SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
incorporation or organization) Identification Number)
TEN NORTH DEARBORN STREET
CHICAGO, ILLINOIS 60602
(Address of principal executive offices) (Zip Code)
(312) 683-7100
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
================================================================================
CLASS OUTSTANDING AS OF AUGUST 5, 2002
- --------------------------------------------------------------------------------
Common, no par value 4,929,661
================================================================================
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...........30
PART II
Item 1. Legal Proceedings....................................................32
Item 2. Changes in Securities and Use of Proceeds............................32
Item 3. Defaults upon Senior Securities......................................32
Item 4. Submission of Matters to a Vote of Security Holders..................33
Item 5. Other Information....................................................33
Item 6. Exhibits and Reports on Form 8-K.....................................33
Signatures....................................................................35
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
-------------------------------------------------------------
06/30/02 03/31/02 12/31/01 09/30/01 06/30/01
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA:
Interest income:
Loans, including fees...................... $ 12,665 $ 12,148 $ 12,311 $ 12,785 $ 12,877
Federal funds sold and interest-bearing
deposits................................ 8 17 13 23 31
Securities................................. 4,886 4,206 4,144 3,704 3,327
-------- -------- -------- -------- --------
Total interest income................... 17,559 16,371 16,468 16,512 16,235
-------- -------- -------- -------- --------
Interest expense:
Interest-bearing demand deposits........... 168 171 209 239 255
Savings and money market deposit accounts.. 1,763 1,719 2,224 2,844 2,861
Other time deposits........................ 3,810 4,323 4,028 4,273 4,479
Funds borrowed............................. 1,353 1,309 1,602 1,637 1,545
Trust preferred interest expense........... 485 485 485 485 485
-------- -------- -------- -------- --------
Total interest expense.................. 7,579 8,007 8,548 9,478 9,625
-------- -------- -------- -------- --------
Net interest income........................ 9,980 8,364 7,920 7,034 6,610
Provision for loan losses.................. 1,609 511 1,257 845 738
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses............................. 8,371 7,853 6,663 6,189 5,872
-------- -------- -------- -------- --------
Non-interest income:
Banking, trust services and other income... 1,802 1,542 1,149 902 1,024
Securities gains (losses), net............. 274 (230) 1,191 365 353
-------- -------- -------- -------- --------
Total non-interest income............... 2,076 1,312 2,340 1,267 1,377
-------- -------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits............. 3,469 3,214 2,519 2,303 1,855
Occupancy expense, net..................... 1,206 1,139 1,325 985 960
Data processing............................ 374 308 420 303 268
Marketing.................................. 374 365 320 275 265
Amortization of goodwill................... -- -- 206 206 206
Professional fees.......................... 1,027 891 1,090 575 743
Insurance.................................. 106 93 85 88 88
Other expense.............................. 557 462 661 606 1,014
-------- -------- -------- -------- --------
Total non-interest expense................. 7,113 6,472 6,626 5,341 5,399
-------- -------- -------- -------- --------
Income before income taxes................. 3,334 2,693 2,377 2,115 1,850
Income tax provision....................... 724 549 459 524 492
-------- -------- -------- -------- --------
Net income.................................... $ 2,610 $ 2,144 $ 1,918 $ 1,591 $ 1,358
======== ======== ======== ======== ========
PER SHARE DATA:
Basic earnings................................ $ 0.53 $ 0.44 $ 0.40 $ 0.34 $ 0.29
Diluted earnings.............................. 0.50 0.42 0.39 0.32 0.28
Dividends..................................... 0.030 0.030 0.030 0.030 0.025
Book value (at end of period)................. 14.57 13.20 12.97 13.07 12.35
2
QUARTER ENDED
-------------------------------------------------------------
06/30/02 03/31/02 12/31/01 09/30/01 06/30/01
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL DATA (AT END OF PERIOD):
Total securities.............................. $392,090 $388,728 $332,933 $279,319 $224,505
Total loans................................... 865,778 782,434 780,771 715,977 666,262
Total assets.................................. 1,332,008 1,231,208 1,176,768 1,041,975 944,887
Total deposits................................ 1,074,475 981,865 850,495 801,146 750,494
Funds borrowed................................ 154,499 155,523 231,488 137,956 106,128
Long-term debt-trust preferred securities..... 20,000 20,000 20,000 20,000 20,000
Total stockholders' equity.................... 71,697 64,926 62,304 62,087 57,826
Trust assets under administration............. $733,939 $758,242 $722,713 $684,842 $711,957
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin(1)..................... 3.53% 3.18% 3.28% 3.17% 3.21%
Net interest spread(2)..................... 3.34 2.96 2.98 2.76 2.75
Non-interest income to average assets...... 0.65 0.36 0.86 0.49 0.57
Non-interest expense to average assets..... 2.24 2.07 2.43 2.16 2.39
Net overhead ratio(3)...................... 1.59 1.71 1.57 1.67 1.82
Efficiency ratio (4)....................... 55.4 61.1 60.9 60.6 64.5
Return on average assets (5)............... 0.82 0.73 0.70 0.64 0.60
Return on average equity (6)............... 15.07 13.35 12.18 10.46 9.46
Dividend payout ratio...................... 5.66 6.88 7.51 8.94 8.62
Asset Quality Ratios:
Non-performing loans to total loans........ 0.37% 0.37% 0.41% 0.90% 0.37%
Allowance for loan losses to:
total loans............................. 1.14 1.12 1.06 1.06 1.04
non-performing loans.................... 313 303 262 118 282
Net charge-offs (recoveries) to average
total loans............................. 0.24 0.01 0.27 0.11 0.18
Non-performing assets to total assets...... 0.24 0.24 0.27 0.62 0.26
Balance Sheet Ratios:
Loans to deposits.......................... 80.6% 79.7% 91.8% 89.4% 88.8%
Average interest-earning assets to
average interest-bearing liabilities.... 107.8 107.5 108.9 110.2 110.4
Capital Ratios:
Total equity to total assets............... 5.38% 5.27% 5.29% 5.96% 6.12%
Total risk-based capital ratio............. 9.37 9.93 9.71 10.55 10.98
Tier 1 risk-based capital ratio............ 7.84 8.37 8.18 8.88 9.17
Leverage ratio............................. 6.07 6.25 6.64 6.99 7.26
<FN>
- ------------------
(1) Net interest income, on a tax equivalent basis, 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, on a
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)
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks................................. $ 39,625 $ 22,283 $ 28,515
Federal funds sold and other short-term investments..... 75 518 7,305
---------- ---------- --------
Total cash and cash equivalents...................... 39,700 22,801 35,820
---------- ---------- --------
Loans held for sale..................................... 3,913 11,335 448
Available-for-sale securities, at fair value............ 392,090 332,933 224,505
Loans, net of unearned discount......................... 865,778 780,771 666,262
Allowance for loan losses............................... (9,909) (8,306) (6,896)
---------- ---------- --------
Net loans............................................... 855,869 772,465 659,366
---------- ---------- --------
Goodwill................................................ 10,805 10,805 11,217
Bank premises and equipment, net........................ 6,455 3,814 4,260
Accrued interest receivable............................. 8,741 7,262 5,992
Other assets............................................ 14,435 15,353 3,279
---------- ---------- --------
Total assets............................................ $1,332,008 $1,176,768 $944,887
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing.................................. $81,421 $ 73,146 $ 65,373
Interest-bearing..................................... 54,694 52,061 44,436
Savings and money market deposit accounts............... 412,570 362,987 302,258
Brokered deposits....................................... 309,240 138,911 95,740
Other time deposits..................................... 216,550 223,390 242,687
---------- ---------- --------
Total deposits....................................... 1,074,475 850,495 750,494
Funds borrowed.......................................... 154,499 231,488 106,128
Long term debt - trust preferred securities............. 20,000 20,000 20,000
Accrued interest payable................................ 4,077 2,112 2,666
Other liabilities....................................... 7,260 10,369 7,773
---------- ---------- --------
Total liabilities....................................... $1,260,311 $1,114,464 $887,061
---------- ---------- --------
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized............ -- -- --
Common stock, without par value, $1 stated value;
12,000,000 shares authorized; 4,921,580, 4,804,280,
and 4,680,668 shares issued and outstanding as of
June 30, 2002, December 31, 2001 and June 30, 2001,
respectively......................................... $ 4,922 $ 4,804 $ 4,681
Surplus................................................. 42,299 41,516 40,590
Retained earnings....................................... 21,927 17,468 13,845
Accumulated other comprehensive income.................. 4,231 323 616
Deferred compensation................................... (732) (857) (956)
Loans to officers....................................... (950) (950) (950)
---------- ---------- --------
Total stockholders' equity.............................. 71,697 62,304 57,826
---------- ---------- --------
Total liabilities and stockholders' equity.............. $1,332,008 $1,176,768 $944,887
========== ========== ========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
INTEREST INCOME
Loans, including fees................................. $12,665 $12,877 $24,813 $25,879
Federal funds sold and interest bearing deposits...... 8 31 25 208
Securities............................................ 4,886 3,327 9,092 6,529
------- ------- ------- -------
Total interest income.............................. 17,559 16,235 33,930 32,616
------- ------- ------- -------
INTEREST EXPENSE
Deposits:
Interest-bearing demand............................ 168 255 339 475
Savings and money market deposit accounts.......... 1,763 2,927 3,482 6,544
Brokered deposits and other time deposits.......... 3,810 4,413 8,133 8,779
Funds borrowed........................................ 1,353 1,545 2,662 3,052
Long-term debt - trust preferred securities........... 485 485 970 761
------- ------- ------- -------
Total interest expense............................. 7,579 9,625 15,586 19,611
------- ------- ------- -------
Net interest income................................ 9,980 6,610 18,344 13,005
Provision for loan losses............................. 1,609 738 2,120 1,077
------- ------- ------- -------
Net interest income after provision for loan losses 8,371 5,872 16,224 11,928
------- ------- ------- -------
NON-INTEREST INCOME
Banking, trust services and other income........... 1,802 1,024 3,344 1,977
Securities gains, net.............................. 274 353 44 539
------- ------- ------- -------
Total non-interest income....................... 2,076 1,377 3,388 2,516
------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits........................ 3,469 1,855 6,683 4,289
Occupancy expense, net................................ 1,206 960 2,345 1,848
Professional fees..................................... 1,027 743 1,918 1,273
Goodwill amortization................................. -- 206 -- 412
Other non-interest expense............................ 1,411 1,635 2,639 2,863
------- ------- ------- -------
Total non-interest expenses........................ 7,113 5,399 13,585 10,685
------- ------- ------- -------
Income before income taxes............................ 3,334 1,850 6,027 3,759
Income tax provision.................................. 724 492 1,273 1,068
------- ------- ------- -------
Net income......................................... $ 2,610 $ 1,358 $ 4,754 $ 2,691
======= ======= ======= =======
Basic earnings per share.............................. $ 0.53 $ 0.29 $ 0.97 $ 0.58
Diluted earnings per share............................ 0.50 0.28 0.92 0.56
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
SIX MONTHS ENDED JUNE 30, 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............. -- -- 2,691 -- -- -- 2,691
Net increase in fair
value of securities
classified as
available-for-sale,
net of income taxes
and reclassification -- -- -- 734 -- -- 734
adjustments.........
------ ------- ------- ------ ------- ----- -------
Total comprehensive
income.............. -- -- 2,691 734 -- -- 3,425
------ ------- ------- ------ ------- ----- -------
Cash dividends declared
($0.05 per share)... -- -- (234) -- -- -- (234)
Issuance of common
stock............... 57 483 -- -- (364) -- 176
Awards granted......... -- -- -- -- 93 -- 93
Amortization of
deferred
compensation........ -- -- -- -- 117 -- 117
------ ------- ------- ------ ------- ----- -------
BALANCE, JUNE 30, 2001 $4,681 $40,590 $13,845 $ 616 $ (956) $(950) $57,826
====== ======= ======= ====== ======= ===== =======
BALANCE, JANUARY 1,
2002 $4,804 $41,516 $17,468 $ 323 $ (857) $(950) $62,304
Net income............. -- -- 4,754 -- -- -- 4,754
Net increase in fair
value of securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- 3,908 -- -- 3,908
------ ------- ------- ------ ------- ----- -------
Total comprehensive
income -- -- 4,754 3,908 -- -- 8,662
------ ------- ------- ------ ------- ----- -------
Cash dividends
declared ($0.06 per
share).............. -- -- (295) -- -- -- (295)
Issuance of common
stock............... 118 783 -- -- -- -- 901
Awards granted......... -- -- -- -- (38) -- (38)
Amortization of
deferred
compensation........ -- -- -- -- 163 -- 163
------ ------- ------- ------ ------- ----- -------
BALANCE, JUNE 30, 2002 $4,922 $42,299 $21,927 $4,231 $ (732) $(950) $71,697
====== ======= ======= ====== ======= ===== =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-----------------------
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 4,754 $ 2,691
-------- -------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization............................................... 643 673
Goodwill amortization....................................................... -- 412
Johnson Bank Illinois purchase accounting fair value accretion, net......... (45) (145)
Amortization of deferred compensation....................................... 163 117
Provision for loan losses................................................... 2,120 1,077
Net gain on sale of securities.............................................. (44) (539)
Net proceeds from loans held for sale....................................... 7,422 258
Decrease in deferred loan fees.............................................. 592 (163)
Increase in accrued interest receivable..................................... (1,479) (468)
Increase in accrued interest payable........................................ 1,965 (886)
Decrease (Increase) in other assets......................................... 536 (1,467)
(Decrease) Increase in other liabilities.................................... (4,133) 3,188
-------- -------
Total adjustments........................................................... 7,740 2,057
-------- -------
Net cash provided by operating activities................................... 12,494 4,748
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, paydowns, and sales of securities.................... 78,091 62,966
Purchase of securities available-for-sale...................................... (131,282) (113,626)
Net loan principal advanced ................................................... (86,072) (67,569)
Bank premises and equipment expenditures....................................... (3,290) (752)
-------- -------
Net cash used in investing activities....................................... (142,553) (118,981)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits................................................. 223,987 80,256
Issuance of common stock....................................................... 862 269
Issuance of trust preferred securities......................................... -- 20,000
Dividends paid................................................................. (295) (234)
Net (decrease) increase in funds borrowed...................................... (77,596) 9,249
-------- -------
Net cash provided by financing activities................................... 146,958 109,540
-------- -------
Net increase (decrease) in cash and cash equivalents........................... 16,899 (4,693)
Cash and cash equivalents at beginning of year................................. 22,801 40,513
-------- -------
Cash and cash equivalents at end of period..................................... $ 39,700 $35,820
======== =======
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 six months ended June 30,
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 June 30, 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.
Certain reclassifications have been made to prior periods' consolidated
financial statements to place them on a basis comparable with the current
period's consolidated financial statements.
NOTE 2 -- EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings
per share (in thousands except per share data):
SIX MONTHS ENDED
JUNE 30,
----------------------
2002 2001
------ ------
Net Income............................................... $4,754 $2,691
Average common shares outstanding........................ 4,889 4,665
Average common shares equivalent(1)...................... 251 154
------ ------
Weighted average common shares and common share
equivalents........................................... 5,140 4,819
====== ======
Net income per average common share - basic.............. $ 0.97 $ 0.58
Net income per average common share - diluted............ $ 0.92 $ 0.56
<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>
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
8
acquisitions as part of its growth strategy, this Statement will likely have an
impact on the Company's future financial statements.
SFAS No. 142 supersedes 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 June 30, 2002 totaled $10.8 million. The Company's impairment
evaluation has been completed as of January 1, 2002, and no goodwill impairment
has been recorded as of 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):
SIX MONTHS ENDED
---------------------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
(IN THOUSANDS)
Reported net income.................. $4,754 $2,691
Add: Goodwill amortization (net of
tax) ............................. -- 288
------ ------
Adjusted net income.................. $4,754 $2,979
====== ======
Basic earnings per share:
Reported basic earnings per share.... $ 0.97 $ 0.58
Add: Goodwill amortization (net of
tax) ............................. -- .06
------ ------
Adjusted basic earnings per share.... $ 0.97 $ 0.64
====== ======
Diluted earnings per share:
Reported diluted earnings per share.. $ 0.92 $ 0.56
Add: Goodwill amortization (net of
tax) ............................. -- .06
------ ------
Adjusted diluted earnings per share.. $ 0.92 $ 0.62
====== ======
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 adopted
the Statement in the first quarter of 2002 with no 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),
respectively. The business segments summarized below and in the following tables
are primarily managed with a focus on various performance objectives including
total assets, total deposits, borrowings, gross loans, total capital and net
income.
9
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. During the second
quarter of 2002, the PrivateBank (Chicago) introduced an Index Powered
Certificate of Deposit product ("IPCD") with a five-year term. This non-fee
based, FDIC-insured product is a five-year certificate of deposit with a yield
based on the performance of the S&P 500.
THE PRIVATEBANK (CHICAGO)
-------------------------
JUNE 30,
-------------------------
2002 2001
------------ -----------
(IN THOUSANDS)
Total gross loans.................. $ 768,426 $623,588
Total assets....................... 1,211,006 893,168
Total deposits..................... 991,147 714,297
Total borrowings................... 110,999 93,378
Total capital...................... 97,604 74,209
Year-to-date net income............ 5,987 3,969
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)
---------------------------
JUNE 30,
---------------------------
2002 2001
------------- ------------
(IN THOUSANDS)
Total gross loans................... $ 98,968 $ 43,666
Total assets........................ 118,519 51,644
Total deposits...................... 83,670 36,683
Total borrowings.................... 23,500 7,500
Total capital....................... 10,554 6,870
Year-to-date net income (loss)...... 278 (288)
WEALTH MANAGEMENT
Wealth Management includes investment management, personal trust and
estate services, custodial services, retirement accounts and brokerage,
financial planning, 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
---------------------------
JUNE 30,
---------------------------
2002 2001
------------- ------------
(IN THOUSANDS)
Trust assets under administration... $733,914 $711,957
Trust fee revenue................... 1,502 1,398
Year-to-date net income............. 236 300
The following table indicates the breakdown of our trust assets under
administration at June 30, 2002 by account classification and related gross
revenue for the six months ended June 30, 2002:
AT OR FOR THE THREE MONTHS
ENDED JUNE 30, 2002
---------------------------
MARKET VALUE REVENUE
-------------- -----------
ACCOUNT TYPE (IN THOUSANDS)
Personal trust--managed.............. $243,183 $ 740
Agency--managed...................... 148,552 449
Custody............................. 287,608 272
Employee benefits--managed........... 54,571 41
-------- ------
Total............................ $733,914 $1,502
======== ======
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. In May of 2002, PrivateBancorp, Inc. acquired
an office building located in St. Charles, Illinois, for $1.8 million from Towne
Square Realty. The St. Charles location of The PrivateBank (Chicago) continues
to lease space in the building and pays rent to the Holding Company at the same
terms and conditions as was paid to the prior owner.
HOLDING COMPANY ACTIVITIES
----------------------------
JUNE 30,
----------------------------
2002 2001
---------- --------
(IN THOUSANDS)
Total assets....................... $ 111,759 $ 83,082
Total borrowings................... 20,000 5,250
Long-term debt - trust preferred
securities...................... 20,000 20,000
Interest expense................... 1,189 1,036
Total capital...................... 71,697 57,826
Year-to-date net loss.............. (1,747) (1,290)
The following table reconciles the differences between the sum of the
reportable segments and the reported consolidated balance of total assets:
TOTAL ASSETS
----------------------------
JUNE 30,
----------------------------
2002 2001
------------ -----------
(IN THOUSANDS)
Sum of reportable segments.......... $1,441,284 $1,027,894
Adjustments......................... (109,276) (83,007)
---------- ----------
Consolidated PrivateBancorp, Inc.... $1,332,008 $944,887
========== ==========
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 June 30, 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 a fair value of $2.1 million as of
June 30, 2002, an increase of $352,000 since December 31, 2001. In 2001 we
entered into our first interest rate swap transaction in which we agreed to
receive a fixed rate in exchange for payment of a floating rate based on an
agreed-upon notional amount. The fair value of the swap was $1.7 million on
December 31, 2001. The interest rate swap has been designated as a fair value
hedge of a fixed-rate $25.0 million advance with the Federal Home Loan Bank of
Chicago (FHLB).
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 six months ended June 30, 2002 and 2001, on a gross basis (in
thousands):
12
JUNE 30, 2002
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains, net..................... $4,998 $1,055 $3,943
Less: reclassification adjustment for net gains
included in net income......................... 44 9 35
------ ------ ------
Unrealized gains, net............................. $4,954 $1,046 $3,908
====== ====== ======
JUNE 30, 2001
----------------------------------------
BEFORE TAX NET OF
TAX (BENEFIT) TAX
AMOUNT EXPENSE AMOUNT
------ ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains, net..................... $1,564 $444 $1,120
Less: reclassification adjustment for net gains
included in net income......................... 539 153 386
------ ---- ------
Unrealized gains, net............................. $1,025 $291 $ 734
====== ==== ======
NOTE 7 -- CAPITAL TRANSACTIONS
During the second quarter of 2002, the Company contributed capital of
$1.25 million to The PrivateBank (Chicago) and $2.0 million to The PrivateBank
(St. Louis) to support growth at both of the subsidiaries.
13
NOTE 8 -- FUNDS BORROWED
A summary of all funds borrowed and outstanding at June 30, 2002,
December 31, 2001 and June 30, 2001 is presented in the table below:
CURRENT JUNE 30, DECEMBER 31, JUNE 30,
AMOUNT RATE MATURITY 2002 2001 2001
- ------ ------- -------- -------- ------------ --------
(IN THOUSANDS)
Borrowing under revolving line of credit
facility................................. 3.50% 04/11/03 $ 15,000 $ 5,000 $ 250
Subordinated note............................. 3.89 2/11/07 5,000 5,000 5,000
FHLB open line advance........................ 1.74 daily -- 25,000 --
FHLB fixed advance (1)........................ 6.50 10/23/05 25,493 24,886 25,000
FHLB fixed advance............................ 6.21 12/05/03 30,000 30,000 30,000
FHLB fixed advance............................ 4.30 02/01/02 -- 25,000 25,000
FHLB fixed advance............................ 6.49 11/13/01 -- -- 2,000
FHLB fixed advance............................ 5.91 06/21/02 -- 500 500
FHLB fixed advance............................ 2.46 06/16/03 500 -- --
FHLB fixed advance............................ 5.89 12/20/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.38 01/13/03 1,000 1,000 1,000
FHLB fixed advance............................ 5.33 07/22/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.98 03/10/03 1,000 1,000 1,000
FHLB fixed advance............................ 2.70 05/08/03 1,000 1,000 1,000
FHLB fixed advance............................ 2.39 11/12/02 5,000 5,000 --
FHLB fixed advance............................ 2.74 7/17/03 1,000 -- --
Federal funds purchased....................... 2.11 daily 65,000 103,000 10,000
Demand repurchase agreements (2).............. 1.60 daily 2,506 3,102 3,378
-------- -------- --------
Total funds borrowed..................... $154,499 $231,488 $106,128
======== ======== ========
<FN>
________________
(1) This FHLB advance is subject to a fair value hedge utilizing an interest
rate swap with a fair value of $2.1 million. The contractual par amount on
the advance is $25.0 million.
(2) 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 six-month LIBOR plus 120 basis points with a
floor of 3.50%. The Company has elected to pay interest based on the six-month
LIBOR rate plus 120 basis points. The initial rate of interest on the revolver
was 7.20%, and most recently reset to 3.50% on June 27, 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 June 30,
2002, the outstanding balance was $15.0 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 six-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 3.89% during the second quarter of 2002 compared to
3.27% during the second quarter of 2001 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.
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.
14
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 on 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 June 30, 2002, the entire amount of the
preferred securities is eligible for treatment as Tier I capital as allowed by
the Federal Reserve. At June 30, 2002, the unamortized balance of the
underwriting commissions paid and offering expenses 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 same level of 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 second 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 has had
a positive impact on our profitability in 2002. During the second quarter 2002,
The PrivateBank (St. Louis) had earnings of $155,568 versus a loss of $78,474 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
included in the Company's Form 10-K for the year ended December 31, 2001, 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 AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NET INCOME
Net income for the second quarter ended June 30, 2002 was $2.6 million,
an increase of 92% over second quarter 2001 net income of $1.4 million. Earnings
per share increased 79% to $0.50 per diluted share for the second quarter 2002
compared to second quarter 2001 earnings per diluted share of $0.28. Net income
for the six months ended June 30, 2002 increased 77% to $4.8 million, or $0.92
per diluted share, compared to $2.7 million, or $0.56 per diluted share, for the
same period last year. The increase in net income during the second quarter 2002
reflects the positive impact on net interest income and net interest margin that
resulted from growth in earning assets, continued high credit quality and
improved operating efficiencies as compared to the prior year quarter.
For the remainder of 2002, we expect to experience continued growth in
our balance sheet and in earnings. We expect our earnings will exceed the high
end of current analysts' estimates for 2002 of $1.84 per share. For 2003, we are
targeting a minimum 15% return on average equity and a minimum 15% growth in
earnings per share. Additionally, we have a goal of growing fee-based income to
30% of total revenues by the end of 2005.
As of June 30, 2002, the Company had outstanding stock options to
purchase a total of 575,785 shares, all of which are considered "in the money"
based on the average stock price for the period and therefore are taken into
account for purposes of the diluted earnings per share calculation. The dilution
calculation is based on the number of new shares the Company would have had to
issue to satisfy option exercises assuming all "in the money" options were
exercised and that the exercise proceeds payable to the Company were used to
purchase shares in the market at the average stock price for the earnings
period. The remaining number of shares issuable upon the option exercises are
assumed to have been issued and to be outstanding for purposes of computing
diluted earnings per share. The following table illustrates the impact diluted
earnings per share for the six months ended June 30, 2002 assuming parallel
changes in the period-end market value and average market value of the Company's
stock over the price range shown. The results in the table indicate that diluted
earnings per share are somewhat negatively impacted as the stock price
increases, since the Company would have been assumed to have issued more shares
for purposes of computing diluted earnings per share. Conversely, as the stock
price decreases, diluted earnings per share would be somewhat positively
impacted since the Company would be assumed to have issued fewer shares for
purposes of the calculation. The impact of stock price changes on the dilutive
effect of options would be more significant if all of the options were not in
the money within the illustrated stock price range.
AVERAGE DILUTIVE
CLOSING MARKET SHARES RESULTING
ASSUMED SCENARIOS MARKET VALUE VALUE (1) (IN 000'S) YTD EPS
- ------------------------- ------------ --------- ---------- ---------
ACTUAL AS REPORTED $ 30.15 $ 25.79 251 $ 0.92
- ------------------------- ------------ --------- ---------- ---------
Decrease $10...................... $ 20.15 $ 15.79 104 $ 0.95
Decrease $5....................... 25.15 20.79 187 0.94
Increase $5....................... 35.15 30.79 296 0.92
Increase $10...................... 40.15 35.79 328 0.91
Increase $15...................... 45.15 40.79 352 0.91
Increase $20...................... 50.15 45.79 371 0.90
Increase $25...................... 55.15 50.79 386 0.90
<FN>
- ------------------
(1) Average market value is calculated by averaging each trading day's high
and low sale price on the NASDAQ National Market.
</FN>
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
17
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) totaled $10.8 million
for the three months ended June 30, 2002, an increase of 54% over second quarter
2001 net interest income of $7.0 million, due to growth in average earning
assets between periods as well as improvements in net interest margin. Average
earning assets during the period were $1.2 billion, compared to $864.0 million
in the prior year quarter, an increase of 40%. Net interest margin (on a tax
equivalent basis) for the three months ended June 30, 2002 was 3.53%, up from
3.21% in the prior year second quarter and 3.18% in the first quarter of 2002.
Net interest income on a tax equivalent basis was $19.8 million during
the six months ended June 30, 2002 compared to $13.7 million for the same period
in 2001, an increase of 45%. Net interest margin (on a tax equivalent basis) was
3.36% for the six months ended June 30, 2002, up from 3.26% in the prior year
period and 3.18% in the first quarter of 2002. The improvement in net interest
margin compared to the first quarter of 2002 was primarily attributable to
decreases in our cost of funds resulting from maturing funding sources that have
been replaced at lower rates. During the third quarter of 2002, we expect to
experience continued stabilization in net interest margin, as compared to 2001,
as market rates of interest have remained stable throughout 2002.
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):
18
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
2002 2001
--------------------------------- --------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ---- -------- -------- ----
Short-term investments............ $ 1,964 $ 8 1.76% $ 2,724 $ 31 4.46%
Investment securities(1).......... 393,915 5,676 5.77% 212,536 3,711 6.98%
Loans, net of unearned discount(2) 817,370 12,665 6.16% 648,759 12,877 7.90%
---------- ------- -------- -------
Total earning assets.............. $1,213,249 $18,349 6.03% $864,019 $16,619 7.67%
========== ======= ======== =======
Interest-bearing deposits......... $ 960,628 $ 5,741 2.40% $651,838 $ 7,594 4.67%
Funds borrowed.................... 144,576 $ 1,353 3.70% 110,708 1,545 5.52%
Long-term debt - Trust Preferred
Securities..................... 20,000 485 9.70% 20,000 485 9.70%
---------- ------- -------- -------
Total interest-bearing liabilities $1,125,204 7,579 2.69% $782,546 9,624 4.92%
========== ------- ======== -------
Tax equivalent net interest income $10,770 $ 6,995
======= =======
Net interest spread............... 3.34% 2.75%
Net interest margin............... 3.53% 3.21%
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
2002 2001
--------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ---- -------- -------- ----
Short-term investments............ $ 2,846 $ 25 1.78% $ 7,498 $ 208 5.51%
Investment securities(1).......... 373,876 10,570 5.67% 200,363 7,177 7.16%
Loans, net of unearned discount(2) 799,314 24,813 6.21% 624,220 25,879 8.30%
---------- ------- -------- -------
Total earning assets.............. $1,176,036 $35,408 6.03% $832,081 $33,264 8.00%
========== ======= ======== =======
Interest-bearing deposits......... $ 931,931 $11,954 2.59% $638,487 $15,798 4.99%
Funds borrowed.................... 140,302 2,662 3.77% 100,967 3,052 6.01%
Long-term debt - Trust Preferred
Securities(3).................. 20,000 970 9.70% 15,801 761 9.57%
---------- ------- -------- -------
Total interest-bearing liabilities $1,092,232 15,586 2.87% $755,255 19,611 5.22%
========== ------- ======== -------
Tax equivalent net interest income $19,822 $13,653
======= =======
Net interest spread............... 3.16% 2.78%
Net interest margin............... 3.36% 3.26%
<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 $790,000 and $384,000 in the second quarters of 2002 and
2001, respectively, and $1.5 million and $648,000 for the six months
ended 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 June 30, 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.
19
THREE MONTHS ENDED JUNE 30, 2002
COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
CHANGE CHANGE
DUE TO DUE TO CHANGE TOTAL
RATE VOLUME DUE TO MIX CHANGE
------ ------- ---------- ------
(DOLLARS IN THOUSANDS)
Short-term investments................ $ (18) $ (8) $ 3 $ (23)
Investment securities................. (641) 3,156 (550) 1,965
Loans, net of unearned discount....... (2,814) 3,321 (719) (212)
------ ------ ------- ------
Total interest income.............. (3,473) 6,469 (1,266) 1,730
------ ------ ------- ------
Interest-bearing deposits............. (3,689) 3,595 (1,759) (1,853)
Funds borrowed........................ (502) 466 (156) (192)
Long-term debt - Trust Preferred
Securities......................... -- -- -- --
------ ------ ------- ------
Total interest expense............. (4,191) 4,061 (1,915) (2,045)
------ ------ ------- ------
Net interest income................... $ 718 $2,408 $ 649 $ 3,775
------ ------ ------- ------
SIX MONTHS ENDED JUNE 30, 2002
COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
CHANGE CHANGE
DUE TO DUE TO CHANGE TOTAL
RATE VOLUME DUE TO MIX CHANGE
------ ------- ---------- ------
(DOLLARS IN THOUSANDS)
Short-term investments................ $ (139) $ (127) $ 83 $ (183)
Investment securities................. (1,480) 6,161 (1,288) 3,393
Loans, net of unearned discount....... (6,469) 7,207 (1,804) (1,066)
------- ------- ------- -------
Total interest income.............. (8,088) 13,241 (3,009) 2,144
------- ------- ------- -------
Interest-bearing deposits............. (7,599) 7,261 (3,505) (3,843)
Funds borrowed........................ (1,122) 1,172 (440) (390)
Long-term debt - Trust Preferred 199
Securities......................... 10 -- 209
------- ------- ------- -------
Total interest expense............. (8,711) 8,632 (3,945) (4,024)
------- ------- ------- -------
Net interest income................... $ 623 $ 4,609 $ 936 $ 6,168
======= ======= ======= =======
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
24.
The provision for loan losses was $1.6 million in the second quarter of
2002, versus $511,000 in the first quarter 2002 and $738,000 in the second
quarter of 2001. The allowance as a percentage of loans was 1.14% as of June 30,
2002 compared to 1.12% at March 31, 2002 and 1.04% as of June 30, 2001. The
increased level of the allowance reflects management's ongoing assessment of the
losses that are probable and reasonably estimable in the
20
loan portfolio. Our analysis is influenced by the volume and quality of loans
and commitments in the portfolio, loss experience and economic conditions.
NON-INTEREST INCOME
Non-interest income increased to $2.1 million in the second quarter of
2002, reflecting an increase of approximately $699,000 or 51% compared to the
second quarter of 2001. The increase in non-interest income is attributable to
increased banking, trust service and other income, offset by lower securities
gains. The Company recognized $274,000 of net securities gains during the second
quarter 2002, compared to net securities gains of $353,000 during the second
quarter of 2001.
The following table presents the breakdown of banking, trust services
and other income for the periods presented:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
2002 2001 2002 2001
----------- ----------- --------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Trust services........................ $ 777,232 $ 707,845 $1,501,505 $1,398,418
Residential real estate secondary
market fees........................ 503,402 85,833 905,360 144,730
Banking and other services............ 373,344 230,842 646,684 434,390
BOLI.................................. 147,500 -- 290,000 --
---------- ---------- ---------- ----------
Total................................. $1,801,478 $1,024,520 $3,343,549 $1,977,538
========== ========== ========== ==========
Trust assets under administration increased to $733.9 million at June
30, 2002 compared to $712.0 million at June 30, 2001, and down from $758.2
million at March 31, 2002. The nominal 3% decrease in trust assets under
administration since March 31, 2002 is attributable primarily to continued
weakness in the domestic equity markets, offset by new wealth management
business generated during the quarter. Trust fee revenue increased by $69,387 to
$777,232 for the quarter ended June 30, 2002, an increase of 10% over the prior
year quarter. The increase reflects continued growth in new wealth management
accounts. Fees from sales of residential loans in the secondary market increased
to $503,402 during the second quarter of 2002 from $85,833 in the prior year
quarter. The increase in fees from sales of residential loans results from new
business generated in both our St. Louis and Chicago offices. During 2002, we
have been experiencing increased demand for residential loans as a result of the
historically low level of market interest rates. Banking and other income
increased by $142,502 to $373,344 for the second quarter 2002 as compared to the
prior year quarter, reflecting growth in deposit accounts and the implementation
of a new fee structure applied on deposit relationships.
During the second quarter of 2002, we recognized income of $147,500
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 June 30,
2002 was $10.4 million and is included in other assets on the balance sheet.
For the remainder of 2002, if rates remain at current levels, we expect
to continue to experience demand for residential loans as clients refinance
current mortgages. We plan to sell these loans in the secondary market, which
will result in continued loan fees upon such sale. For the remainder of 2002, we
expect to experience pressure in our wealth management segment and in trust
services income particularly, assuming continued weakness in the equity markets.
We expect to experience continued growth in banking and other services fee-based
income for the remainder of 2002 as compared to the same period in 2001.
21
NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
2002 2001 2002 2001
----------- ----------- --------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Salaries and employee benefits........ $ 3,469 $ 1,855 $ 6,683 $ 4,289
Occupancy............................. 1,206 960 2,345 1,848
Professional fees..................... 1,027 743 1,918 1,273
Marketing............................. 374 265 739 614
Data processing....................... 374 268 682 572
Postage, telephone and delivery....... 163 200 321 381
Office supplies and printing.......... 61 110 114 192
Insurance............................. 106 88 199 181
Goodwill.............................. - 206 - 412
Other expense......................... 333 704 584 923
------- -------- ------- -------
Total non-interest expense............ $ 7,113 $ 5,399 $13,585 $10,685
======= ======== ======= =======
Non-interest expense increased to $7.1 million in the second quarter of
2002 from $5.4 million in the second quarter of 2001. The increase in
non-interest expense between quarters reflects the continued growth of the
organization during the twelve-month period ended June 30, 2002. The 32%
increase in noninterest expense between periods is primarily attributable to
increases in salaries and employee benefits resulting from the growth in the
number of employees at the Company and compares favorably to the larger
increases in net interest income and non interest income for the same period.
The elimination of goodwill amortization in 2002 resulted in a favorable impact
of $412,000 to non-interest expense for the six months ended June 30, 2002. The
efficiency ratio improved significantly to 55.4% in the second quarter of 2002
from 64.5% in the prior year quarter, as growth in revenue contribution at all
locations has outpaced increases in recurring operational costs. On a
tax-equivalent basis, this ratio indicates that in the second quarter of 2002,
we spent 55.4 cents to generate each dollar of revenue, compared to 64.5 cents
in the second quarter of 2001. During the remainder of 2002, we expect to
maintain a range of 55% to 60% for our level of operating efficiency. This range
of operating efficiency will continue to compare favorably to our operating
efficiency ratio reported for the comparable periods of 2001, as revenue
generated at the new offices outpaces the increases in related operating
expenses.
Salaries and benefits increased to $3.5 million, or 87% during the
second quarter 2002 as compared to the year ago quarter, reflecting the
increased level of full-time equivalent employees to 181 people at June 30, 2002
as compared to 143 people at June 30, 2001. Salaries and benefits increased 60%
during the first six months of 2002 to $6.7 million as compared to $4.3 million
for the first six months of 2001. The increase in salaries and employee benefits
is a result of the increased scope of operations and overall growth in the
organization.
Occupancy expense increased to $1.2 million during the second quarter
2002, reflecting an increase of 26% over the prior year quarter. Occupancy
expense increased to $2.3 million for the first six months of 2002, from $1.8
million for the first six months of 2001, reflecting an increase of 27%. The
rental of additional floor space in the downtown Chicago office during 2002, and
the depreciation of fixed assets, software and equipment comprise this increase.
In May of 2002, the Company acquired the office building currently occupied by
the St. Charles location of The PrivateBank (Chicago). The $1.8 million cash
purchase was made based on a fair market value appraisal and was paid to Towne
Square Realty L.L.C. The St. Charles location currently leases the space from
the Company.
Professional fees increased to $1.0 million during the second quarter
of 2002, reflecting an increase of 38% over the prior year quarter. During the
six months ended June 30, 2002, professional fees increased by $645,000 over the
prior year's first six months, a 51% increase over prior year. 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. During 2002, the
continued focus on the improvement and upgrade of information technology has
resulted in the investment in more personnel, software and hardware.
During the second quarter 2002, insurance expense increased 20%
compared to the prior year quarter to $106,000 as a result of continued growth
in the number of employees and locations requiring additional insurance
22
coverage. For the remainder of 2002, we expect insurance expense to increase
approximately 65% relative to our current level of insurance expense as all of
our coverage was recently renegotiated pursuant to maturing policies.
Postage, telephone and delivery decreased to $163,000 during the second
quarter 2002, a decrease of 19% over the prior year quarter. Office supplies and
printing costs decreased to $61,000 during the second quarter 2002, a 45%
decrease as compared to the prior year quarter. Office supplies and printing
expenses decreased 41% for the first six months of 2002 from the year-ago
period's level of $192,000 to $114,000. Office supplies and printing costs were
higher in the prior year quarter due to start-up costs associated with our newer
offices. Data processing fees increased 40% from $268,000 in the second quarter
2001 to $374,000 for the second quarter 2002. Data processing fees increased
from $572,000 for the first six months of 2001 to $682,000 for the first six
months of 2002, an increase of 19%. The increase in data processing expense
during 2002 reflects increased costs associated with the reconfiguration of our
data lines to support our new data line infrastructure that provides complete
redundancy of our main operating facility at one of our bank locations.
Other non-interest expense decreased 53% from $704,000 in the prior
year quarter 2001 to $333,000 in the current quarter 2002, due primarily to
non-recurring charges incurred in the second quarter 2001 in the amount of
$561,000 related to the resolution of certain items associated with prior
systems conversions. For the six months ended June 30, 2002, other non-interest
expense decreased from $922,000 in the prior year to $584,000 in the current
period, a decrease of 37%.
INCOME TAXES
The following table shows our income before income taxes, applicable
income taxes and effective tax rate for the six months ended June 30, 2002 and
2001, respectively (in thousands):
SIX MONTHS ENDED
JUNE 30,
----------------
2002 2001
------- -------
Income before taxes.......... $6,027 $3,759
Income tax provision......... 1,273 1,068
Effective tax rate........... 21.1% 28.4%
The lower effective tax rate for the six months ended June 30, 2002 as
compared to the prior year period 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 $78.0
million at June 30, 2001 to $128.0 million at June 30, 2002, an increase of 64%.
The effective income tax rate varies from statutory rates principally due to
certain interest income, which is tax-exempt for federal or state purposes, and
certain expenses, which are disallowed for tax purposes.
FINANCIAL CONDITION
TOTAL ASSETS
Total assets increased to $1.3 billion at June 30, 2002, an increase of
$155.0 million, or 13% over total assets of $1.2 billion at December 31, 2001,
and an increase of $387.1 million, or 41% over $944.9 million of total assets at
June 30, 2001. The balance sheet growth during the six months ended June 30,
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 that resulted from the growth in core deposits and our
continued reliance on brokered deposits.
LOANS
Total loans increased to $865.8 million, an increase of $85.0 million,
or 11%, from $780.8 million at December 31, 2001 and an increase of $199.5
million, or 30%, from $666.3 million at June 30, 2001.
23
The PrivateBank (St. Louis) had loans outstanding of $99.0 million as
of June 30, 2002, growth of $25.3 million since December 31, 2001. The remaining
loan growth of $59.7 million experienced by the Company since December 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:
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
LOANS
Commercial real estate........... $382,581 $310,869 $240,200
Residential real estate.......... 90,478 89,889 90,018
Commercial....................... 156,404 163,279 134,626
Personal(1)...................... 135,178 124,206 117,230
Construction..................... 101,137 92,528 84,188
-------- -------- --------
Total loans................... $865,778 $780,771 $666,262
======== ======== ========
<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.
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 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.
The allowance for loan losses as a percentage of total loans was 1.14%
at June 30, 2002, 1.06% at December 31, 2001 and 1.04% at June 30, 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, primarily related to one commercial real estate
credit, totaled $490,000 for the quarter ended June 30, 2002 versus net
charge-offs of $297,000 in the year earlier period and $27,000 in the first
quarter 2002. The provision for loan losses was $1.6 million in the second
quarter of 2002, versus $738,000 in the second quarter of 2001 and $511,000 in
the first quarter of 2002. 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 quality, volume
and trends, prevailing economic and business conditions, specific loan review
and other relevant factors.
Following is a summary of changes in the allowance for loan losses for
the six months ended June 30, 2002 and 2001 (in thousands):
2002 2001
------ ------
Balance, January 1.............................................. $8,306 $6,108
Provisions charged to earnings.................................. 2,120 1,077
Loans charged-off, net of recoveries............................ (517) (289)
------ ------
Balance, June 30................................................ $9,909 $6,896
====== ======
24
NONPERFORMING LOANS
The following table classifies our non-performing loans as of the dates shown:
6/30/02 3/31/02 12/31/01 9/30/01 6/30/01
--------- --------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
Nonaccrual loans...................... $ 649 $ 1,458 $ 664 $ 2,658 $ 1,504
Loans past due 90 days or more........ 2,518 1,448 2,504 3,766 938
------- ------- ------- ------- -------
Total nonperforming loans............. 3,167 2,906 3,168 6,424 2,442
Other real estate owned............... -- -- -- 62 --
------- ------- ------- ------- -------
Total nonperforming assets............ $ 3,167 $ 2,906 $ 3,168 $ 6,486 $ 2,442
======= ======= ======= ======= =======
Total nonaccrual loans to total loans. 0.07% 0.19% 0.09% 0.37% 0.23%
Total nonperforming loans to total
loans.............................. 0.37% 0.37% 0.41% 0.90% 0.37%
Total nonperforming assets to total
assets............................. 0.24% 0.24% 0.27% 0.62% 0.26%
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 $649,000 at June 30, 2002 as compared to $664,000
at December 31, 2001 and $1.5 million at June 30, 2001. Nonaccrual loans
decreased by $15,000 since December 31, 2001. Loans delinquent over 90 days
increased by $14,000 since December 31, 2001. Management believes credit quality
remains high.
At June 30, 2002, nonperforming loans as a percentage of total loans
were 0.37%, unchanged from March 31, 2002 and June 30, 2001. At June 30, 2002,
nonaccrual loans as a percentage of total loans were 0.07%, versus 0.19% at
March 31, 2002 and 0.23% at June 30, 2001.
25
INVESTMENT SECURITIES
The amortized cost and the estimated fair value of securities at June
30, 2002 and December 31, 2001, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
-----------------------------------------------------------
JUNE 30, 2002
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ------------- ------------- ------------
U.S. government agency mortgage backed
securities and collateralized
mortgage obligations.................. $ 99,227 $2,029 $(46) $101,210
Corporate collateralized mortgage
obligations........................... 16,151 558 ---- 16,709
Tax exempt municipal securities.......... 124,692 3,347 (18) 128,021
Taxable municipal securities............. 6,032 122 -- 6,154
Federal Home Loan Bank stock............. 127,408 -- -- 127,408
Other.................................... 12,168 420 -- 12,588
-------- ------ ---- --------
Total.................................... $385,678 $6,476 $(64) $392,090
======== ====== ==== ========
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. Gross unrealized gains in the portfolio increased to $6.4 million as of
June 30, 2002 due to the historically low interest rate environment at
quarter-end. Net unrealized gains of $4.2 million after tax resulted in an
increase in reported stockholders' equity at June 30, 2002. This was an increase
of $3.9 million from net unrealized gains of $323,000 recorded as part of equity
at December 31, 2001. Management believes 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 $392.1 million at June 30,
2002, up 18% 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 $21.1 million to $128.0 million as of June 30,
2002 compared to $106.9 million at December 31, 2001. These securities provide
net interest margin protection in a falling interest-rate environment. Corporate
collateralized mortgage obligations decreased $6.8 million to $16.7 millions as
of June 30, 2002 compared to $23.5 million at December 31, 2001. Investments in
Federal Home Loan Bank stock increased to $127.4 million at June 30, 2002, $34.4
million more than at December 31, 2001, as a result of purchases made to take
advantage of the liquid nature of the investment.
26
DEPOSITS AND FUNDS BORROWED
The following table presents the balances of deposits by category and
each category as a percentage of total deposits at June 30, 2002 and December
31, 2001:
JUNE 30, DECEMBER 31,
2002 2001
--------------------------- ----------------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
------------ ------------- ------------ --------------
(DOLLARS IN THOUSANDS)
Demand....................... $ 81,421 7% $ 73,146 9%
Savings...................... 6,061 1% 12,158 1%
Interest-bearing demand...... 54,694 5% 52,061 6%
Money market................. 406,509 38% 350,829 41%
Brokered deposits ........... 309,240 29% 138,911 17%
Other time deposits.......... 216,550 20% 223,390 26%
---------- --- -------- ---
Total deposits............ $1,074,475 100% $850,495 100%
========== === ======== ===
Total deposits of $1.1 billion at June 30, 2002 represent an increase
of $224.0 million or 26% as compared to total deposits of $850.5 million as of
December 31, 2001. Noninterest-bearing deposits increased by 11% to $81.4
million at June 30, 2002 as compared to $73.1 million at December 31, 2001.
Interest-bearing demand deposits increased by 5.1% to $54.7 million as compared
to $52.1 million at December 31, 2001. Money market accounts increased by $55.7
million to $406.5 million at June 30, 2002 as compared to $350.8 million at
December 31, 2001. Other time deposits decreased by approximately $6.8 million
to $216.6 million as compared to $223.4 million at year-end 2001. Brokered
deposits increased by $170.3 million to $309.2 million at June 30, 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 brokered 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 second quarter of 2002, no brokered deposits were
called. As of June 30, 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 2002, we
have utilized brokered deposits as a funding source in lieu of FHLB advances.
Federal Home Loan Bank borrowings totaled $67.0 million at June 30, 2002
compared to $115.4 million at December 31, 2001. Management anticipates that our
reliance on FHLB advances will remain at current levels for the remainder of
2002.
27
A summary of all funds borrowed and outstanding at June 30, 2002,
December 31, 2001 and June 30, 2001 is presented in the table below:
CURRENT JUNE 30, DECEMBER 31, JUNE 30,
AMOUNT RATE MATURITY 2002 2001 2001
- ------ ---- -------- ---- ---- ----
(IN THOUSANDS)
Borrowing under revolving line of credit
facility................................. 3.50 % 04/11/03 $15,000 $5,000 $ 250
Subordinated note............................. 3.89 2/11/07 5,000 5,000 5,000
FHLB open line advance........................ 1.74 daily -- 25,000 --
FHLB fixed advance (1)........................ 6.50 10/23/05 25,493 24,886 25,000
FHLB fixed advance............................ 6.21 12/05/03 30,000 30,000 30,000
FHLB fixed advance............................ 4.30 02/01/02 -- 25,000 25,000
FHLB fixed advance............................ 6.49 11/13/01 -- -- 2,000
FHLB fixed advance............................ 5.89 06/21/02 -- 500 500
FHLB fixed advance............................ 2.46 06/16/03 500 -- --
FHLB fixed advance............................ 5.89 12/20/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.38 01/13/03 1,000 1,000 1,000
FHLB fixed advance............................ 5.33 07/22/02 1,000 1,000 1,000
FHLB fixed advance............................ 2.98 03/10/03 1,000 1,000 1,000
FHLB fixed advance............................ 2.70 05/08/03 1,000 1,000 1,000
FHLB fixed advance............................ 2.39 11/12/02 5,000 5,000 --
FHLB fixed advance............................ 2.74 7/17/03 1,000 -- --
Federal funds purchased....................... 2.11 daily 65,000 103,000 10,000
Demand repurchase agreements (2).............. 1.60 daily 2,506 3,102 3,378
-------- -------- --------
Total funds borrowed..................... $154,499 $231,488 $106,128
======== ======== ========
<FN>
________________
(1) This FHLB advance is subject to a fair value hedge utilizing an interest
rate swap with a fair value of $2.1 million. The contractual par amount on
the advance is $25.0 million.
(2) 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 June 30, 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 June 30, 2002, $20.0 million of the trust preferred securities was
treated as Tier 1 capital. Stockholders' equity rose to $71.7 million at June
30, 2002, an increase of $9.4 million from the 2001 year-end level, due to
year-to-date 2002 net income of $4.8 million and a $3.9 million increase in the
fair value of the available-for-sale investment securities portfolio since year
end.
The Company and its banking subsidiaries are subject to regulatory
capital requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities and certain off-balance-sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings and other factors, and the regulators can lower classifications in
certain areas. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial
statements.
The prompt corrective action regulations provide five classifications,
including well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If a banking
subsidiary is not "well capitalized," regulatory approval is required to accept
brokered deposits. If undercapitalized, capital distributions are limited, as is
asset growth and expansion and plans for capital restoration are required.
28
The following table reflects our consolidated measures of capital at
June 30, 2002, December 31, 2001 and June 30, 2001:
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
--------- ----------- ---------
Leverage ratio........................ 6.07% 6.64% 7.26%
Tier 1 risk-based capital ratio....... 7.84% 8.18% 9.17%
Total risk-based capital ratio........ 9.37% 9.71% 10.98%
Total equity to total assets.......... 5.38% 5.29% 6.12%
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 June 30, 2002, on a consolidated basis, the Company together with
each of the banking subsidiaries continued to exceed the minimum levels of all
regulatory capital requirements and was considered "adequately capitalized".
Each stand-alone 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 inflows used in operations were $12.5 million in the first six
months of 2002 compared to a net cash inflow of $4.7 million a year earlier. Net
cash outflows from investing activities were $142.6 million in the first six
months of 2002 compared to a net cash outflow of $119.0 million a year earlier.
Cash inflows from financing activities in the first six months of 2002 were
$147.0 million compared to a net inflow of $109.5 million in the first six
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 second quarter 2002, we continued to rely 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 29% of
total deposits at June 30, 2002 compared to 17% of total deposits at December
31, 2001. Brokered deposits are obtained by negotiating amount, rate and term
with broker dealers that make a market in this product. Brokered deposits are
raised by broker dealers on a best-efforts basis and are not guaranteed until
settlement, which typically occurs five business days from the date of placing
the order for the brokered deposits. As brokered deposits mature, we are
required to return the funds via wire transfer together with interest due to the
broker dealer that originally placed the deposit with our institution. New
brokered deposits are negotiated with broker dealers that are approved by our
Board of Directors and all relevant terms are negotiated at that time.
29
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 June 30, 2002 and December 31,
2001:
JUNE 30, 2002
-------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
91-365 OVER 5
0-90 DAYS DAYS 1-5 YEARS YEARS TOTAL
--------- ----------- --------- ----- -----
INTEREST-EARNING ASSETS
Loans, including loans held for
sale............................ $538,940 $ 82,859 $ 209,074 $ 38,818 $ 869,691
Investments at amortized cost...... 133,204 41,260 41,613 169,602 385,679
Federal funds sold................. 75 -- -- -- 75
-------- ---------- ---------- ---------- ----------
Total interest-earning assets...... $672,219 $ 124,119 $ 250,687 $ 208,420 $1,255,445
======== ========== ========== ========== ==========
INTEREST-BEARING LIABILITIES
Interest-bearing demand............ $ -- $ -- $ -- $ 54,694 $ 54,694
Savings and money market........... 209,220 197,290 -- 6,060 412,570
Time deposits...................... 209,537 296,976 15,961 3,316 525,790
Funds borrowed (1)................. 113,506 9,500 51,000 -- 174,006
-------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities. $532,263 $ 503,766 $ 66,961 $ 64,070 $1,167,060
======== ========== ========== ========== ==========
CUMULATIVE
Rate sensitive assets (RSA)........ $672,219 $ 796,338 $1,047,025 $1,255,445
Rate sensitive liabilities (RSL)... 532,263 1,036,029 1,102,990 1,167,060
GAP (GAP=RSA-RSL).................. 139,956 (239,691) (55,965) 88,385
RSA/RSL............................ 126.29% 76.86% 94.93% 107.57%
RSA/Total assets................... 50.47% 59.78% 78.61% 94.25%
RSL/Total assets................... 39.96% 77.78% 82.81% 87.62%
GAP/Total assets................... 10.51% 17.99% 4.20% 6.64%
GAP/Total RSA...................... 20.82% 30.10% 5.35% 7.04%
<FN>
(1) Funds Borrowed does not include the fair market value adjustment of the
hedged FHLB advance.
</FN>
30
DECEMBER 31, 2001
-------------------------------------------------------------------
TIME TO MATURITY OR REPRICING
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
91-365 OVER 5
0-90 DAYS DAYS 1-5 YEARS YEARS TOTAL
--------- ----------- --------- ----- -----
INTEREST-EARNING ASSETS
Loans, including loans held for sale. $ 467,083 $ 66,521 $ 204,859 $ 53,643 $ 792,106
Investments at amortized cost........ 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 (1)................... 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
<FN>
(1) Funds Borrowed does not include the fair market value adjustment of the
hedged FHLB advance.
</FN>
The following table shows the impact of an immediate 200 basis point
change in interest rates as of June 30, 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.
---------------------------------------------------------
JUNE 30, 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.... 0.6% -3.7% 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 June 30, 2002 and December 31, 2001,
we would suffer a decline in net interest income of -3.7% and -4.7%,
respectively, over each one-year period. Conversely, a shift of +200 basis
points would increase net interest income 0.6% over a one-year horizon based on
June 30, 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 June 30, 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
31
position of the balance sheet in the second 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
difference in the effect on net interest income at June 30, 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
Information and data contained in this report that are not historical
facts constitute 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), which involve significant risks and uncertainties. The
Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
invoking these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain and actual results
may differ from those predicted. Factors which could have a material adverse
effect on the operations and future prospects of the Company include, but are
not limited to, fluctuations in market rates of interest and loan and deposit
pricing, greater than anticipated deterioration in asset quality due to a
prolonged economic downturn in the greater Chicago and St. Louis metropolitan
areas or other unanticipated circumstances, legislative or regulatory changes,
adverse developments in the Company's loan or investment portfolios,
competition, the possible dilutive effect of potential acquisitions or
expansion, if any, and changes in accounting principles, policies and
guidelines. 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.
32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on April 25, 2002.
(b) At the Annual Meeting of Stockholders, the following matters
were submitted to and approved by a vote of Stockholders:
(1) The election of five Class III directors for a
three-year term ending at the Annual Meeting of
Stockholders to be held in 2005:
Directors Votes For Votes Withheld
--------- --------- --------------
Ralph B. Mandell 3,984,809 65,754
Naomi T. Borwell 4,047,333 3,230
William A. Castellano 4,047,833 2,730
Alvin J. Gottlieb 4,046,633 3,930
William R. Langley 4,047,833 2,730
(2) All director nominees were re-elected at the Annual
Meeting. The following directors continue to serve
after the Annual Meeting:
Continuing Director Term Expires
------------------- ------------
Donald L. Beal 2003
John E. Gorman 2003
Richard C. Jensen 2003
Caren L. Reed 2003
Michael B. Susman 2003
Robert F. Coleman 2004
James M. Guyette 2004
Philip M. Kayman 2004
Thomas F. Meagher 2004
William J. Podl 2004
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 (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).
33
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.
15.0 Acknowledgment of Independent Auditors
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.3 Independent Accountants' Review Report
(b) Reports on Form 8-K.
(1) Current Report on Form 8-K dated April 22, 2002,
filed with the SEC on April 22, 2002.
(2) Current Report on Form 8-K dated May 24, 2002, filed
with the SEC on May 24, 2002.
34
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: August 14, 2002
35
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------
3.1 Amended and Restated Certificate of Incorporation of PrivateBancorp,
Inc. (filed as an exhibit to the Company's Form S-1 registration
statement (File No. 333-77147) and incorporated herein by reference).
3.2 [Intentionally left blank]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc. (filed as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and incorporated herein by reference).
4.1 Subordinated Note of PrivateBancorp, Inc., dated February 11, 2000,
principal amount of $5 million due February 11, 2007 (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.
15.0 Acknowledgment of Independent Auditors
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.3 Independent Accountants' Review Report