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, 2002
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number: 000-25887
PRIVATEBANCORP, INC.
(Exact name of Registrant as specified in its charter.)
DELAWARE 36-3681151
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
TEN NORTH DEARBORN STREET
CHICAGO, ILLINOIS 60602
(Address of principal executive (Zip Code)
offices)
(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 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 6, 2002
- --------------------------------------------------------------------------------
Common, no par value 4,918,060
================================================================================
PRIVATEBANCORP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
Number
------
Selected Financial Data......................................................2
PART I
Item 1. Financial Statements................................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........27
PART II
Item 1. Legal Proceedings..................................................29
Item 2. Changes in Securities and Use of Proceeds..........................29
Item 3. Defaults upon Senior Securities....................................29
Item 4. Submission of Matters to a Vote of Security Holders................29
Item 5. Other Information..................................................30
Item 6. Exhibits and Reports on Form 8-K...................................30
Signatures..................................................................31
SELECTED FINANCIAL DATA
The following table summarizes certain selected unaudited 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
------------------------------------------------------------
03/31/02 12/31/01 09/30/01 06/30/01 03/31/01
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA:
Interest income:
Loans, including fees...................... $12,041 $12,311 $12,785 $12,877 $13,002
Federal funds sold and interest-bearing
deposits................................ 17 13 23 31 177
Securities................................. 4,206 4,144 3,704 3,327 3,202
------- ------- ------- ------- -------
Total interest income................... $16,264 $16,468 $16,512 $16,235 $16,381
------- ------- ------- ------- -------
Interest expense:
Interest-bearing demand deposits........... 171 209 239 255 220
Savings and money market deposit accounts.. 1,719 2,224 2,844 2,861 3,547
Other time deposits........................ 4,323 4,028 4,273 4,479 4,436
Funds borrowed............................. 1,309 1,602 1,637 1,545 1,507
Trust preferred interest expense........... 485 485 485 485 276
------- ------- ------- ------- -------
Total interest expense.................. $ 8,007 $ 8,548 $ 9,478 $ 9,625 $ 9,986
------- ------- ------- ------- -------
Net interest income........................ 8,257 7,920 7,034 6,610 6,395
Provision for loan losses.................. 511 1,257 845 738 339
------- ------- ------- ------- -------
Net interest income after provision for
loan losses............................. 7,746 6,663 6,189 5,872 6,056
------- ------- ------- ------- -------
Non-interest income:
Banking, trust services and other income... 1,279 1,149 902 1,024 953
Securities (losses) gains, net............. (230) 1,191 365 353 186
------- ------- ------- ------- -------
Total non-interest income............... $ 1,049 $ 2,340 $ 1,267 $ 1,377 $ 1,139
------- ------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits............. 2,844 2,519 2,303 1,855 2,434
Occupancy expense, net..................... 1,139 1,325 985 960 888
Data processing............................ 308 420 303 268 304
Marketing.................................. 365 320 275 265 349
Amortization of goodwill................... -- 206 206 206 206
Professional fees.......................... 891 1,090 575 743 531
Insurance.................................. 93 85 88 88 93
Other expense.............................. 462 661 606 1,014 481
------- -------- ------- -------- -------
Total non-interest expense................. $ 6,102 $ 6,626 $ 5,341 $ 5,399 $ 5,286
------- ------- ------- ------- -------
Income before income taxes................. 2,693 2,377 2,115 1,850 1,909
Income tax provision....................... 549 459 524 492 576
------- ------- ------- ------- -------
Net income.................................... $ 2,144 $ 1,918 $ 1,591 $ 1,358 $ 1,333
======= ======== ======= ======== =======
PER SHARE DATA:
Basic earnings................................ $ 0.44 $ 0.40 $ 0.34 $ 0.29 $ 0.29
Diluted earnings.............................. 0.42 0.39 0.32 0.28 0.28
Dividends..................................... 0.030 0.030 0.030 0.025 0.025
Book value (at end of period)................. 13.20 12.97 13.07 12.35 12.15
2
QUARTER ENDED
------------------------------------------------------------
03/31/02 12/31/01 09/30/01 06/30/01 03/31/01
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL DATA (AT END OF PERIOD):
Total securities.............................. $388,728 $332,933 $279,319 $224,505 $210,840
Total loans................................... 782,434 780,771 715,977 666,262 625,700
Total assets.................................. 1,231,208 1,176,768 1,041,975 944,887 873,693
Total deposits................................ 981,865 850,495 801,146 750,494 695,571
Funds borrowed................................ 155,523 231,488 137,956 106,128 90,397
Long-term debt-trust preferred securities..... 20,000 20,000 20,000 20,000 20,000
Total stockholders' equity.................... 64,926 62,304 62,087 57,826 56,946
Trust assets under administration............. $758,242 $722,713 $684,842 $711,957 $693,176
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin(1)..................... 3.14% 3.28% 3.17% 3.21% 3.32%
Net interest spread(2)..................... 2.92 2.98 2.76 2.75 2.82
Non-interest income to average assets...... 0.36 0.86 0.49 0.57 0.52
Non-interest expense to average assets..... 2.07 2.43 2.16 2.39 2.55
Net overhead ratio(3)...................... 1.71 1.57 1.67 1.82 2.03
Efficiency ratio (4)....................... 61.1 60.9 60.6 64.5 67.8
Return on average assets (5)............... 0.73 0.70 0.64 0.60 0.64
Return on average equity (6)............... 13.35 12.18 10.46 9.46 9.86
Dividend payout ratio...................... 6.88 7.51 8.94 8.62 8.79
Asset Quality Ratios:
Non-performing loans to total loans........ 0.37% 0.41% 0.91% 0.37% 0.47%
Allowance for loan losses to:
total loans............................. 1.12 1.06 1.06 1.04 1.03
non-performing loans.................... 303 262 118 282 218
Net charge-offs (recoveries) to average
total loans............................. 0.01 0.27 0.11 0.18 (0.01)
Non-performing assets to total assets...... 0.24 0.27 0.62 0.26 0.34
Balance Sheet Ratios:
Loans to deposits.......................... 79.7% 91.8% 89.4% 88.8% 90.1%
Average interest-earning assets to
average interest-bearing liabilities.... 107.5 108.9 110.2 110.4 110.0
Capital Ratios:
Total equity to total assets............... 5.27% 5.29% 5.96% 6.12% 6.52%
Total risk-based capital ratio............. 9.93 9.71 10.55 10.98 10.97
Tier 1 risk-based capital ratio............ 8.37 8.18 8.88 9.17 9.12
Leverage ratio............................. 6.25 6.64 6.99 7.26 7.60
<FN>
- ---------------------------------------
(1) Net interest income divided by average interest-earning assets.
(2) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(3) Non-interest expense less non-interest income divided by average total
assets.
(4) Non-interest expense divided by the sum of net interest income (tax
equivalent) plus non-interest income.
(5) Net income divided by average total assets.
(6) Net income divided by average common equity.
</FN>
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,
2002 2001 2001
--------- ------------ ---------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks................................. $ 25,852 $ 22,283 $ 18,045
Federal funds sold and other short-term investments..... 3,558 518 81
---------- ---------- --------
Total cash and cash equivalents...................... 29,410 22,801 18,126
---------- ---------- --------
Loans held for sale..................................... 1,785 11,335 1,200
Available-for-sale securities, at fair value............ 388,728 332,933 210,840
Loans, net of unearned discount......................... 782,434 780,771 625,700
Allowance for loan losses............................... (8,790) (8,306) (6,455)
---------- ---------- --------
Net loans............................................... 773,644 772,465 619,245
---------- ---------- --------
Goodwill................................................ 10,805 10,805 11,423
Bank premises and equipment, net........................ 4,026 3,814 3,924
Accrued interest receivable............................. 8,307 7,262 5,820
Other assets............................................ 14,503 15,353 3,115
---------- ---------- --------
Total assets............................................ $1,231,208 $1,176,768 $873,693
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing.................................. $ 62,359 $ 73,146 $ 52,286
Interest-bearing..................................... 54,214 52,061 37,213
Savings and money market deposit accounts............... 369,811 362,987 301,569
Brokered deposits....................................... 278,918 138,911 86,471
Other time deposits..................................... 216,563 223,390 218,032
---------- ---------- --------
Total deposits....................................... 981,865 850,495 695,571
Funds borrowed.......................................... 155,523 231,488 90,397
Long term debt - trust preferred securities............. 20,000 20,000 20,000
Accrued interest payable................................ 2,812 2,112 3,567
Other liabilities....................................... 6,082 10,369 7,212
---------- ---------- --------
Total liabilities....................................... $1,166,282 $1,114,464 $816,747
========== ========== ========
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized............ -- -- --
Common stock, without par value, $1 stated value;
12,000,000 shares authorized; 4,917,020, 4,804,280,
and 4,685,768 shares issued and outstanding as of
March 31, 2002, December 31, 2001 and March 31, 2001,
respectively......................................... $ 4,917 $ 4,804 $ 4,686
Surplus................................................. 42,272 41,516 40,646
Retained earnings....................................... 19,465 17,468 12,604
Accumulated other comprehensive income.................. 31 323 1,011
Deferred compensation................................... (809) (857) (1,051)
Loans to officers....................................... (950) (950) (950)
---------- ---------- --------
Total stockholders' equity.............................. 64,926 62,304 56,946
---------- ---------- --------
Total liabilities and stockholders' equity.............. $1,231,208 $1,176,768 $873,693
========== ========== ========
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,
------------------------
2002 2001
------- -------
INTEREST INCOME
Loans, including fees........................................................ $12,041 $13,002
Federal funds sold and interest bearing deposits............................. 17 177
Securities................................................................... 4,206 3,202
------- -------
Total interest income..................................................... 16,264 16,381
------- -------
INTEREST EXPENSE
Deposits:
Interest-bearing demand................................................... 171 220
Savings and money market deposit accounts................................. 1,719 3,547
Brokered deposits and other time deposits................................. 4,323 4,436
Funds borrowed............................................................... 1,309 1,507
Long-term debt - trust preferred securities.................................. 485 276
------- -------
Total interest expense.................................................... 8,007 9,986
------- -------
Net interest income....................................................... 8,257 6,395
Provision for loan losses.................................................... 511 339
------- -------
Net interest income after provision for loan losses....................... 7,746 6,056
------- -------
NON-INTEREST INCOME
Banking, trust services and other income.................................. 1,279 953
Securities (losses) gains, net............................................ (230) 186
------- -------
Total non-interest income.............................................. 1,049 1,139
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits............................................... 2,844 2,434
Occupancy expense, net....................................................... 1,139 888
Professional fees............................................................ 891 531
Goodwill amortization........................................................ -- 206
Other non-interest expense................................................... 1,228 1,227
------- -------
Total non-interest expenses............................................... 6,102 5,286
------- -------
Income before income taxes................................................... 2,693 1,909
Income tax provision......................................................... 549 576
------- -------
Net income................................................................ $ 2,144 $ 1,333
======= =======
Basic earnings per share..................................................... $0.44 $0.29
Diluted earnings per share................................................... $0.42 $0.28
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, 2002 AND 2001 (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,
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 accumulated
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
====== ======= ======= ====== ======= ===== =======
BALANCE, JANUARY 1,
2002 $4,804 $41,516 $17,468 $ 323 $ (857) $(950) $62,304
Net income............. -- -- 2,144 -- -- -- 2,144
Net increase in fair
value of securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- (292) -- -- (292)
------ ------- ------- ------ ------- ----- -------
Total accumulated
comprehensive income -- -- 2,144 (292) -- -- 1,852
------ ------- ------- ------ ------- ----- -------
Cash dividends
declared ($0.03 per
share).............. -- -- (147) -- -- -- (147)
Issuance of common
stock............... 113 756 -- -- -- -- 869
Awards granted......... -- -- -- -- (39) -- (39)
Amortization of
deferred
compensation........ -- -- -- -- 87 -- 87
Repayment of loans to
officers............ -- -- -- -- -- -- --
------ ------- ------- ------ ------- ----- -------
BALANCE, MARCH 31, 2002 $4,917 $42,272 $19,465 $ 31 $ (809) $ (950) $64,926
====== ======= ======= ====== ======= ===== =======
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, 2002 AND 2001 (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 2,144 $ 1,333
------- -------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization............................................... 289 325
Goodwill amortization....................................................... -- 206
Johnson Bank Illinois fair value accretion, net............................. (73) (73)
Amortization of deferred compensation....................................... 87 83
Provision for loan losses................................................... 511 339
Net loss (gain) on sale of securities....................................... 230 (186)
Decrease in deferred loan fees.............................................. (75) (6)
Increase in accrued interest receivable..................................... (1,045) (296)
Increase in accrued interest payable........................................ 700 15
Decrease (Increase) in other assets......................................... 813 (1,506)
(Decrease) Increase in other liabilities.................................... (4,288) 2,629
------- -------
Total adjustments........................................................... (2,851) 1,530
------- -------
Net cash (used in) provided by operating activities......................... (707) 2,863
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, paydowns, and sales of securities.................... 31,366 20,971
Purchase of securities available-for-sale...................................... (87,834) (57,720)
Net loan principal advanced ................................................... (1,567) (26,916)
Net proceeds from (increases in) of loans held for sale........................ 9,550 (495)
Bank premises and equipment expenditures....................................... (479) (89)
------- -------
Net cash used in investing activities....................................... (48,964) (64,249)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits................................................. 131,374 25,329
Issuance of common stock....................................................... 830 271
Issuance of trust preferred securities......................................... -- 20,000
Dividends paid................................................................. (147) (117)
Net decrease in funds borrowed................................................. (75,777) (6,484)
------- -------
Net cash provided by financing activities................................... 56,280 38,999
------- -------
Net increase (decrease) in cash and cash equivalents........................... 6,609 (22,387)
Cash and cash equivalents at beginning of year................................. 22,801 40,513
------- -------
Cash and cash equivalents at end of period..................................... $29,410 $18,126
======= =======
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, 2002 are not necessarily indicative of the results expected for the full
year ending December 31, 2002. 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
March 31, 2002 consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes for the year ended December
31, 2001 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,
----------------------
2002 2001
------ ------
Net Income............................................... $2,144 $1,333
Average common shares outstanding........................ 4,858 4,648
Average common shares equivalent(1)...................... 218 135
------ ------
Weighted average common shares and common share
equivalents........................................... 5,076 4,783
====== ======
Net income per average common share - basic.............. $ 0.44 $ 0.29
Net income per average common share - diluted............ $ 0.42 $ 0.28
<FN>
- --------------------------------
(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.
</FN>
8
NOTE 3 - NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 applies to all business combinations completed after June
30, 2001. All future business combinations must be recorded using the purchase
method of accounting. As the Company contemplates further acquisitions as part
of its growth strategy, this Statement will likely have an impact on the
Company's future financial statements.
SFAS No. 142 supercedes APB Opinion No. 17 "Intangible Assets" and
addresses the accounting of intangible assets and goodwill. Adoption of this
Statement was required beginning January 1, 2002 in relation to all of the
Company's goodwill and intangible assets. Early application of this standard is
not permitted. The Statement discontinues the regular amortization of goodwill
and a transitional impairment test of goodwill is required as of January 1,
2002. An annual impairment test of goodwill is required every year thereafter.
Impairment losses from goodwill recognized in the initial application of this
Statement are to be reported as resulting from a change in accounting principle.
Impairment losses in subsequent years will be recorded as operating expenses.
Goodwill at March 31, 2002 totaled $10.8 million. The assessment required by
SFAS No. 142 is expected to be completed by June 30, 2002. Any future
acquisitions completed by the Company will also be subject to this Statement.
The following table shows the effect of adopting SFAS No. 142 (in
thousands, except per share data):
MARCH 31,
2002 2001
(IN THOUSANDS)
Reported net income................ $ 2,144 $ 1,333
Add: Goodwill amortization (net of
tax) ........................... -- 144
------- -------
Adjusted net income................ $ 2,144 $ 1,477
======= =======
Basic earnings per share:
Reported basic earnings per share.... $ 0.44 $ 0.29
Add: Goodwill amortization (net of
tax) ............................. -- 0.03
------- -------
Adjusted basic earnings per share.... $ 0.44 $ 0.32
======= =======
Diluted earnings per share:
Reported diluted earnings per share.. $ 0.42 $ 0.28
Add: Goodwill amortization (net of
tax) ............................. -- 0.03
------- -------
Adjusted diluted earnings per share.. $ 0.42 $ 0.31
======= =======
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." SFAS No. 144 supersedes SFAS No.
121 and the accounting and reporting provisions of APB Opinion No. 30. The
Statement addresses the accounting for a segment of a business accounted for as
a discontinued operation and the accounting for the disposition of long-lived
assets. The provisions of this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001. The Company intends
to adopt the Statement in the second quarter of 2002 and does not anticipate
that the adoption will have a material effect on the Company's results of
operations.
NOTE 4 - OPERATING SEGMENTS
For purposes of making operating decisions and assessing performance,
management regards 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
9
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) through its main office located in downtown
Chicago as well as six full-service Chicago suburban locations, provides
personal and commercial banking services primarily to affluent individuals,
professionals, entrepreneurs and their business interests.
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,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Total gross loans.................. $ 701,105 $593,927
Total assets....................... 1,134,858 835,516
Total deposits..................... 915,111 677,316
Total borrowings................... 120,523 73,897
Total capital...................... 88,869 72,540
Year-to-date net income............ 2,666 2,055
THE PRIVATEBANK (ST. LOUIS)
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.
10
THE PRIVATEBANK (ST. LOUIS)
----------------------------
MARCH 31,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Total gross loans................... $ 82,278 $ 33,156
Total assets........................ 96,661 38,526
Total deposits...................... 66,807 19,744
Total borrowings.................... 21,000 11,500
Total capital....................... 8,249 6,979
Year-to-date net income............. 122 (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,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Trust assets under administration... $758,242 $693,176
Trust fee revenue................... 724 691
Year-to-date net income............. 123 182
The following table indicates the breakdown of our trust assets under
administration at March 31, 2002 by account classification and related gross
revenue for the three months ended March 31, 2001:
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, 2002
---------------------------
MARKET VALUE REVENUE
------------ -------
ACCOUNT TYPE (IN THOUSANDS)
Personal trust--managed.............. $263,570 $353
Agency--managed...................... 157,764 209
Custody............................. 308,974 136
Employee benefits--managed........... 27,934 26
-------- ----
Total............................ $758,242 $724
======== ====
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, in connection with the issuance of $20.0 million
of 9.50% trust preferred securities, the Holding Company issued $20.0 million of
9.50% subordinated debentures which are accounted for as long-term debt and also
qualify as Tier 1 and Tier 2 capital (see note 9). The Tier 1 qualifying amount
is limited to 25% 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
11
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,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Total assets....................... $98,643 $82,356
Total borrowings................... 14,000 5,000
Long-term debt - trust preferred
securities...................... 20,000 20,000
Interest expense................... 565 497
Total capital...................... 64,926 56,946
Year-to-date net loss.............. (767) (695)
The following table reconciles the differences between the sum of the
reportable segments and the reported consolidated balance of total assets:
TOTAL ASSETS
----------------------------
MARCH 31,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Sum of reportable segments.......... $1,330,162 $956,398
Adjustments......................... (98,954) (82,705)
---------- --------
Consolidated PrivateBancorp, Inc.... $1,231,208 $873,693
========== ========
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.
NOTE 5 -- ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments
as of March 31, 2002 have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 2001, except for the fair value of the interest rate swap
executed by the Company which is recorded at fair value at $1.4 million as of
March 31, 2002, a decrease of $300,000 since December 31, 2001.
12
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 accumulated comprehensive
income for the three months ended March 31, 2002 and 2001, on a gross basis (in
thousands):
MARCH 31, 2002
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized losses on securities
available-for-sale--
Unrealized holding losses, net.................... $ (597) $(122) $ (475)
Less: reclassification adjustment for net
losses, included in net income................. (230) (47) (183)
------ ----- ------
Unrealized losses, net............................ $ (367) $ (75) $ (292)
====== ===== ======
MARCH 31, 2002
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains, net..................... $1,804 $ 545 $1,259
Less: reclassification adjustment for net gain
included in net income......................... 186 56 130
------ ----- ------
Unrealized gains, net............................. $1,618 $ 489 $1,129
====== ===== ======
NOTE 7 -- CAPITAL TRANSACTIONS
During the first quarter of 2002, the Company contributed capital of
$3.5 million to the PrivateBank (Chicago) and $500,000 to The PrivateBank (St.
Louis).
13
NOTE 8 -- FUNDS BORROWED
A summary of all funds borrowed and outstanding at March 31, 2002,
December 31, 2001 and March 31, 2001 is presented in the table below:
CURRENT MARCH 31, DECEMBER 31, MARCH 31,
AMOUNT RATE MATURITY 2002 2001 2001
- ------ ---- -------- ---- ---- ----
(IN THOUSANDS)
Borrowing under revolving line of credit
facility................................. 3.22% 04/11/03 $ 9,000 $ 5,000 $ --
Subordinated note............................. 3.89 2/11/07 5,000 5,000 5,000
FHLB floating rate advance (1)................ 6.77 05/01/01 -- -- 10,000
FHLB open line advance........................ 1.74 daily -- 25,000 --
FHLB fixed advance (2)........................ 6.50 10/23/05 24,698 24,886 25,000
FHLB fixed advance............................ 6.21 12/05/03 30,000 30,000
FHLB fixed advance............................ 6.49 11/13/01 -- -- 2,000
FHLB fixed advance............................ 4.30 02/01/02 -- 25,000 --
FHLB fixed advance............................ 5.91 06/21/02 500 500 500
FHLB fixed advance............................ 5.89 12/20/02 1,000 1,000 1,000
FHLB fixed advance............................ 5.21 01/22/02 -- 1,000 1,000
FHLB fixed advance............................ 5.02 03/06/02 -- 1,000 --
FHLB fixed advance............................ 5.33 07/22/02 1,000 1,000 --
FHLB fixed advance............................ 4.21 05/13/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.39 11/12/02 5,000 5,000 1,000
FHLB fixed advance............................ 2.38 01/13/03 1,000 -- --
FHLB fixed advance............................ 2.98 3/10/03 1,000 -- --
FHLB fixed advance............................ 2.74 7/17/03 1,000 -- --
Federal funds purchased....................... 1.96 daily 69,000 103,000 10,000
Demand repurchase agreements (3).............. 1.60 daily 6,325 3,102 3,897
-------- -------- -------
Total funds borrowed..................... $155,523 $231,488 $90,397
======== ======== =======
<FN>
________________
(1) The rate on this FHLB floating rate advance is set at one-month LIBOR
minus five basis points.
(2) This FHLB advance is subject to a fair value hedge utilizing an
interest rate swap with a fair value of $1.4 million. The contractual
par amount on the advance is $25.0 million.
(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.
</FN>
On February 11, 2002, the Company renewed the term on an $18.0 million
revolving credit facility with a commercial bank originally entered into on
February 11, 2000. On April 11, 2002, the loan agreement was amended and the
revolving line was increased to $25.0 million. 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 with a
floor of 3.50% effective April 11, 2002. 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 3.22% on March
25, 2002. 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. As of March 31, 2002, the outstanding balance was $9.0 million.
On February 11, 2000, the Company entered into a subordinated note
issued to Johnson International, Inc. and subsequently sold to a third party, in
the principal amount of $5.0 million. The interest on the subordinated note is
reset 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. On February 11, 2002, the interest rate
increased from LIBOR +50 basis points to LIBOR +200 basis points. This pricing
is in effect until February 11, 2004, at which point the pricing increases to
LIBOR +350 until maturity on February 11, 2007. The average rate of interest on
the subordinated note was 6.51% during the first quarter of 2001 compared to
3.27% during the first quarter of 2002 and most recently reset to 3.89% on
February 11, 2002. 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.
14
NOTE 9 -- 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 aggregate principal amount of the trust preferred securities
outstanding is $20 million. As of March 31, 2002, the entire amount of the
preferred securities is eligible for treatment as Tier I capital as allowed by
the Federal Reserve. The balance of the underwriting commissions and offering
expenses at March 31, 2002 was $1.1 million and is classified as part of other
assets on the balance sheet. This amount is being amortized on a straight-line
basis until maturity. The amortization is recognized as interest expense on the
income statement.
15
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 seven Chicago-area
offices: Downtown Chicago, Wilmette, Oak Brook, St. Charles, Lake Forest,
Winnetka, and Geneva, Illinois. During 2000, the Company expanded to the St.
Louis market where it opened a new federal savings bank, The PrivateBank (St.
Louis). Currently, the Company operates one location in the St. Louis market.
Managing directors are strategically located at all of these locations.
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 unaudited consolidated financial statements of the Company included in this
report.
The profitability of our operations depends on our net interest income,
provision for loan losses, non-interest income, and non-interest expense. 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 reflects the cost of credit risk in the loan portfolio and 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 consists primarily of net security gains (losses)
and wealth management fee income, and to a lesser extent, fees for ancillary
banking services. Non-interest income from fees and deposit service charges are
below peer group levels. This is largely the result of the profile of our
typical client. Our clients tend to have larger deposit account balances than
customers of traditional banks. Because average balances tend to be high, we do
not earn the high service charge income typical of many retail banks.
Non-interest expense includes salaries and employee benefits as well as
occupancy, data processing, marketing, professional fees, insurance and other
expenses. Non-interest expenses are influenced by the growth of operations. Our
growth directly affects the majority of our expense categories. Profitability
and expense ratios were negatively impacted during the first quarter of 2001 due
to the start-up nature of operations in St. Louis. The PrivateBank (St. Louis)
began to operate profitably during the fourth quarter of 2001 and we expect this
office to have a positive impact on our profitability in 2002. During the first
quarter 2002, The PrivateBank (St. Louis) earned $122,000 versus a loss of
$210,000 in the prior year period. During the remainder of 2002 we expect
profitability and expense ratios to continue to improve relative to 2001.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our unaudited
consolidated financial statements included herein. Reference should also be made
to our accounting policies set out in the notes to the consolidated financial
statements. Certain critical policies involve estimates and assumptions by
management. By their nature, changes in these assumptions and estimates could
significantly affect our financial position or results of operations. Actual
results could differ from those estimates. Estimates and judgments regarding the
determination of the adequacy of the reserve for loan losses, as described in
both Management's Discussion and Analysis and in the financial statement notes,
is of particular significance to us. In addition, effective January 1, 2002, we
adopted SFAS No. 142, which requires an annual impairment test of goodwill.
16
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002 AND 2001
NET INCOME
Net income for the first quarter ended March 31, 2002, was $2.1
million, up 61% compared to first quarter 2001 net income of $1.3 million.
Earnings increased 50% to $0.42 per diluted share in the first quarter 2002
compared to $0.28 per diluted share in the first quarter 2001. The increase in
net income during the first quarter 2002 reflects the positive impact on net
interest income that resulted from growth in earning assets, continued high
credit quality and improved operating efficiencies as compared to the prior year
quarter.
NET INTEREST INCOME
Net interest income is the difference between interest income and fees
on earning assets and interest expense on deposits and borrowings. Net interest
margin represents net interest income on a tax equivalent basis as a percentage
of average earning assets during the period. Net interest margin reflects the
spread between average yields earned on interest earning assets and the average
rates paid on interest bearing deposits and borrowings. The volume of
non-interest bearing funds, largely comprised of demand deposits and capital,
also affects the net interest margin.
Net interest income on a tax equivalent basis was $8.3 million during
the three months ended March 31, 2002 compared to $6.4 million for the first
quarter 2001, an increase of 29%. Average earning assets during the first
quarter 2002 were $1.1 billion, compared to $799.8 million in the prior year
quarter, an increase of 42%. Compared to fourth quarter 2001, average earning
assets increased by $111.0 million, or 11% during the first quarter of 2002.
Average earning loans during the first quarter 2002 increased to $781.1 million
compared to $741.4 million during the fourth quarter of 2001. Net interest
margin (on a tax equivalent basis) was 3.14% in the first quarter 2002, down
from 3.32% in the prior year first quarter and 3.28% in the fourth quarter of
2001. The decline in net interest margin compared to the fourth quarter 2001 is
primarily attributable to decreases in market interest rates during the fourth
quarter of 2001 that affected loan yields for the full first quarter 2002
period. Our earning assets re-price at a faster rate than our interest bearing
liabilities. During the second quarter of 2002, we expect to experience
stabilization in net interest margin, as market rates of interest have remained
stable throughout 2002.
17
The following tables present a summary of our net interest income and
related net interest margin, calculated on a tax equivalent basis (dollars in
thousands):
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2002 2001
--------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ---- -------- -------- ----
Fed funds sold and other
short-term investments......... $ 3,737 $ 17 1.79% $ 12,326 $ 177 5.75%
Investment securities(1).......... 353,613 4,893 5.56% 188,092 3,466 7.37%
Loans, net of unearned
discount(2)..................... 781,059 12,041 6.20% 599,407 13,002 8.74%
---------- ------- -------- -------
Total earning assets.............. $1,138,409 $16,951 5.98% $799,825 $16,645 8.37%
========== ======= ======== =======
Interest-bearing deposits......... $ 902,915 $ 6,213 2.79% $624,986 $ 8,203 5.32%
Funds borrowed.................... 135,979 1,309 3.85% 91,118 1,507 6.62%
Long-term debt - trust preferred
securities (3)................. 20,000 485 9.70% 11,556 276 9.55%
---------- ------- -------- -------
Total interest-bearing liabilities 1,058,894 8,007 3.06% $727,660 9,986 5.55%
========== ------- ======== -------
Tax equivalent net interest income $ 8,944 $ 6,659
======= =======
Net interest spread............... 2.92% 2.82%
Net interest margin............... 3.14% 3.32%
<FN>
- ---------------------------------------
(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 $687,109 and $264,435 in the first quarters of 2002
and 2001, respectively.
(2) Nonaccrual loans are included in the average balances and do not have a
material effect on the average yield. Interest due 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 for 2001 is based on the interest period from February 8, 2001 to
March 31, 2001.
</FN>
The following table shows the dollar amount of changes in interest
income (tax-equivalent) 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.
THREE MONTHS ENDED MARCH 31, 2002
COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
CHANGE CHANGE
DUE TO DUE TO CHANGE TOTAL
RATE VOLUME DUE TO MIX CHANGE
---- ------ ---------- ------
(DOLLARS IN THOUSANDS)
INTEREST INCOME/ EXPENSE FROM:
Fed funds sold and other short-term
investments........................ $ (120) $ (122) $ 82 $ (160)
Investment securities................. (839) 3,008 (742) 1,427
Loans, net of unearned discount....... (3,754) 3,915 (1,122) (961)
------- ------ ------- ------
Total interest income.............. (4,713) 6,801 (1,782) 306
------- ------ ------- ------
Interest-bearing deposits............. (3,899) 3,646 (1,737) (1,990)
Funds borrowed........................ (622) 732 (308) (198)
Long-term debt - Trust Preferred
Securities......................... 4 199 6 209
------- ------ ------- ------
Total interest expense............. (4,517) 4,577 (2,039) (1,979)
------- ------ ------- ------
Net interest income................... $ (196) $2,224 $ 257 $2,285
======= ====== ======= ======
18
PROVISION FOR LOAN LOSSES
We maintain an allowance for loan losses that we deem adequate to
absorb credit losses inherent in our loan portfolio. The allowance for loan
losses reflects management's latest assessment of the losses that are probable
and reasonably estimable in the loan portfolio. Our allowance for probable loan
losses is reassessed monthly to determine the appropriate level of the reserve.
Our analysis is influenced by the following factors: the volume and quality of
loans and commitments in the portfolio, loss experience, and economic
conditions. A discussion of the allowance for loan losses and the factors
management considers in assessing the adequacy of the allowance begins on page
21.
Our provision for loan losses was $511,000 for the first quarter of
2002, compared to $339,000 for the comparable period in 2001. Increases in the
provision for loan losses compared to the prior year periods are related to the
growth in the loan portfolio.
NON-INTEREST INCOME
Non-interest income for the quarter increased to $1.0 million,
reflecting a decrease of $90,000 or 7.9% compared to the first quarter of 2001.
The Company recognized $230,000 of net securities losses during the first
quarter 2002, compared to net securities gains of $186,000 during the first
quarter of 2001. The security losses for the quarter include a write-down of
$200,000 on an investment that qualifies for CRA purposes. Banking, trust
services and other income increased $326,000 or 34% over the prior year quarter.
Trust assets under administration increased to $758.2 million at March 31, 2002
compared to $693.2 million at March 31, 2001, an increase of 9%, attributable
primarily to increases in new business generated during the quarter. Trust fee
revenue increased by $33,000 to $724,000 for the quarter ended March 31, 2002,
an increase of 5% over the prior year quarter. The increase reflects continued
growth in new wealth management accounts.
During the first quarter of 2002, we recognized income of $142,500
related to the increased cash surrender value of a bank owned life insurance
(BOLI) policy that was entered into in the fourth quarter of 2001. This policy
covers certain higher-level employees who are deemed to be significant
contributors to the company. All employees included in this policy are aware and
have consented to the coverage. The cash surrender value of BOLI at March 31,
2002 was $10.3 million and is included in other assets on the balance sheet.
NON-INTEREST EXPENSE
THREE MONTHS ENDED
MARCH 31,
------------------
2002 2001
------ ------
(IN THOUSANDS)
Salaries and employee benefits........ $2,844 $2,434
Occupancy............................. 1,139 888
Professional fees..................... 891 531
Marketing............................. 365 349
Data processing....................... 308 304
Postage, telephone and delivery....... 178 180
Office supplies and printing.......... 67 82
Insurance............................. 93 93
Goodwill.............................. -- 206
Other expense......................... 217 219
------ ------
Total non-interest expense............ $6,102 $5,286
====== ======
Non-interest expense increased to $6.1 million in the first quarter of
2002 from $5.3 million in the first quarter of 2001, an increase of 15%. The
elimination of goodwill amortization in 2002 resulted in a favorable impact of
$206,000 to non-interest expense in the current period. The increase in
non-interest expense between quarters reflects the continued growth of the
organization during the twelve-month period ended March 31, 2002. Our efficiency
ratio was 61.1% for the first quarter 2002 as compared to 67.8% for the first
quarter 2001. On a tax-equivalent basis, this ratio indicates that in the first
quarter of 2002, we spent 61.1 cents to generate each dollar of
19
revenue, compared to 67.8 cents in the first quarter of 2001. During the
remainder of 2002, we expect to continue to report improvements in our operating
efficiency ratio as compared to 2001 as revenue generated at the new offices
outpaces the increases in related operating expenses.
Salaries and benefits increased to $2.8 million, or 17% during the
first quarter 2002 as compared to the year ago quarter, reflecting the increased
level of full-time equivalent employees to 162 people at March 31, 2002 as
compared to 140 people at March 31, 2001. The increase is due primarily to
overall growth in the organization.
Occupancy expense increased to $1.1 million during the first quarter
2002, reflecting an increase of 28% over the prior year quarter. Occupancy
expense during the first quarter 2002 reflects the addition of our newest office
in Geneva as well as additional floor space that is being leased in our downtown
Chicago location. During 2002, we have continued to invest in our information
technology infrastructure. These expenditures have resulted in new hardware,
innovative software and upgrades to our disaster recovery systems.
Professional fees increased to $891,000 during the first quarter of
2002, reflecting an increase of 68% over the prior year quarter. The increase in
professional fees is primarily attributable to information systems consultation
to assist us in the implementation of system upgrades as well as in the
augmentation of our current disaster recovery network.
Postage, telephone and delivery decreased to $178,000 during the first
quarter 2002, a decrease of 1% over the prior year quarter. Office supplies and
printing costs decreased to $67,000 during the first quarter 2002, an 18%
decrease as compared to the prior year quarter. Office supplies and printing
costs were higher in the prior year quarter due to start-up costs associated
with our newer offices.
INCOME TAXES
The following table shows our income before income taxes, applicable
income taxes and effective tax rate for the three months ended March 31, 2002
and 2001, respectively (in thousands):
THREE MONTHS ENDED
MARCH 31,
---------------------
2002 2001
------ ------
Income before taxes.......... $2,693 $1,909
Income tax provision......... 549 576
Effective tax rate........... 20.4% 30.2%
The lower effective tax rate for the first quarter 2002 as compared to
the prior year quarter is primarily attributable to an increase in the amount of
federally tax exempt municipal investment securities held in our securities
portfolio. Tax-exempt municipal securities increased from $54.7 million at March
31, 2001 to $122.0 million at March 31, 2002, an increase of 123%. 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.
20
FINANCIAL CONDITION
TOTAL ASSETS
Total assets increased to $1.2 billion at March 31, 2002, an increase
of $54,440, or 5% over total assets of $1.2 billion at December 31, 2001, and an
increase of $357,515, or 41% over $873.7 million of total assets at March 31,
2001. The balance sheet growth during the three months ended March 31, 2002 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 and increases in brokered deposits.
LOANS
Total loans increased to $782.4 million, an increase of $1.6 million,
or 0.2%, from $780.8 million at December 31, 2001 and an increase of $156.7
million, or 25%, from $625.7 million at March 31, 2001.
Total loans at March 31, 2002 grew slightly since year-end 2001. The
PrivateBank (St. Louis) had loans outstanding of $82.3 million as of March 31,
2002, growth of $49.1 million since March 31, 2001. The remaining loan growth of
$107.6 million experienced by the Company since March 31, 2001 was generated by
The PrivateBank (Chicago). All of The PrivateBank (Chicago) offices posted
strong gains in loan volume on a quarter over quarter basis.
The following table sets forth our loan portfolio net of unearned
discount by category (in thousands) at the following dates:
MARCH 31, DECEMBER 31, MARCH 31,
2002 2001 2001
--------- ------------ ---------
LOANS
Commercial real estate........... $330,348 $310,869 $229,842
Residential real estate.......... 80,423 89,889 83,613
Commercial....................... 153,340 163,279 129,080
Personal(1)...................... 126,316 124,206 105,829
Construction..................... 92,007 92,528 77,336
-------- -------- --------
Total loans................... $782,434 $780,771 $625,700
======== ======== ========
<FN>
- ------------------------------
(1) Includes home equity loans and overdraft lines.
</FN>
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. In determining the adequacy of the allowance for loan losses, management
considers 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 unallocated portion of the reserve involves the exercise of judgment by
management and reflects various considerations, including management's view that
the reserve should have a margin that recognizes the imprecision inherent in the
process of estimating credit losses.
We maintain an allowance for loan losses that we deem adequate to
absorb credit losses inherent in our loan portfolio. The allowance for loan
losses represents our estimate of probable losses in the portfolio at each
balance sheet date based on review of available and relevant information,
including 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 1.12% at March 31,
2002, 1.06% at December 31, 2001 and 1.03% at March 31, 2001. Management
believes that the allowance for loan losses is adequate to provide for estimated
probable credit losses inherent in the loan portfolio.
Net charge-offs totaled $27,000 for the quarter ended March 31, 2002
versus net recoveries of $8,000 in the year earlier period. The provision for
loan losses was $511,000 in the first quarter of 2002, versus $339,000 in the
21
first quarter of 2001. 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, 2002 and 2001 (in thousands):
2002 2001
---- ----
Balance, January 1................................ $8,306 $6,108
Provisions charged to earnings.................... 511 339
Loans charged-off, net of recoveries.............. (27) 8
------ ------
Balance, March 31................................. $8,790 $6,455
====== ======
NONPERFORMING LOANS
The following table classifies our non-performing loans as of the dates
shown:
3/31/02 12/31/01 9/30/01 6/30/01 3/31/01
------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Nonaccrual loans...................... $1,458 $ 664 $2,658 $1,504 $ 117
Loans past due 90 days or more........ 1,448 2,504 3,766 938 2,847
------ ------ ------ ------ ------
Total nonperforming loans............. 2,906 3,168 6,424 2,442 2,964
Other real estate owned............... -- -- 62 -- --
------ ------ ------ ------ ------
Total nonperforming assets............ $2,906 $3,168 $6,486 $2,442 $2,964
====== ====== ====== ====== ======
Total nonaccrual loans to total loans. 0.186% 0.085% 0.37% 0.23% 0.02%
Total nonperforming loans to total
loans.............................. 0.37% 0.41% 0.90% 0.37% 0.47%
Total nonperforming assets to total
assets............................. 0.24% 0.27% 0.62% 0.26% 0.34%
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 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.
Nonaccrual loans were $1.5 million at March 31, 2002 as compared to
$664,000 at December 31, 2001 and $117,000 at March 31, 2001. Nonaccrual loans
increased by $794,000 million since December 31, 2001. The increase relates
primarily to two commercial real estate credit relationships at The PrivateBank
(Chicago). Loans delinquent over 90 days decreased by $1,057,000 since December
31, 2001.
22
INVESTMENT SECURITIES
The amortized cost and the estimated fair value of securities at March
31, 2002 and December 31, 2001, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
--------------------------------------------------------
MARCH 31, 2002
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
U.S. government agency mortgage backed
securities and collateralized
mortgage obligations.................. $101,204 $744 $(271) $101,677
Corporate collateralized mortgage
obligations........................... 18,934 352 -- 19,286
Tax exempt municipal securities.......... 122,795 473 (1,266) 122,002
Taxable municipal securities............. 7,560 7 (9) 7,558
Federal Home Loan Bank stock............. 126,026 -- -- 126,026
Other.................................... 12,162 132 (115) 12,179
-------- ------ ------- --------
Total.................................... $388,681 $1,708 $(1,661) $388,728
======== ====== ======= ========
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
--------------------------------------------------------
DECEMBER 31, 2001
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
U.S. government agency mortgage backed
securities and collateralized
mortgage obligations.................. $101,416 $ 483 $ (523) $101,376
Corporate collateralized mortgage
obligations........................... 23,046 416 -- 23,462
Tax exempt municipal securities.......... 106,980 645 (700) 106,925
Taxable municipal securities............. 6,032 19 -- 6,051
Federal Home Loan Bank stock............. 92,964 -- -- 92,964
Other.................................... 2,005 150 -- 2,155
-------- ------- ------- --------
Total.................................... $332,443 $ 1,713 $(1,223) $332,933
======== ======= ======= ========
All securities are classified as available-for-sale and may be sold as
part of our asset/liability management strategy in response to changes in
interest rates, liquidity needs or significant prepayment risk. 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, 2002, net unrealized gains of $31,000 resulted in an
increase in reported stockholders' equity. This was a decrease of $292,000 from
net unrealized gains of $323,000 recorded as part of equity at December 31,
2001. The credit quality of the investment portfolio remains strong. The vast
majority of investments are rated "AAA" by bond rating agencies. It is our
policy not to take any undue credit risk with the investment portfolio
Securities available for sale increased to $388.7 million at March 31,
2002, up 17% from $332.9 million at December 31, 2001. The growth in the
investment security portfolio since December 31, 2001 resulted from the
continued implementation of our asset/liability management strategy. Tax exempt
municipal securities increased by $15.8 million. These securities provide net
interest margin protection in a falling interest-rate environment.
Collateralized mortgage obligations decreased $4.2 million in the first three
months of 2002. Investments in Federal Home Loan Bank stock increased by $33.1
million as a result of purchases made to take advantage of the liquid nature of
the investment.
23
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, 2002 and December
31, 2001:
MARCH 31, DECEMBER 31,
2002 2001
---------------------- ----------------------
PERCENT PERCENT
BALANCE OF TOTAL BALANCE OF TOTAL
-------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Demand....................... $ 62,359 6% $ 73,146 9%
Savings...................... 10,850 1% 12,158 1%
Interest-bearing demand...... 54,214 6% 52,061 6%
Money market................. 364,189 37% 350,829 41%
Brokered deposits ........... 278,918 28% 138,911 17%
Other time deposits.......... 211,335 22% 223,390 26%
-------- --- -------- ---
Total deposits............ $981,865 100% $850,495 100%
======== === ======== ===
Total deposits of $981.9 million at March 31, 2002 represent an
increase of $131.4 million or 15% as compared to total deposits of $850.5
million as of December 31, 2001. Noninterest-bearing deposits decreased by 15%
to $62.3 million at March 31, 2002 as compared to $73.1 million at December 31,
2001. Interest-bearing demand deposits increased by 4% to $54.2 million as
compared to $52.1 million at December 31, 2001. Money market accounts increased
by $13.4 million to $364.2 million at March 31, 2002 as compared to $350.8
million at December 31, 2001. Other time deposits decreased by approximately $12
million to $211.3 million as compared to $223.4 million at year-end 2001.
Brokered deposits increased by 101% to $278.9 million at March 31, 2002 as
compared to $138.9 million at December 31, 2001.
We continued to utilize brokered deposits as a source of funding for
growth in the loan and investment portfolios. Certain broker deposits may
include call option provisions, which can provide us with the opportunity to
repay the certificates of deposit on a specified date prior to the contractual
maturity date. During the first quarter of 2002, we called $48.0 million in
brokered deposits and recognized $258,654 of unamortized brokered commissions in
interest expense. We have replaced the called brokered deposits with new
brokered deposits at lower interest rates. As of March 31, 2002, there were no
outstanding brokered deposits containing call provisions.
Membership in the Federal Home Loan Bank System gives us 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. We have periodically used the services of the FHLB
for short-term funding needs and other correspondent services. During 2001, we
increased our utilization of Federal Home Loan Bank advances to fund loan
growth. Management anticipates that our reliance on Federal Home Loan Bank
borrowings as a funding source will likely remain at current levels in 2002 to
the extent that rates on Federal Home Loan Bank advances continue to be more
attractive than deposit pricing. Federal Home Loan Bank borrowings totaled $66.2
million at March 31, 2002 compared to $115.4 million at December 31, 2001.
24
A summary of all funds borrowed and outstanding at March 31, 2002,
December 31, 2001 and March 31, 2001 is presented in the table below:
CURRENT MARCH 31, DECEMBER 31, MARCH 31,
AMOUNT RATE MATURITY 2002 2001 2001
- ------ ---- -------- ---- ---- ----
(IN THOUSANDS)
Borrowing under revolving line of credit
facility................................. 3.22% 04/11/03 $ 9,000 $ 5,000 $ --
Subordinated note............................. 3.89 2/11/07 5,000 5,000 5,000
FHLB floating rate advance (1)................ 6.77 05/01/01 -- -- 10,000
FHLB open line advance........................ 1.74 daily -- 25,000 --
FHLB fixed advance (2)........................ 6.50 10/23/05 24,698 24,886 25,000
FHLB fixed advance............................ 6.21 12/05/03 30,000 30,000
FHLB fixed advance............................ 6.49 11/13/01 -- -- 2,000
FHLB fixed advance............................ 4.30 02/01/02 -- 25,000 --
FHLB fixed advance............................ 5.91 06/21/02 500 500 500
FHLB fixed advance............................ 5.89 12/20/02 1,000 1,000 1,000
FHLB fixed advance............................ 5.21 01/22/02 -- 1,000 1,000
FHLB fixed advance............................ 5.02 03/06/02 -- 1,000 --
FHLB fixed advance............................ 5.33 07/22/02 1,000 1,000 --
FHLB fixed advance............................ 4.21 05/13/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.39 11/12/02 5,000 5,000 1,000
FHLB fixed advance............................ 2.38 01/13/03 1,000 -- --
FHLB fixed advance............................ 2.98 3/10/03 1,000 -- --
FHLB fixed advance............................ 2.74 7/17/03 1,000 -- --
Federal funds purchased....................... 1.96 daily 69,000 103,000 10,000
Demand repurchase agreements (3).............. 1.60 daily 6,325 3,102 3,897
-------- -------- -------
Total funds borrowed..................... $155,523 $231,488 $90,397
======== ======== =======
<FN>
_______________
(1) The rate on this FHLB floating rate advance is set at one-month LIBOR
minus five basis points.
(2) This FHLB advance is subject to a fair value hedge utilizing an
interest rate swap with a fair value of $1.4 million. The contractual
par amount on the advance is $25.0 million.
(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.
</FN>
The decrease in funds borrowed as of March 31, 2002 as compared to
December 31, 2001, reflects a decrease in our federal funds purchased position
and decreases in FHLB fixed advances, offset by an increase in our borrowings
under a revolving line of credit.
CAPITAL RESOURCES
At March 31, 2002, $20.0 million of the trust preferred securities was
treated as Tier 1 capital. Stockholders' equity rose to $64.9 million at March
31, 2002, an increase of $2.6 million from the 2001 year-end level, due to an
increase in year-to-date 2002 net income.
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
25
approval is required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion and plans for
capital restoration are required.
The following table reflects our consolidated measures of capital at
March 31, 2002, December 31, 2001 and March 31, 2001:
MARCH 31, DECEMBER 31, MARCH 31,
2002 2001 2001
--------- ------------ ---------
Leverage ratio........................ 6.25% 6.64% 7.60%
Tier 1 risk-based capital ratio....... 8.37% 8.18% 9.14%
Total risk-based capital ratio........ 9.93% 9.71% 11.00%
Total equity to total assets.......... 5.27% 5.29% 6.52%
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," a bank 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, 2002, the Company and each of the banking subsidiaries
continued to exceed the minimum levels of all regulatory capital requirements,
and each banking subsidiary was considered "well capitalized" under all
regulatory standards.
LIQUIDITY
Liquidity measures our ability to meet maturing obligations and its
existing commitments, to withstand fluctuations in deposit levels, to fund our
operations and to provide for clients' credit needs. Our liquidity of
principally depends on cash flows from operating activities, investment in and
maturity of assets, changes in balances of deposits and borrowings and our
ability to borrow funds in the money or capital markets.
Net cash outflows used in operations were $707,000 in the first three
months of 2002 compared to a net cash inflow of $2.9 million a year earlier. The
net cash outflow during the first quarter 2002 was impacted by the growth and
timing of receipts of interest and cash settlement payments. Net cash outflows
from investing activities were $49.0 million in the first three months of 2002
compared to a net cash outflow of $64.2 million a year earlier. Cash inflows
from financing activities in the first three months of 2002 were $56.3 million
compared to a net inflow of $39.0 million in the first three months of 2001.
In the event of short-term liquidity needs, our 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 the first quarter 2002, we relied more heavily on brokered
deposits to fund growth in loans and investment securities as well as liquidity
at our banks. For the remainder of 2002, we expect to continue to rely on
brokered deposits for liquidity purposes if brokered rates continue to compare
favorably to other sources of liquidity. Brokered deposits represented 28% of
total deposits at March 31, 2002 compared to 17% of total deposits at December
31, 2001.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT POLICY
As a continuing part of our financial strategy, we attempt to manage
the impact of fluctuations in market interest rates on our net interest income.
This effort entails providing a reasonable balance between interest rate risk,
credit risk, liquidity risk and maintenance of yield. Asset/liability management
policy is established by our Board of Directors and is monitored by management.
Our asset/liability policy sets standards within which we are 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 management policy by
establishing criteria by which we may purchase securities. These criteria
include approved types of securities, brokerage sources, terms of investment,
quality standards, and diversification.
We measure the impact of interest rate changes on our income statement
through the use of gap analysis. The gap represents the net position of assets
and liabilities subject to repricing in specified time periods. During any given
time period, if the amount of rate sensitive liabilities exceeds the amount of
rate sensitive assets, a company would generally be considered negatively gapped
and would benefit from falling rates over that period of time. Conversely, a
positively gapped company would generally benefit from rising rates. The
following tables illustrate the estimated interest rate sensitivity and periodic
and cumulative gap positions calculated as of March 31, 2002 and December 31,
2001:
MARCH 31, 2002
-------------------------------------------------------------------
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.............................. $473,074 $ 61,323 $ 213,123 $ 36,699 $ 784,219
Investments........................ 129,908 29,523 40,158 189,092 388,681
Federal funds sold................. 3,558 -- -- -- 3,558
-------- -------- ---------- ---------- ----------
Total interest-earning assets...... $606,540 $ 90,846 $ 253,281 $ 225,791 $1,176,458
======== ======== ========== ========== ==========
INTEREST-BEARING LIABILITIES
Interest-bearing demand............ $ -- $ -- $ -- $ 54,214 $ 54,214
Savings and money market........... 202,222 161,967 -- 5,622 369,811
Time deposits...................... 137,360 334,659 20,718 2,744 495,481
Funds borrowed..................... 90,824 9,000 75,699 -- 175,523
-------- -------- ---------- ---------- ----------
Total interest-bearing liabilities. $430,406 $505,626 $ 96,417 $ 62,580 $1,095,029
======== ======== ========== ========== ==========
CUMULATIVE
Rate sensitive assets (RSA)........ $606,540 $697,386 $ 950,667 $1,176,458
Rate sensitive liabilities (RSL)... 430,406 936,032 1,032,449 1,095,029
GAP (GAP=RSA-RSL).................. 176,134 (238,646) (81,782) 81,429
RSA/RSL............................ 140.92% 74.50% 92.08% 107.44%
RSA/Total assets................... 49.26 56.64 77.21 95.55
RSL/Total assets................... 34.96 76.03 83.86 88.94
GAP/Total assets................... 14.31 19.38 6.64 6.61
GAP/Total RSA...................... 29.04 34.22 8.60 6.92
27
DECEMBER 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................................ $467,083 $ 66,521 $ 204,859 $ 53,643 $ 792,106
Investments.......................... 95,269 8,516 45,147 183,511 332,443
Federal funds sold................... 518 -- -- -- 518
-------- -------- ---------- ---------- ----------
Total interest-earning assets........ $562,870 $ 75,037 $ 250,006 $ 237,154 $1,125,067
======== ======== ========== ========== ==========
INTEREST-BEARING LIABILITIES
Interest-bearing demand.............. $ -- $ -- $ -- $ 52,061 $ 52,061
Savings and money market............. 205,926 144,903 -- 4,450 355,279
Time deposits........................ 173,401 171,111 20,978 4,519 370,009
Funds borrowed....................... 168,102 8,500 75,000 -- 251,602
-------- -------- ---------- ---------- ----------
Total interest-bearing liabilities... $547,429 $324,514 $ 95,978 $ 61,030 $1,028,951
======== ======== ========== ========== ==========
CUMULATIVE
Rate sensitive assets (RSA).......... $562,870 $637,907 $ 887,913 $1,125,067
Rate sensitive liabilities (RSL)..... 547,429 871,943 967,921 1,028,951
GAP (GAP=RSA-RSL).................... 15,441 (234,036) (80,008) 96,116
RSA/RSL.............................. 102.82% 73.16% 91.73% 109.34%
RSA/Total assets..................... 47.83 54.21 75.45 95.61
RSL/Total assets..................... 46.52 74.10 82.25 87.44
GAP/Total assets..................... 1.31 19.89 6.80 8.17
GAP/Total RSA........................ 2.74 36.69 9.01 8.54
The following table shows the impact of an immediate 200 basis point
change in interest rates as of March 31, 2002 and December 31, 2001. The effects
are determined through the use of a simulation model based on our earning asset
and interest-bearing liability portfolios, assuming the size of these portfolios
remains constant from the balance sheet date throughout the one-year measurement
period. The simulation assumes that assets and liabilities accrue interest on
their current pricing basis. Assets and liabilities then reprice based on their
terms and remain at that interest rate through the end of the measurement
period. The model attempts to illustrate the potential change in net interest
income if the foregoing occurred.
MARCH 31, 2002 DECEMBER 31, 2001
------------------------- --------------------------
+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 one-year time horizon.... 6.6% -7.4% 3.0% -4.7%
This table shows that if there had been an instantaneous parallel shift
in the yield curve of -200 basis points on March 31, 2002 and December 31, 2001,
we would suffer a decline in net interest income of -7.4% and -4.7%,
respectively, over each one-year period. Conversely, a shift of +200 basis
points would increase net interest income 6.6% over a one-year horizon based on
March 31, 2002 balances, as compared to 3.0% measured on the basis of the
December 31, 2001 portfolio.
Changes in the effect on net interest income from a 200 basis point
movement at March 31, 2002, compared to December 31, 2001 are due to the timing
and nature of the repricing of rate sensitive assets to rate sensitive
liabilities within the one year time frame. Although we are negatively gapped
within one year, the asset sensitive position of the balance sheet in the first
90 days of the simulation, coupled with the timing of repricing within the 91 to
365 day bucket, would lead to an increase in net interest income from an
immediate +200 basis point move. The
28
difference in the effect on net interest income at March 31, 2002 as compared to
December 31, 2001 is due to the differences in the timing, balances, and current
rates versus simulated rates of repricing assets and liabilities. The difference
between the two measurement periods is also a result of our increased asset
sensitivity in the 90-day bucket because of an increase in FHLB stock and a
decrease in fed funds purchased since year-end.
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, we 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 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend 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 we are including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe our future plans, strategies and expectations, can generally be
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. Our ability to predict results or
the actual effect of future plans or strategies is inherently uncertain and
actual results may differ materially from the results discussed in
forward-looking statements. Factors which might cause such a difference include,
but are not limited to, fluctuations in market rates of interest and loan and
deposit pricing; a deterioration of general economic conditions in our market
areas; legislative or regulatory changes; adverse developments in our loan or
investment portfolios; significant increases in competition; difficulties in
identifying attractive acquisition opportunities or strategic partners to
complement our private banking approach and the products and services we offer;
and the possible dilutive effect of potential acquisitions or expansion. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We
undertake no obligation to update publicly any of these statements in light of
future events except as required in subsequent periodic reports we file with the
SEC.
PART II
ITEM 1. LEGAL PROCEEDINGS
Although our 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.
29
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)......Exhibits.
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 Amendment No. 1 to Loan Agreement dated as of February 11, 2002 between
PrivateBancorp, Inc. and LaSalle Bank National Association.
10.2 Amendment No. 2 to Loan Agreement dated as of April 11, 2002 between
PrivateBancorp, Inc. and LaSalle Bank National Association.
(b) Reports on Form 8-K.
(1) Current Report on Form 8-K dated January 22, 2002, filed
with the SEC on January 22, 2002.
30
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 10, 2002
31
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, 2001 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 Amendment No. 1 to Loan Agreement dated as of February 11, 2002 between
PrivateBancorp, Inc. and LaSalle Bank National Association.
10.2 Amendment No. 2 to Loan Agreement dated as of April 11, 2002 between
PrivateBancorp, Inc. and LaSalle Bank National Association.