBank (Chicago) in Geneva, Illinois, which is expected to open during the
second quarter 2001.
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 The
PrivateBank (Chicago) in Lake Forest and Winnetka, Illinois on Chicago's North
Shore. During the second quarter 2000, the Company received regulatory approval
to establish a new banking subsidiary and on June 23, 2000, the Company
capitalized The PrivateBank (St. Louis). The PrivateBank (St. Louis) became
fully operational in June 2000.
14
For financial information regarding the Company's four separate lines of
business, The PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth
Management 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. Non-interest 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 as well as to the execution of our asset/liability management strategy.
The provision for loan losses is affected by changes 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 who tends 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 many retail 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 were negatively impacted in 2000
due to the start-up operation in St. Charles, the acquisition of Johnson Bank
Illinois, and the opening of The PrivateBank (St. Louis). For the remainder of
2001 we expect to continue to be impacted to some extent by the start-up nature
of operations in St. Louis and to a lesser extent, by the new office in Geneva,
Illinois. The St. Charles office was first profitable in late 2000 and it is
expected that The PrivateBank (St. Louis) will not begin to operate profitably
until the last quarter of 2001.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 AND 2000
NET INCOME
Net income for the first quarter ended March 31, 2001 was $1,333,000, up
57.0 percent compared to first quarter 2000 net income of $849,000. Earnings
increased to $0.28 per diluted share in the first quarter 2001 compared to $0.18
per diluted share in the first quarter 2000.
First quarter 2001 net income includes a full quarter of financial results
of the former Johnson Bank Illinois locations. Excluding the effect of goodwill
amortization and acquisition interest expense attributable to this transaction,
the two offices located in Winnetka and Lake Forest contributed $186,242 to the
Company's net income in the first quarter 2001 compared to $175,975 for the
first quarter ended March 31, 2000. The first quarter 2000 results reflected a
partial quarter of results from the Johnson Bank Illinois acquisition. The first
quarter 2001 results reflect a change in the Company's methodology for defining
the portion of earnings attributable to each of its offices. Results for 2000
were not computed using this new methodology.
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 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.
15
Net interest income was $6.5 million during the three months ended March
31, 2001 compared to $4.9 million for the first quarter 2000, an increase of
32.0%. Average earning assets during the first quarter 2001 were $800.5 million,
an increase of 39.8% over the prior year first quarter. The Company's net
interest margin (tax equivalent net interest income as a percentage of earning
assets) was 3.35% for the three months ended March 31, 2001, compared to 3.59%
for the prior year period. The decrease in net interest margin during the
quarter as compared to the prior year quarter is attributable to the decrease in
the prime interest rate as well as to the issuance of $20 million of trust
preferred securities on February 8, 2001. These securities bear interest at the
fixed rate of 9.50%. The effect of the trust preferred issuance will be to
compress net interest margin in a falling interest rate environment. During the
second quarter of 2001, the Company expects to continue to experience declines
in net interest margin resulting from decreases in market rates of interest. As
interest rates decline, the portion of the Company's loan portfolio that is
based on floating rates will re-price downward. Likewise, deposits and floating
rate borrowings will re-price downward as well, which will reduce the rates
earned on assets.
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 MARCH 31,
-------------------------------------------------------------------------
2001 2000
-------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
Short-term investments........... $ 12,326 $ 177 5.75% $ 27,376 $ 387 5.68%
Investment securities(1)......... 188,760 3,469 7.35% 92,515 1,605 6.98%
Loans, net of unearned
discount(2)................... 599,407 13,061 8.78% 452,576 9,475 8.42%
-------- ------- -------- -------
Total earning assets............. $800,493 $16,707 8.39% $572,467 $11,467 8.06%
======== ======= ======== =======
Interest-bearing deposits........ $624,986 $ 8,203 5.32% $486,015 $ 6,055 5.01%
Funds borrowed................... 91,118 1,507 6.62% 16,201 296 7.35%
Long-term debt - Trust Preferred
Securities(3)................. 11,556 269 9.31% -- -- --
-------- ------- -------- -------
Total interest-bearing
liabilities................... $727,660 9,979 5.55% $502,215 6,351 5.09%
======== ------- ======== -------
Tax equivalent net interest
income........................ $ 6,728 $ 5,116
======= =======
Net interest spread.............. 2.84% 2.97%
Net interest margin.............. 3.35% 3.59%
- ------------------
(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 $267,000 and $220,000 in the first quarter of 2001 and 2000,
respectively.
(2) Nonaccrual loans are included in the average balances and do not have a
material effect on the average yield. Interest on non-accruing loans was
not material for the periods presented.
(3) The trust preferred securities pay a 9.50% fixed rate of interest. The
yield above is based on the interest for the original stub period.
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 period's rate. Rate variances are
computed using the changes in rate multiplied by the previous period's volume.
16
THREE MONTHS ENDED MARCH 31, 2001
COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
CHANGE CHANGE
DUE TO DUE TO CHANGE TOTAL
RATE VOLUME DUE TO MIX CHANGE
------ ------ ---------- ------
(DOLLARS IN THOUSANDS)
Short-term investments................ $ 5 $ (211) $ (4) $ (210)
Investment securities................. 84 1,656 124 1,864
Loans, net of unearned discount....... 402 3,048 136 3,586
---- ------ ---- ------
Total interest income.............. $491 $4,493 $256 $5,240
---- ------ ---- ------
Interest-bearing deposits............. $372 $1,717 $ 59 $2,148
Funds borrowed........................ (29) 1,358 (118) 1,211
Long-term debt - Trust Preferred
Securities......................... -- -- 269 269
---- ------ ---- ------
Total interest expense............. $343 $3,075 $210 $3,628
---- ------ ---- ------
Net interest income................... $148 $1,418 $ 46 $1,612
==== ====== ==== ======
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $339,000 for the first quarter
of 2001, compared to $311,000 for the comparable period in 2000. Increases in
the provision for loan losses compared to the prior year periods are related to
the growth in the loan portfolio.
The Company provides for an adequate allowance for loan losses that are
probable and inherent in the portfolio. The provision for loan losses reflects
management's 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 20.
NON-INTEREST INCOME
Non-interest income for the quarter grew to $1,080,000, reflecting an
increase of $358,000 or 49.6 percent higher compared to the first quarter of
2000. Banking income, comprised of service charges on deposits and other
products, increased to $200,000 from $87,500 a year ago quarter, which
represents a 128.6 percent increase. The increase in service charge income
during the first quarter 2001 as compared to the prior year quarter is due to
the implementation of a new service fee structure that became effective in
December 2000. Additionally, service charge income recognized at the two North
Shore offices contributed to this increase. Trust assets under administration
decreased 13.2 percent to $693.2 million at March 31, 2001 compared to $799.0
million at March 31, 2000 attributable primarily to market declines affecting
portfolio equity values. Despite the decline in the level of trust assets under
administration, trust fee revenue increased by $152,000 to $691,000 for the
quarter ended March 31, 2001, an increase of 28.2 percent over the prior year
quarter. The increase reflects a change in the mix of trust accounts to more
profitable account arrangements.
The increase in non-interest income is also attributable to the recognition
of $186,000 of net gains related to the sale of investment securities during the
first quarter of 2001 as compared to $92,000 recognized during the first quarter
of 2000. During the first quarter 2001, the Company was able to take advantage
of market volatility to achieve interest rate risk management objectives,
realize gains on investments, and purchase investment securities with enhanced
return opportunities.
17
NON-INTEREST EXPENSE
THREE MONTHS ENDED
MARCH 31
------------------
2001 2000
------- ------
(IN THOUSANDS)
Salaries and employee benefits...... $2,434 $1,877
Occupancy........................... 888 613
Professional fees................... 538 575
Marketing........................... 349 304
Data processing..................... 304 163
Postage, telephone and delivery..... 180 116
Office supplies and printing........ 82 113
Insurance........................... 93 68
Goodwill............................ 206 113
Other expense....................... 219 95
------ ------
Total non-interest expense.......... $5,293 $4,037
====== ======
Non-interest expense increased to $5.3 million in the first quarter of 2001
from $4.0 million in the first quarter of 2000, an increase of 31.1 percent.
This increase is due to higher operating and personnel expenses associated with
a full quarter of operations in the North Shore locations and being fully
operational in St. Louis. The Company's efficiency ratio improved to 67.8
percent for the first quarter 2001 as compared to the 69.2 percent for the first
quarter 2000 reflecting the stabilization of start-up expenses related to the
Company's recent expansion. On a tax-equivalent basis, this ratio indicates that
in the first quarter of 2001, the Company spent 67.8 cents to generate each
dollar of revenue, compared to 69.2 cents in the first quarter of 2000. During
2001, we expect to continue to incur operating expenses in excess of revenues
for The PrivateBank (St. Louis) and for the new office to be established in
Geneva, Illinois. As a result, the Company expects the efficiency ratio to
remain high until business development efforts at the new offices generate
revenue sufficient to offset the related operating expenses.
Salaries and benefits increased 29.7% during the first quarter 2001 as
compared to the year ago quarter, reflecting the Company's increased level of
full-time equivalent employees to 140 people at March 31, 2001 as compared to
115 people at March 31, 2000. The increase is due primarily to the opening and
staffing of The PrivateBank (St. Louis), growth in the number of personnel in
the Wealth Management area, and the addition of two senior officers responsible
for establishing the Geneva office. The Company expects to receive regulatory
approval to open the Geneva, Illinois office during the second quarter 2001, at
which time additional personnel will be hired.
Occupancy expense increased to $888,000 during the first quarter 2001,
reflecting an increase of 44.9% over the prior year quarter. Occupancy expense
during the first quarter 2001 reflects the addition of a new floor of office
space in the downtown Chicago office, as well as depreciation of certain fixed
assets, software and equipment. In connection with the renovation of the
Company's information technology platform, the Company has purchased and
capitalized new equipment and software that is being depreciated over a period
of 3 to 5 years, which has had the effect of increasing occupancy expense during
the first quarter 2001.
Data processing expenses increased to $304,000 during the quarter, an 86.5%
increase over the prior year quarter. The opening of The PrivateBank (St. Louis)
in June 2000 required additional data processing support. Additionally, the
first quarter 2001 results reflect a full quarter of data processing costs
associated with the two North Shore offices that were acquired as part of the
Johnson Bank Illinois acquisition on February 11, 2000.
Postage, telephone and delivery increased to $180,000 during the first
quarter 2001, an increase of 55.2% over the prior year quarter. The addition of
The PrivateBank (St. Louis) and the two North Shore offices to The PrivateBank
(Chicago) increased the delivery costs related to the processing of
transactions, which are sent daily to a third-party processing area.
Offices supplies and printing costs decreased to $82,000 during the first
quarter 2001, a 27.4% decline as compared to the prior year quarter. During the
first quarter 2000, the Company incurred several printing charges
18
associated with supplying the St. Louis office and the two North Shore offices
with preprinted forms and letterhead needed for day to day operations of those
offices.
Insurance expense increased to $93,000, an increase of 36.8% over the prior
year quarter. The additions of new offices and employees as well as the
establishment of The PrivateBank (St. Louis) have all contributed to increased
levels of insurance costs during the first quarter 2001.
Goodwill amortization increased to $206,000 during the first quarter 2001,
reflecting a full quarter of amortization for the Johnson Bank Illinois
acquisition, which closed on February 11, 2000.
INCOME TAXES
The following table shows the Company's income before income taxes,
applicable income taxes and effective tax rate for the three months ended March
31, 2001 and 2000, respectively (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
------ ------
Income before taxes......... $1,909 $1,270
Income tax provision........ 576 421
Effective tax rate.......... 30.2% 33.2%
The lower effective tax rate for the first quarter 2001 as compared to the
prior year quarter is partially attributable to an increase in the amount of
federally tax exempt municipal investment securities held in the Company's
securities portfolio. Tax-exempt municipal securities increased from $37.4
million at December 31, 2000 to $54.4 million at March 31, 2001. 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.
FINANCIAL CONDITION
Total assets were $873.7 million at March 31, 2001, an increase of $44.2
million, or 5.3% over $829.5 million at December 31, 2000 and an increase of
$216.7 million, or 33.0% over $657.0 million at March 31, 2000. The balance
sheet growth during the quarter was accomplished mainly through loan growth
throughout the Company and growth in the investment securities portfolio. The
growth in assets was funded through excess liquidity, growth in deposits and an
increase in long-term debt that resulted from the issuance of $20.0 million of
trust preferred securities.
LOANS
Total loans increased to $626.9 million, an increase of $27.5 million, or
4.6%, from $599.4 million at December 31, 2000 and an increase of $105.7
million, or 20.3%, from $521.2 million at March 31, 2000.
The PrivateBank (St. Louis) had loans outstanding of $33.2 million as of
March 31, 2001, growth of $8.0 million since December 31, 2000. The remaining
loan growth experienced by the Company since December 31, 2000 of $19.5 million
was generated by The PrivateBank (Chicago). All of The PrivateBank (Chicago)
offices posted strong gains in loan volume.
19
The following table sets forth the Company's loan portfolio net of unearned
discount by category (in thousands) at the following dates:
MARCH 31, DECEMBER 31, MARCH 31,
2001 2000 2000
--------- ------------ ---------
LOANS
Commercial real estate......... $229,842 $206,464 $167,809
Residential real estate........ 84,813 86,052 83,573
Commercial..................... 129,080 137,343 137,660
Personal(1).................... 105,829 108,427 100,921
Construction................... 77,336 61,143 31,225
-------- -------- --------
Total loans................. $626,900 $599,429 $521,188
======== ======== ========
- ------------------
(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 committees 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 allowance for loan losses as a percentage of
total loans was 1.03% at March 31, 2001, 1.02% at December 31, 2000 and 1.09% at
March 31, 2000. The Company believes that the allowance for loan losses is
adequate to provide for estimated probable credit losses inherent in the loan
portfolio.
Recoveries totaled $8,000 in the quarter ended March 31, 2001 versus net
charge-offs of $15,000 in the year-earlier period. The provision for loan losses
was $339,000 in the first quarter of 2001, versus $311,000 in the first quarter
of 2000. 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
three months ended March 31, 2001 and 2000 (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Balance, January 1.............................................. $6,108 $4,510
Johnson Bank Illinois acquisition allowance for loan loss....... -- 864
Provisions charged to earnings.................................. 339 311
Loans recovered (charged-off)................................... 8 (15)
------ ------
Balance, March 31............................................... $6,455 $5,670
====== ======
NONPERFORMING LOANS
Nonaccrual loans were $117,000 at March 31, 2001 as compared to $24,000 at
December 31, 2000 and $1.2 million at March 31, 2000.
Nonperforming loans include nonaccrual loans and accruing loans which are
90 days or more delinquent. Loans in this category include those with
characteristics such as past maturity more than 90 days, those that have
20
recent adverse operating cash flow or balance sheet trends, or loans that have
general risk characteristics that management believes might jeopardize the
future timely collection of principal and interest payments. The balance in this
category at any reporting period can fluctuate widely based on the timing of
cash collections, renegotiations and renewals. Nonperforming loans were $3.0
million at March 31, 2001, compared to $1.4 million at December 31, 2000 and
$1.6 million at March 31, 2000. Nonperforming loans were .47%, .24% and .30% of
total loans at March 31, 2001, December 31, 2000 and March 31, 2000,
respectively. Nonperforming loans were .34%, .17% and .24% of total assets at
March 31, 2001, December 31, 2000 and March 31, 2000, respectively.
The Company designated $950,000 of loans 90 days past due as nonaccrual
loans based on additional information that became available in late April 2001.
The Company is in the process of restructuring the loans and does not anticipate
losses at this time. In addition, $1.2 million of loans that were performing as
of March 31, 2001 have been designated as nonaccrual in early May 2001 based on
recent developments. Collection efforts have commenced and the Company has not
yet determined the extent of losses to be incurred.
INVESTMENT SECURITIES
The amortized cost and the estimated fair value of securities at March 31,
2001 and December 31, 2000, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
--------------------------------------------------------
MARCH 31, 2001
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
U.S. Government Agency Obligations....... $ 1,875 $ 71 $ -- $ 1,946
U.S. Government Agency Mortgage Backed
Securities and Collateralized
Mortgage Obligations.................. 103,905 1,054 (97) 104,862
Corporate Collateralized Mortgage
Obligations........................... 10,183 129 -- 10,312
Tax Exempt Municipal Securities.......... 54,436 574 (358) 54,652
Taxable Municipal Securities............. 831 62 -- 893
Federal Home Loan Bank Stock............. 35,720 -- -- 35,720
Other.................................... 2,358 105 (8) 2,455
-------- ------ ----- --------
Total.................................... $209,308 $1,995 $(463) $210,840
======== ====== ===== ========
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
--------------------------------------------------------
DECEMBER 31, 2000
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
U.S. Government Agency Obligations....... $ 4,326 $ 73 $ -- $ 4,399
U.S. Government Agency Mortgage Backed
Securities and Collateralized
Mortgage Obligations.................. 83,858 680 (191) 84,347
Corporate Collateralized Mortgage
Obligations........................... 10,189 -- (66) 10,123
Tax Exempt Municipal Securities.......... 37,378 187 (921) 36,644
Taxable Municipal Securities............. 1,083 58 -- 1,141
Federal Home Loan Bank Stock............. 35,175 -- -- 35,175
Other.................................... 365 -- -- 365
-------- ---- ------- --------
Total.................................... $172,374 $998 $(1,178) $172,194
======== ==== ======= ========
21
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 income taxes, recorded as an adjustment to equity
capital. At March 31, 2001, net unrealized gains of $1.5 million resulted in an
increase in reported stockholders' equity. This was an increase of $1.1 million
from net unrealized losses of $118,000 recorded as part of equity at December
31, 2000. The increase in unrealized gains recorded during the first quarter
2001 reflects the fair value of the municipal investment security portfolio and
the U.S. government agency mortgage backed securities and collateralized
mortgage obligations portfolio resulting from the decline in market interest
rates. Additionally, the Company benefited during the quarter from changes made
to the investment security portfolio as a result of its asset/liability
management strategies.
Securities available for sale increased to $210.8 million at March 31,
2001, up 22.4% from $172.2 million at December 31, 2000. The growth in the
investment security portfolio during the first quarter 2001 resulted from the
implementation of the Company's asset/liability management strategy. Tax exempt
municipal securities increased by $18.0 million, allowing the Company to provide
for net interest margin protection in a falling interest-rate environment. U.S.
government agency mortgage backed securities and collateralized mortgage
obligations increased $20.5 million from December 31, 2000.
DEPOSITS AND FUNDS BORROWED
The following table presents the balances of deposits by category and each
category as a percentage of total deposits at March 31, 2001 and December 31,
2000:
MARCH 31, DECEMBER 31,
2001 2000
--------------------------- ------------------------
PERCENT OF PERCENT OF
BALANCE TOTAL BALANCE TOTAL
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Demand......................... $ 52,286 7.5% $ 61,789 9.2%
Savings........................ 3,495 0.5 8,242 1.2
Interest-bearing demand........ 37,213 5.4 51,301 7.7
Money market................... 298,074 42.9 297,043 44.3
Certificates of deposit........ 218,032 31.3 208,029 31.0
Brokered deposits.............. 86,471 12.4 43,842 6.6
-------- ----- -------- -----
Total deposits.............. $695,571 100.0% $670,246 100.0%
======== ===== ======== =====
Total deposits of $695.6 million at March 31, 2001 represent an increase of
$25.3 million or 3.8% as compared to total deposits as of December 31, 2000.
Noninterest-bearing deposits decreased by 15.4% to $52.3 million at March 31,
2001 as compared to December 31, 2000 levels. Interest-bearing demand deposits
decreased by 27.5% to $37.2 million as compared to December 31, 2000. Money
market accounts increased by $1.1 million to $298.1 million at March 31, 2001 as
compared to $297.0 million at December 31, 2000. Other time deposits increased
by $10.0 million to $218.0 million at March 31, 2001 as compared to $208.0
million at December 31, 2000. Brokered deposits increased by 97.2% to $86.5
million at March 31, 2001 as compared to $43.8 million at December 31, 2000. The
Company continued to utilize brokered deposits during the first quarter 2001 as
a source of funding for growth in the loan and investment portfolios.
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) and
from the Federal Home Loan Bank of Des Moines (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.
During 2001, the Company has continued to utilize FHLB advances to fund
liquidity of the banks.
22
A summary of all funds borrowed and outstanding at March 31, 2001, December
31, 2000 and March 31, 2000 is presented in the table below:
CURRENT MARCH 31, DECEMBER 31, MARCH 31,
RATE(1) MATURITY 2001 2000 2000
------- -------- --------- ------------ ---------
FUNDS BORROWED: (DOLLARS IN THOUSANDS)
Borrowings under revolving line of
credit.............................. 7.60% 02/11/02 $ -- $18,000 $ 7,500
Subordinated note...................... 5.89 02/11/07 5,000 5,000 5,000
FHLB floating rate advanced(2)......... 5.23 05/01/01 10,000 10,000 --
FHLB fixed advance..................... 6.50 10/23/05 25,000 25,000 --
FHLB fixed advance..................... 6.21 12/05/03 30,000 30,000 --
FHLB fixed advance..................... 6.49 11/13/01 2,000 2,000 --
FHLB fixed advance..................... 5.91 06/21/02 500 500 --
FHLB fixed advance..................... 5.89 12/20/02 1,000 1,000 --
FHLB fixed advance..................... 5.21 1/22/02 1,000 -- --
FHLB fixed advance..................... 5.33 7/22/02 1,000 -- --
FHLB fixed advance..................... 5.02 3/06/02 1,000 -- --
FHLB fixed advance..................... 5.83 5/22/00 -- -- 2,000
FHLB fixed advance(4).................. 5.40 8/08/02 -- -- 2,000
FHLB fixed advance(4).................. 5.40 8/27/04 -- -- 4,000
Fed funds purchased.................... 5.75 daily 10,000 2,700 --
Demand repurchase agreements(3)........ 3.50 daily 3,897 2,679 2,828
------- ------- -------
Total funds borrowed................ $90,397 $96,879 $23,328
======= ======= =======
- ------------------
(1) Reflects the rate in effect as of March 31, 2001.
(2) The rate on this FHLB floating rate advance is set at one-month LIBOR minus
five basis points.
(3) Demand repurchase agreements are a form of retail repurchase agreements
offered to certain clients of The PrivateBank (Chicago). Funds are swept
each business day from the client's demand deposit account. These amounts
are not deposits and are not insured, but are secured by a pool of
securities pledged specifically for this purpose.
(4) These advances were callable at the option of the issuer. FHLB called these
advances in 2000.
CAPITAL RESOURCES
During the first quarter 2001, the Company completed the issuance of $20.0
trust preferred securities which qualify as Tier 1 capital up to 25.0% of total
Tier 1 capital with the remaining amount treated as Tier 2 capital. At March 31,
2001, $18.6 million of the trust preferred securities was treated as Tier 1
capital. Stockholders' equity rose to $56.9 million at March 31, 2001, an
increase of $2.7 million from the 2000 year-end level, due to an increase in
year-to-date 2001 net income and to an increase in Accumulated Other
Comprehensive Gains, reflecting a $1.1 million increase (net of tax) in the fair
value of the available-for-sale investment portfolio at March 31, 2001 as
compared to the fair value at December 31, 2000.
The Company and its banking subsidiaries 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 a banking
subsidiary is not "well 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.
23
The following table reflects the Company's consolidated measures of capital
at March 31, 2001, December 31, 2000 and March 31, 2000:
MARCH 31, DECEMBER 31, MARCH 31,
2001 2000 2000
--------- ----------- ---------
Leverage ratio........................ 7.60% 5.54% 6.76%
Tier 1 risk-based capital ratio....... 9.14% 6.47% 7.56%
Total risk-based capital ratio........ 11.00% 8.15% 9.56%
Total equity to total assets.......... 6.52% 6.53% 7.38%
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 March 31, 2001, the Company and each of the banking subsidiaries
continued to exceed the minimum levels of all regulatory capital requirements,
and were each considered "well capitalized" under all regulatory standards.
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 $2.9 million in the first
three months of 2001 compared to a net inflow of $4.5 million a year earlier.
Net cash outflows from investing activities were $64.2 million in the first
three months of 2001 compared to a net cash outflow of $52.3 million a year
earlier. Cash inflows from financing activities in the first three months of
2001 were $39.0 million compared to a net inflow of $30.9 million in the first
three months of 2000.
In the event of short-term liquidity needs, the banking subsidiaries may
purchase federal funds from correspondent banks. Membership in the Federal Home
Loan Bank System gives the banking subsidiaries the ability to borrow funds from
the FHLB for short- or long-term purposes under a variety of programs. During
2001, the Company has continued to utilize brokered deposits as an alternative
source of funding. Brokered deposits represented 12.4% of total deposits at
March 31, 2001 compared to 6.6% of total deposits at December 31, 2000.
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 Company's 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 the
Board of Directors. The investment policy complements 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.
24
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. The following tables illustrate the estimated interest rate
sensitivity and periodic and cumulative gap positions calculated as of March 31,
2001 and 2000:
MARCH 31, 2001
--------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OVER 5
0-90 DAYS 91-365 DAYS 1-5 YEARS YEARS TOTAL
--------- ----------- --------- ------- --------
INTEREST-EARNING ASSETS
Loans.............................. $359,259 $ 55,978 $189,182 $ 22,481 $626,900
Investments........................ 37,819 14,072 88,633 68,784 209,308
Federal funds sold................. 81 -- -- -- 81
-------- -------- -------- -------- --------
Total interest-earning assets...... $397,159 $ 70,050 $277,815 $ 91,265 $836,289
======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing demand............ $ -- $ -- $ -- $ 37,213 $ 37,213
Savings and money market........... 213,501 84,573 -- 3,495 301,569
Time deposits...................... 115,045 117,397 37,471 34,590 304,503
Funds borrowed..................... 28,897 3,000 58,500 20,000 110,397
-------- -------- -------- -------- --------
Total interest-bearing liabilities. $357,443 $204,970 $ 95,971 $ 95,298 $753,682
======== ======== ======== ======== ========
CUMULATIVE
Rate sensitive assets (RSA)........ $397,159 $467,209 $745,024 $836,289
Rate sensitive liabilities (RSL)... $357,443 $562,413 $658,384 $753,682
GAP (GAP=RSA-RSL).................. $ 39,716 $(95,204) $ 86,640 $ 82,607
RSA/RSL............................ 111.11% 83.07% 113.16% 110.96%
RSA/Total assets................... 45.46% 53.48% 85.27% 95.72%
RSL/Total assets................... 40.91% 64.37% 75.36% 86.26%
GAP/Total assets................... 4.55% 10.90% 9.92% 9.45%
GAP/Total RSA...................... 10.00% 20.38% 11.63% 9.88%
25
MARCH 31, 2000
--------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OVER 5
0-90 DAYS 91-365 DAYS 1-5 YEARS YEARS TOTAL
--------- ----------- --------- ------- --------
INTEREST-EARNING ASSETS
Loans................................ $285,892 $42,853 $175,753 $ 16,690 $521,188
Investments.......................... 5,428 3,773 26,026 54,697 89,924
Federal funds sold................... 10,632 -- -- -- 10,632
-------- ------- -------- -------- --------
Total interest-earning assets........ $301,952 $46,626 $201,779 $ 71,387 $621,744
======== ======= ======== ======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing demand.............. $ -- $ -- $ -- $ 36,926 $ 36,926
Savings and money market............. 171,725 103,569 -- 2,453 277,747
Time deposits........................ 112,236 89,534 7,106 3,557 212,433
Funds borrowed....................... 19,228 4,100 -- -- 23,328
-------- -------- -------- -------- --------
Total interest-bearing liabilities... $303,189 $197,203 $ 7,106 $ 42,936 $550,434
======== ======== ======== ======== ========
CUMULATIVE
Rate sensitive assets (RSA).......... $301,952 $ 348,578 $550,357 $621,744
Rate sensitive liabilities (RSL)..... $303,189 $ 505,392 $507,498 $550,434
GAP (GAP=RSA-RSL).................... $ (1,237) $(151,814) $ 42,859 $ 71,310
RSA/RSL.............................. 99.6% 69.7% 108.5% 113.0%
RSA/Total assets..................... 46.0% 53.1% 83.8% 94.6%
RSL/Total assets..................... 46.1% 76.2% 77.2% 83.8%
GAP/Total assets..................... 0.2% 23.1% 6.5% 10.9%
GAP/Total RSA........................ 0.2% 24.4% 6.9% 11.5%
The following table shows the impact of an immediate 200 basis point change
in interest rates, assessed through the use of a simulation model, on the
Company's earning asset portfolio as of March 31, 2001 and 2000. The simulation
model attempts to measure the effect of rising and falling interest rates over
the next two-year horizon in a rapidly changing rate environment.
MARCH 31,
------------------------------------------------------
2001 2000
------------------------- ------------------------
+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.... -9.1% 10.1% -3.8% 9.3%
This table shows that if there had been an instantaneous parallel shift in
the yield curve of +200 basis points on March 31, 2001 and March 31, 2000, the
Company would suffer a decline in net interest income of 9.1% and 3.8%,
respectively, over a two-year horizon based on its net earning asset portfolios
on such dates. Conversely, a like shift of -200 basis points would increase net
interest income by 10.1% over a two-year horizon based on March 31, 2001
balances, as compared to 9.3% measured on the basis of the March 31, 2000
portfolio.
Changes in the effect on net interest income from a 200 basis point
movement at March 31, 2001 as compared to March 31, 2000 are due to the timing
and nature of the repricing of rate sensitive assets to rate sensitive
liabilities. In each period, the increase in interest income in the reduced rate
environment and the decrease in interest income in an increased rate environment
is due to our negatively gapped balance sheet within a two-year horizon.
In a rates down 200 basis points scenario, rate sensitive liabilities would
reprice to reduced rates more quickly than many rate-sensitive assets, resulting
in higher net interest income. The increased loss in a rates up 200
26
basis points environment at March 31, 2001 compared to March 31, 2000 is due to
the nature of new loan and deposit volume. Customers view the current rate
environment as historically low and are locking into longer-term loans and
shorter-term deposits. This trend would increase the compression on our margin
in a rates up environment.
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; an inability to achieve expected revenues to the
full extent expected or within the expected time frame at the St. Louis office;
unforeseen developments, delays or difficulties relating to the establishment of
a Geneva, Illinois 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.
27
PART II
ITEM 1. LEGAL PROCEEDINGS
Although the Company's subsidiaries may be involved from time to time
in routine litigation incidental to their respective businesses, currently there
are no material pending legal proceedings to which either the Company or its
subsidiaries is a party.
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 - Amended and Restated Certificate of Incorporation
of PrivateBancorp, Inc. (filed as an exhibit to the Company's
Form S-1 registration statement (File No. 333-77147) and
incorporated herein by reference.)
Exhibit 3.2 - [Intentionally left blank]
Exhibit 3.3 - Amended and Restated By-laws of PrivateBancorp,
Inc. (filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000 and incorporated
herein by reference.)
Exhibit 4.1 - Subordinated Note of PrivateBancorp, Inc., dated
February 11, 2000, principal amount of $5 million due February
11, 2007, issued to Johnson International, Inc. (filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated herein by
reference.)
Exhibit 4.2 - Certain instruments defining the rights of the
holders of long-term debt of the Company and certain of its
subsidiaries, none of which authorize a total amount of
indebtedness in excess of 10% of the total assets of the Company
and its subsidiaries on a consolidated basis, have not been filed
as Exhibits. The Company hereby agrees to furnish a copy of any
of these agreements to the SEC upon request.
Exhibit 10.1 - Lease Agreement for banking facility located at
312 Crescent Place, Geneva, Illinois, dated as of January 9,
2001, by and between The PrivateBank and Trust Company and
Shodeen Management Company.
(b) Filings on Form 8-K.
(1) Current Report on Form 8-K dated January 22, 2001, filed
with the SEC on January 22, 2001.
28
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/ Gary L. Svec
-----------------------------------
Gary L. Svec,
Chief Financial Officer
(principal financial officer)
By: /s/ Lisa M. O'Neill
-----------------------------------
Lisa M. O'Neill,
Controller
(principal accounting officer)
Date: May 14, 2001
29
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of
PrivateBancorp, Inc. (filed as an exhibit to the Company's Form
S-1 registration statement (File No. 333-77147) and incorporated
herein by reference).
3.2 [Intentionally left blank]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc. (filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 and incorporated herein by
reference).
4.1 Subordinated Note of PrivateBancorp, Inc., dated February 11,
2000, principal amount of $5 million due February 11, 2007,
issued to Johnson International, Inc. (filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and incorporated herein by reference).
4.2 Certain instruments defining the rights of the holders of
long-term debt of the Company and certain of its subsidiaries,
none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on
a consolidated basis, have not been filed as Exhibits. The
Company hereby agrees to furnish a copy of any of these
agreements to the SEC upon request.
10.1 Lease Agreement for banking facility located at 312 Crescent
Place, Geneva, Illinois, dated as of January 9, 2001, by and
between The PrivateBank and Trust Company and Shodeen Management
Company.