<PAGE>
As filed with the Securities and Exchange Commission on June 28, 1999.
Registration No. 333-77147
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT
NO. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
PRIVATEBANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
--------------
6022
(Primary Standard Industrial Classification Code Number)
Delaware 36-3681151
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Ten North Dearborn Street, Chicago, Illinois 60602, (312) 683-7100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Donald A. Roubitchek
Secretary/Treasurer and Chief Financial Officer
Ten North Dearborn Street, Chicago, Illinois 60602
(312) 683-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
Jennifer R. Evans, Esq. Craig R. Culbertson, Esq.
Vedder, Price, Kaufman & Kammholz Alexander Lourie, Esq.
222 North LaSalle Street Jenner & Block
Chicago, Illinois 60601 One IBM Plaza, 40th Floor
(312) 609-7500 Chicago, Illinois 60611
(312) 222-9350
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion; dated June 28, 1999.
PROSPECTUS
900,000 Shares
Common Stock
This is the initial public offering of our common stock. We anticipate that
the initial public offering price will be between $16.00 and $18.00 per share.
Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "PVTB."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 11.
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public Offering Price............................ $ $
Underwriting Discount............................ $ $
Proceeds to PrivateBancorp, Inc.................. $ $
</TABLE>
This is a firm commitment underwriting. We have granted the underwriters a
30-day option to purchase up to 135,000 additional shares of our common stock
on the same terms and conditions set forth above to cover over-allotments, if
any.
The shares of common stock that are being offered are not savings accounts or
deposits or other obligations of a bank and are not insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation or any governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The underwriters expect to deliver the shares to purchasers on , 1999.
EVEREN Securities, Inc. Stifel, Nicolaus & Company
Incorporated
The date of this prospectus is , 1999
<PAGE>
PrivateBancorp, Inc.
[Map of greater Chicago metropolitan area depicting locations of Company's
banking facilities and main bank office.] and [graphic of services offered]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 11
Special Note Regarding Forward-Looking Statements......................... 17
Pending Acquisition....................................................... 18
Use of Proceeds........................................................... 20
Dividends; No Prior Trading Market........................................ 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Business.................................................................. 23
Selected Consolidated Financial Data...................................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Management................................................................ 56
Certain Transactions...................................................... 65
Principal Stockholders.................................................... 66
Supervision and Regulation................................................ 67
Description of Capital Stock.............................................. 74
Shares Eligible for Future Sale........................................... 78
Underwriting.............................................................. 81
Legal Matters............................................................. 83
Experts................................................................... 83
Where You Can Get More Information........................................ 83
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
Our executive offices are located at The PrivateBank and Trust Company, Ten
North Dearborn Street, Chicago, Illinois 60602. Our telephone number is (312)
683-7100.
----------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. The
information contained in this document may have changed since the date of this
prospectus. This prospectus is not an offer to sell and it is not soliciting an
offer to buy the common stock in any state where offers or sales are not
permitted.
----------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligations to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial statements and
related notes, before making a decision to invest in the common stock. Unless
we indicate otherwise, all share, per share and financial information in this
prospectus: (a) reflects the two-for-one stock split of our common stock
effective as of June 28, 1999; and (b) assumes no exercise of the underwriters'
option to purchase up to an additional 135,000 shares of common stock from us.
PrivateBancorp
PrivateBancorp is a Delaware corporation headquartered in Chicago, Illinois.
We are a bank holding company with one bank subsidiary, The PrivateBank and
Trust Company, which we formed as a de novo, or start-up, bank in 1991.
PrivateBank provides private banking and trust services primarily to
professionals, entrepreneurial individuals and their business interests. Our
managing directors seek to build strong relationships with clients by
emphasizing a consistently superior level of personalized service. We focus on
the personal financial services needs of our clients as well as the banking
needs of their various business and investment ventures. Clients are teamed
with dedicated managing directors so they are dealing directly with our
decision-makers. In this way, we are able to tailor our loan products and other
services to be highly responsive to the individual situation of each client.
Since year-end 1995, we have grown our asset base at a compound annual rate
of 27.3% to $431.1 million as of March 31, 1999. During the same period, loans
have grown at a compound annual rate of 31.6% to $307.8 million, deposits at a
compound annual rate of 27.0% to $384.5 million and trust assets under
administration at a compound annual rate of 40.2% to $637.4 million.
[CHART APPEARS HERE]
4
<PAGE>
Our Market
We have targeted affluent individuals with annual incomes in excess of
$150,000, professionals, owners of closely-held businesses and commercial real
estate investors because we believe that they have significant unmet demand for
personalized services. Demographic data compiled by National Decision Systems,
San Diego, California, indicates that there is significant growth potential in
the affluent segment of the population. In the metropolitan Chicago area, the
number of households with annual incomes greater than $150,000 was estimated at
190,042 in 1998, compared to 63,861 households in 1990. This equates to a
compound annual growth rate of 14.6%, versus a growth rate for the total number
of households in the metropolitan Chicago area of 0.6%. By 2003, the number of
these affluent households in the Chicagoland area is expected to increase to
358,000, representing an annual growth rate of 13.5%, while the aggregate
number of households is expected to increase at an annual growth rate of only
0.3%.
[CHART APPEARS HERE]
- --------
(1) Based on information from the 1990 U.S. census.
(2) Estimated by National Decision Systems based on, among other things, (a) a
time series of estimates made by the U.S. Census Bureau regarding six
counties in the Chicago metropolitan area; and (b) data provided by the
Department of Planning of the City of Chicago.
(3) Generated by National Decision Systems through the application of an
econometric model of the Chicago metropolitan area to the 1998 estimate.
The econometric forecasting model considers the impact of various economic
factors such as employment, inflation, interest rates and housing starts on
future population growth.
5
<PAGE>
The PrivateBank and Trust Approach
We believe that we have developed a unique approach to private banking
designed to provide our clients with unparalleled service. We emphasize
personalized client relationships and custom-tailored financial services,
complemented by the convenience of technology. The key aspects of our private
banking approach are:
. Personal Relationships. Each of our clients is matched with a dedicated
team of individuals, headed by a managing director who becomes the
client's central point of contact with PrivateBank. Through these
dedicated teams, we are able to build strong, ongoing, personal
relationships with our clients.
. Affluent Target Client. We offer our services to those members of the
affluent segment of the population who are focused on building and
preserving wealth. Our clients include affluent professionals,
entrepreneurial individuals and their business interests.
. Customized Financial Services. We provide our clients with a wide
variety of financial services beyond traditional banking products and
are constantly working with our clients to identify their particular
needs and to develop and shape our services to meet those needs.
. Streamlined Decision-Making Process. Unlike many larger banks, we have
not instituted a lengthy chain of command. Our clients deal directly
with their dedicated managing directors, whose broad decision-making
authority allows them to respond quickly and efficiently.
. Enhanced Personal Service through Technology. While we encourage our
clients to contact us directly, we also utilize technology to complement
and enhance our service. Through PrivateBank Access, an internet banking
service, we offer clients the convenience of accessing our services from
remote locations at any time.
. Extensive Financial Network. To better compete with other financial
service providers, we rely on a network of professionals in the
financial and investment communities with whom we have developed
relationships over the years. This network allows us to deliver to our
clients a broad array of diverse, high-quality services, including
investment management, insurance and brokerage.
Strategy for Growth
Our growth strategy entails five key components:
. Developing Our Existing Relationships. An important part of our future
growth will be the continued development of our existing client
relationships. As the needs of our clients change and grow, we hope to
grow with them and continue to provide them with our unique, flexible
services.
. Increasing the Reach of Our Existing Offices. We hope to expand the
market presence of our existing offices, especially our Oak Brook,
Illinois and Wilmette, Illinois branches. We believe that there is a
growing need for private banking services in these regions which is
largely unmet, and we hope to capitalize on the experience and
reputations of our managing directors in meeting this need.
. Opening Additional Offices in the Chicago Metropolitan Area. The success
of our Oak Brook and Wilmette offices has confirmed a significant demand
by our target clients for specialized private banking services in the
Chicago metropolitan area. We have recently undertaken to establish a
new office in St. Charles, Illinois to meet this demand, and we will
consider opening additional offices as we identify favorable locations
and other qualified senior executives to add to our management team. See
"Pending Acquisition."
. Expanding into New Markets. We believe that the demand for our private
banking services is not unique to Chicago. As we identify Midwestern
markets that present similar opportunities for growth and development,
we intend to pursue selective geographic expansion through acquisitions
of existing institutions or by establishing new banking offices.
. Expanding into New Product Lines. We intend to identify additional
financial services not currently offered by PrivateBank in order to
increase our franchise value by diversifying our fee income,
strengthening our client relationships and broadening our product line.
We may expand our product line by acquisition. We will focus on
companies that emphasize quality service and the value of relationships
and complement our products and client base.
6
<PAGE>
Our Experienced Management Team
PrivateBancorp, Inc. was founded in November 1989 by Ralph B. Mandell and
William R. Langley. Together, they had previously headed a $1.2 billion
publicly traded suburban Chicago bank holding company which they successfully
merged into First Chicago Corporation in 1987. As founders of our company, they
assembled a team of senior bankers with diverse experience and varied
backgrounds. Mr. Mandell, with 34 years in banking, has been instrumental in
the development of many of our client relationships, either personally or by
providing his assistance. As chief executive officer, he sets the direction of
our company and instills our sense of corporate culture. Mr. Langley retired
from active management in 1995, but remains on our Board of Directors.
Our current management team consists of eleven managing directors, including
Mr. Mandell, and six associate managing directors. Our managing directors are
senior financial professionals with an average of 27 years of banking and
financial experience. Together with our Board of Directors, they currently own
an aggregate of 1,079,692 shares of our common stock, which represents
approximately 31.3% of the shares currently outstanding. In addition to Mr.
Mandell, two other managing directors, Caren L. Reed and Donald A. Roubitchek
who have both been involved with the company since 1990, also serve on our
Board of Directors. Mr. Reed, our vice chairman and chief credit officer, has
spent 43 years in banking and has extensive experience in relationship
management and credit administration. Our quality loan portfolio and credit
culture was developed under his tutelage. Mr. Roubitchek, our chief financial
officer, also serves as our chief administrative and operating officer. Mr.
Roubitchek, with 27 years of experience, has been responsible for managing our
rapid growth.
Of our other three executive officers, Gary S. Collins, a managing director
since 1991, has over 24 years of experience and has been responsible for a
considerable number of client relationships through his expertise in real
estate lending. M. Gail Fitzgerald, a managing director since 1996, has 20
years of trust experience and is our senior trust officer responsible for
managing our trust area. Hugh H. McLean, a managing director since 1996, has
over 19 years of experience. He serves as head of our credit marketing group
and manages our Oak Brook office.
7
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by PrivateBancorp........ 900,000 shares(1)
Common stock to be outstanding after the 4,351,824 shares(2)
offering.....................................
Price to Public............................... $ per share
Use of Proceeds............................... We intend to use the net proceeds from the sale of
shares of common stock offered hereby for general
corporate purposes to support our anticipated future
growth. This may include:
. funding internal growth at the current
locations of our banking subsidiary;
. creating new offices in the Chicago
metropolitan area;
. expanding our presence into new markets
located in the Midwest; and/or
. acquiring businesses that are complementary
to ours.
Proposed Nasdaq National MarketSM Symbol...... PVTB
</TABLE>
- --------
(1) We have granted the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to an additional 135,000
shares of our common stock at the initial public offering price, solely to
cover over-allotments, if any. See "Underwriting."
(2) This number does not include shares reserved for issuance under our stock-
based compensation program and upon the exercise of various other
outstanding stock options. Pursuant to the terms of these programs, we are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. If we
issue these shares, the percentage of the common stock you own may be
diluted. The following is a summary of additional shares of common stock
that we have approved for issuance:
. 476,607 shares reserved for issuance under a stock incentive plan
maintained for the benefit of eligible officers and employees. This
number includes (a) 50,119 shares available for future awards, and (b)
426,488 shares issuable upon exercise of currently outstanding options
at a weighted average exercise price of $10.37 per share previously
granted under the plan.
. 206,320 shares reserved for issuance under other outstanding options to
purchase common stock that were previously granted to directors and
officers. The weighted average exercise price of these options is $10.51
per share.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes certain consolidated financial information of
PrivateBancorp. You should read this table in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
----------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of
Income Data:
Interest income:
Loans, including fees.. $ 5,636 $ 4,624 $ 19,619 $ 16,729 $ 12,152 $ 10,053 $ 6,418
Federal funds sold and
interest-bearing
deposits.............. 48 498 2,181 875 1,392 1,149 358
Securities............. 1,570 727 3,492 2,519 2,396 1,700 1,265
-------- -------- -------- -------- -------- -------- --------
Total interest
income.............. 7,254 5,849 25,292 20,123 15,940 12,902 8,041
-------- -------- -------- -------- -------- -------- --------
Interest expense:
Interest-bearing
demand deposits....... 142 121 487 377 305 276 210
Savings and money
market deposit
accounts.............. 1,800 1,629 6,651 5,880 4,613 3,484 2,139
Other time deposits.... 1,752 1,346 6,155 3,821 2,973 2,620 782
Funds borrowed......... 144 -- 19 3 143 50 62
-------- -------- -------- -------- -------- -------- --------
Total interest
expense............. 3,838 3,096 13,312 10,081 8,034 6,430 3,193
-------- -------- -------- -------- -------- -------- --------
Net interest income.. 3,416 2,753 11,980 10,042 7,906 6,472 4,848
Provision for loan
losses................. 285 91 362 603 524 930 305
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses......... 3,131 2,662 11,618 9,439 7,382 5,542 4,543
-------- -------- -------- -------- -------- -------- --------
Non-interest income:
Banking and trust
services.............. 442 273 1,281 1,210 911 674 414
Securities gains....... -- -- 40 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total non-interest
income.............. 442 273 1,321 1,210 911 674 414
-------- -------- -------- -------- -------- -------- --------
Non-interest expense:
Salaries and employee
benefits.............. 1,115 1,102 4,077 3,902 3,411 2,749 2,054
Occupancy.............. 352 334 1,379 1,274 990 946 745
Data processing........ 131 120 508 396 334 282 262
Marketing.............. 153 139 567 500 424 296 272
Amortization of
organization costs.... -- -- -- -- 23 280 280
Professional fees...... 178 94 561 448 326 284 253
Insurance.............. 41 30 134 115 82 238 342
Other expense.......... 285 181 864 627 508 434 321
-------- -------- -------- -------- -------- -------- --------
Total non-interest
expense............. 2,255 2,000 8,090 7,262 6,098 5,509 4,529
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes............... 1,318 935 4,849 3,387 2,195 707 428
Income tax provision... 291 365 1,839 1,242 762 (403) 3
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 1,027 $ 570 $ 3,010 $ 2,145 $ 1,433 $ 1,110 $ 425
======== ======== ======== ======== ======== ======== ========
Per Share Data:
Basic earnings......... $ 0.30 $ 0.18 $ 0.91 $ 0.69 $ 0.49 $ 0.39 $ 0.17
Diluted earnings....... 0.28 0.17 0.86 0.65 0.47 0.38 0.16
Dividends.............. 0.03 0.02 0.08 0.07 0.07 0.03 --
Book value (at end of
period)............... 8.71 7.86 8.53 7.67 6.84 6.47 6.13
Selected Financial
Condition Data
(at end of period):
Total securities(1)..... $105,136 $ 48,322 $116,891 $ 65,383 $ 44,617 $ 38,296 $ 24,669
Total loans............. 307,766 223,746 281,965 218,495 171,343 126,069 98,380
Total assets............ 431,055 331,924 416,308 311,872 246,734 196,917 141,826
Total deposits.......... 384,454 304,660 364,994 285,773 222,571 176,868 122,925
Funds borrowed.......... 10,000 -- 20,000 -- 3,000 700 1,000
Total stockholders'
equity................. 30,054 25,400 29,274 24,688 20,222 18,445 17,471
Trust assets under
administration......... $637,422 $524,019 $611,650 $469,646 $328,662 $212,456 $168,872
</TABLE>
- --------
(1) For all periods after 1994, the entire securities portfolio was classified
"Available for Sale." For 1994, the entire securities portfolio was
classified "Held to Maturity."
9
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
-------------- ---------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios
and Other Data(1):
Performance Ratios:
Net interest margin(2)..... 3.57% 3.65% 3.61% 4.01% 3.73% 3.95% 4.09%
Net interest spread(3)..... 3.02 2.96 2.98 3.31 3.03 3.16 3.42
Non-interest income to
average assets............ 0.42 0.34 0.37 0.45 0.42 0.40 0.35
Non-interest expense to
average assets............ 2.13 2.49 2.29 2.71 2.79 3.31 3.79
Net overhead ratio(4)...... 1.71 2.15 1.91 2.26 2.38 2.90 3.44
Efficiency ratio(5)........ 58.45 67.65 60.82 64.53 69.17 77.09 86.07
Return on average
assets(6)................. 0.97 0.71 0.85 0.80 0.66 0.67 0.36
Return on average
equity(7)................. 13.84 9.11 11.27 9.49 7.38 6.22 2.94
Dividend payout ratio...... 8.36 10.63 8.74 10.13 12.88 8.03 --
Asset Quality Ratios:
Non-performing loans to
total loans............... 0.12 0.32 0.36 0.24 0.65 1.90 0.15
Allowance for possible loan
losses to:
total loans............... 1.20 1.40 1.21 1.40 1.43 1.55 1.04
non-performing loans...... 1,025 440 336 578 220 82 711
Net charge-offs to average
total loans............... -- -- -- -- 0.02 -- 0.01
Non-performing assets to
total assets.............. 0.08 0.21 0.24 0.17 0.45 1.22 0.10
Balance Sheet Ratios:
Loans to deposits.......... 80.1 73.4 77.3 76.5 77.0 71.3 80.0
Average interest-earning
assets to
average interest-bearing
liabilities............... 114.2 117.0 116.4 117.7 118.6 120.7 123.8
Capital Ratios:
Total equity to total
assets.................... 6.97 7.65 7.03 7.92 8.20 9.37 12.32
Total risk-based capital
ratio..................... 11.21 11.47 11.53 11.75 12.21 14.56 19.58
Tier 1 risk-based capital
ratio..................... 10.05 10.22 10.40 10.50 10.96 13.31 18.49
Leverage ratio............. 7.53 7.87 7.88 8.70 8.71 9.76 13.03
</TABLE>
- --------
(1) Certain financial ratios for interim periods have been annualized.
(2) Net interest income divided by average interest-earning assets.
(3) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(4) Non-interest expense less non-interest income divided by average total
assets.
(5) Non-interest expense divided by the sum of net interest income plus non-
interest income.
(6) Net income divided by average total assets.
(7) Net income divided by average common equity.
10
<PAGE>
RISK FACTORS
Investing in our common stock involves risk. The discussion below describes
the most significant risk factors related to the offering. You should carefully
consider these risks and uncertainties before deciding to invest in our common
stock. If any of these risks or uncertainties actually occur, our business
could be adversely affected. In that event, the trading price of our common
stock could decline and you could lose all or a part of your investment. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those described below and elsewhere throughout the prospectus.
We depend on key personnel.
We are a relatively young organization and are relationship-driven. Our
growth and development to date have depended in large part on the efforts of
our 11 managing directors, who have primary contact with our clients and are
extremely important in maintaining personalized relationships with our client
base, the key aspect of our business strategy and in increasing our market
presence. The unexpected loss of services of one or more of these key employees
could have a material adverse effect on our operations.
We have entered into employment contracts with Ralph B. Mandell, our
Chairman, President and Chief Executive Officer, as well as a co-founder of our
company, Donald A. Roubitchek, our Secretary/Treasurer and Chief Financial
Officer and two of our managing directors. These agreements are effective
beginning July 1, 1999. We are dependent on the continued services of Messrs.
Mandell and Roubitchek in their roles. We have not entered into employment
agreements with any of our other managing directors, nor have we entered into
any key man life insurance policies. See "Management."
One of our executive officers, Vice Chairman Caren L. Reed, in addition to
his client responsibilities, serves as our chief credit officer. Mr. Reed has
indicated that he intends to retire from active management in December 1999.
Mr. Reed has agreed to continue to serve as our chief credit officer until we
can name a successor so he can assist in the transition process. Our strong
credit quality experience to date could be adversely impacted by Mr. Reed's
retirement.
We may not be able to implement aspects of our growth strategies.
A key component of our growth strategy involves the expansion of our
business and operations, possibly through the addition of new product lines and
the acquisition or establishment of new offices. Implementing this aspect of
our growth strategy depends in part on our ability to successfully identify
acquisition opportunities and strategic partners that will complement our
private banking approach and to successfully integrate their operations with
ours. To open new offices such as the pending St. Charles branch successfully,
we must be able to correctly identify profitable or growing markets, as well as
attract the necessary relationships to make these new facilities cost-
effective. See "Pending Acquisition." We cannot be sure that we will be able to
identify suitable opportunities for further expansion, or that if we do, that
we will be able to successfully integrate these new operations into our
business. If we are unable to effectively implement our growth strategies, our
business may be adversely affected.
Since our business is concentrated in the Chicago metropolitan area, a downturn
in the Chicago economy may adversely affect our business.
Currently, PrivateBank's lending and deposit gathering activities are
concentrated primarily in the greater Chicago metropolitan area. Our success
depends on the general economic condition of Chicago and its surrounding areas.
Although currently the economy in these areas is favorable, we do not know
whether such conditions will continue. Adverse changes in the economy could
reduce our growth rate, impair our ability to collect loans, and generally
affect our financial condition and results of operations.
11
<PAGE>
Our future success is dependent on our ability to compete effectively in the
highly competitive banking industry.
We face substantial competition in all phases of our operations from a
variety of different competitors. Our future growth and success will depend on
our ability to compete effectively in this highly competitive environment. To
date, we have grown our business successfully by focusing on our market niche
and emphasizing the high level of service and responsiveness desired by our
clients. While it is our intention to continue to operate in our targeted
niche, we compete for loans, deposits and other financial services in our
geographic market with other commercial banks, thrifts, credit unions and
brokerage houses operating in the greater Chicago area. Many of our competitors
offer services which we do not, and many have substantially greater resources,
name recognition and market presence that benefit them in attracting business.
In addition, larger competitors may be able to price loans and deposits more
aggressively than we do. Some of the financial institutions and financial
services organizations with which we compete are not subject to the same degree
of regulation as is imposed on bank holding companies and federally insured,
state-chartered banks and national banks. As a result, these nonbank
competitors have advantages over us in providing certain services. See
"Business--Competition."
Our business may be adversely affected by the highly regulated environment in
which we operate.
We are subject to extensive federal and state legislation, regulation,
examination and supervision. This regulation and supervision is primarily
intended to protect our clients and their deposits, and not our stockholders.
Recently enacted, proposed and future legislation and regulations have had,
will continue to have, or may have a material adverse effect on our business
and operations. Our success depends on our continued ability to maintain
compliance with these regulations, including those pertaining to the Community
Reinvestment Act. Some of these regulations may increase our costs and thus
place other financial institutions in stronger, more favorable competitive
positions. We cannot predict what restrictions may be imposed upon us with
future legislation. See "Supervision and Regulation."
We may be adversely affected by interest rate changes.
Our operating results are largely dependent on our net interest income. When
interest rates are rising, the interest income we earn on loans and interest-
bearing investments may not increase as rapidly as the interest expense paid on
our liabilities. As a result, our earnings may be adversely affected. We
measure the impact of interest rate changes on our income statement through the
use of gap analysis which is a way to measure and manage sensitivity to
interest rate fluctuations. The amount of earning assets that reprice or mature
during a given time interval is compared to the amount of interest-bearing
liabilities that reprice or mature during the same time period. A bank which
matches perfectly the maturities of its assets and liabilities has a "gap"
position of 1.00. In this instance, change in interest rates has no effect on
net interest income because interest income and interest expense change in like
amounts. There is an interest rate "gap" if the amounts of repricing assets and
liabilities differ for the given time period. A positive gap, or a position
greater than 1.00, indicates more assets than liabilities will reprice in that
time period, while a negative gap, or a position less than 1.00, indicates more
liabilities than assets will reprice. A bank with a positive gap position would
benefit from rising interest rates because assets will reprice faster than
liabilities, improving net interest income, but net interest income would be
reduced when interest rates are falling. Conversely, a bank would benefit from
a negative gap position in a falling interest rate environment.
We generally operate within guidelines set by our asset/liability policy for
maximum interest rate risk exposure, and attempt to maximize our returns within
an acceptable degree of risk. Our policy calls for maintaining a gap position
at the one year horizon of between 0.70 and 1.30 to allow us to take advantage
of anticipated interest rate environments, but within reasonable maximum risk
exposures. Given the current interest rate environment and relatively flat
yield curve, however, we have recently been operating with a gap position at
the low end of our policy limits in light of the available business
opportunities. At March 31, 1999, our gap position was 0.697, slightly below
our policy limit, reflecting borrowers' general preference for
12
<PAGE>
fixed-rate loans or loans adjusting over longer time intervals, and depositors
general preference for shorter term certificates of deposits. Generally
speaking, a short-term rise in interest rates will hurt our earnings more than
if we were operating within our policy guidelines. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Asset/Liability
Management Policy."
We may be adversely affected by government monetary policy.
The banking industry is affected by the monetary policies of the Federal
Reserve System, which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. In setting its policy, the Federal
Reserve System may utilize techniques such as the following:
. engaging in open market transactions in United States government
securities;
. setting the discount rate on member bank borrowings; and
. determining reserve requirements.
These techniques may have an adverse effect on our deposit levels, net interest
margin, loan demand or our business and operations. See "Supervision and
Regulation."
Our allowance for loan losses may prove to be insufficient to absorb potential
losses in our loan portfolio.
Lending money is a substantial part of our business. However, every loan we
make carries a certain risk of non-payment. This risk is affected by, among
other things:
. the credit risks of a particular borrower;
. changes in economic and industry conditions;
. the duration of the loan; and
. in the case of a collateralized loan, the changes and uncertainties as
to the future value of the collateral.
We maintain an allowance for loan losses which we believe is appropriate to
provide for any potential losses in our loan portfolio. The amount of this
allowance is determined by management through a periodic review and
consideration of several factors, including:
. an ongoing review of the quality, size and diversity of our loan
portfolio;
. evaluation of non-performing loans;
. historical loan loss experience; and
. the amount and quality of collateral, including guarantees, securing the
loans.
Although we believe our loan loss allowance is adequate to absorb probable
losses in our loan portfolio, we cannot predict such losses, and there can be
no assurance that our allowance will be adequate. Excess loan losses could have
a material adverse effect on our financial condition and results of operations.
Regulatory restrictions on dividend payments from our subsidiary may affect our
ability to pay dividends to our stockholders.
We have paid dividends to our stockholders on a regular basis. Although we
intend to continue to pay dividends, our ability to do so may be affected by
many factors. While in the past we have had available cash at the holding
company level to fund dividend payments, we anticipate that in the future we
will rely on
13
<PAGE>
income earned by PrivateBank as the primary source for dividend payments.
PrivateBank is subject to certain restrictions on the amount of dividends it
may pay to us without regulatory approval. See "Dividends" and "Supervision and
Regulation--Bank Regulation--Dividends."
Our computer systems could experience a security breach.
As a service to our clients, we offer PrivateBank Access, our internet PC
banking product. Use of this service involves the transmission of confidential
information over public networks. We cannot be sure that advances in computer
capabilities, new discoveries in the field of cryptography or other
developments will not result in a compromise or breach in the commercially
available encryption and authentication technology that we use to protect our
clients' transaction data. If we were to experience such a breach or
compromise, we could suffer losses and our operations could be adversely
affected.
We depend on third parties for our data processing needs; and we are in the
process of converting to a new provider for our loan and deposit processing
requirements.
We rely on outside organizations to handle virtually all of the data
processing aspects of our business. If these outside organizations experience
any type of computer or personnel failure and are unable to properly input or
process our information, our operations may be adversely affected. Situations
which might impair the ability of our outside data processors to meet our needs
include:
. computer system failure;
. loss of the personnel to handle the requirements of all of its
customers;
. loss, misapplication or corruption of our data; and
. lack of preparation for the "year 2000 issue."
If any of these outside organizations cease doing business or are unwilling to
renew our contract, we may be adversely affected. In addition, we are currently
in the process of transferring our loan and deposit processing requirements to
a new third party provider. While we anticipate completing this transition
during the third quarter of 1999, we may experience some delays in this process
which could have an adverse impact on our operations.
We rely on the services of outside investment managers.
In our trust and asset management business, which currently is the source of
substantially all of our fee income, we do not provide investment management
services directly through our own personnel. Rather, we rely on selected
outside investment managers to provide investment advice and asset management
services to our clients. We cannot be sure that we will be able to maintain
these arrangements on favorable terms. Also, many of the investment managers
with whom we work are affiliated with our competitors in the financial services
field. We cannot be sure that our investment managers will continue to work
with us in these arrangements. The loss of any of these outside investment
managers may impact our ability to provide our clients with quality service or
certain types of portfolio management without incurring the cost of replacing
them.
Our business may be negatively impacted by the year 2000 issue.
The "year 2000 issue", a critical issue in the banking industry and the
economy as a whole, has emerged because many existing application software
programs and systems use only the last two digits in referring to a year.
Therefore, these computer programs do not properly recognize a year beginning
with "20" instead of the familiar "19." If not corrected, many computer
applications and other technology-based systems could fail or create erroneous
results. The effects of this problem will vary from system to system, and the
extent of the potential impact of the year 2000 problem is not yet known. The
year 2000 problem may adversely affect a
14
<PAGE>
bank's operations. We could experience interruptions in PrivateBank's business
and suffer significant losses if we, or a supplier or vendor with whom
PrivateBank contracts, are unable to achieve year 2000 readiness before January
1, 2000. We are in the process of working with our third party service
providers and software vendors to assure that both our holding company and
PrivateBank are prepared for the year 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Our Information
Systems and the Year 2000."
A trading market for our common stock may not develop, and may be affected by a
significant number of shares which will become eligible for public sale after
the offering.
Our common stock has never been publicly traded, so we cannot predict the
extent to which a trading market will develop. In addition, the market price of
our common stock could drop as a result of sales of a large number of shares of
common stock after this offering. Your ability to resell you shares at or above
the initial public offering price may be adversely affected by these factors.
Immediately after this offering, assuming no prior exercise of outstanding
options, there will be 4,351,824 shares of our common stock outstanding. Unless
held by our affiliates, who are subject to certain trading restrictions under
the securities laws:
. 2,770,550 shares, or 63.6% of the shares outstanding, will immediately
be freely tradable in the public market, including all 900,000 shares
sold in this offering; and
. 81,900 shares, or 1.9% of the total outstanding, will become available
for sale beginning in September 1999.
Our directors and executive officers, who hold an aggregate of 1,005,112
shares, and certain of our stockholders, who hold an aggregate of 472,662
shares, representing in aggregate 33.9% of the total number of shares that will
be outstanding after the offering, have agreed not to offer, sell or contract
to sell any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of EVEREN Securities, Inc. Upon
expiration of this lock-up period, however, these shares may become available
for resale in the public market. See "Shares Eligible for Future Sale."
Pursuant to the terms of our Stock Incentive Plan, we have awarded an
aggregate of 21,600 shares of restricted stock to certain of our employees who
are not executive officers. Although our employees have full voting rights with
regard to these shares and may receive any dividends we declare, they may not
transfer the shares until they are fully vested. Each restricted stock award
will vest in its entirety on the fifth anniversary of the date of grant and is
subject to forfeiture until vesting. The shares vest on various dates between
2001 and 2004.
A substantial number of shares of our common stock issued pursuant to our
Stock Incentive Plan will also become available for resale in the public market
at prescribed times. In addition, we intend to register under the Securities
Act the shares of common stock reserved for issuance under our stock-based
programs.
Certain provisions of Delaware law and our charter and by-laws may discourage
or prevent a takeover of our company and reduce any takeover premium.
Our Amended and Restated Certificate of Incorporation, our By-laws and
Delaware law all contain provisions that could discourage potential acquisition
proposals, or delay or prevent a change in the control of the Company.
Provisions in our charter and By-laws designed to discourage or prevent a
takeover include:
. staggered terms for our directors, which makes it difficult to replace
the entire board;
. the ability of the Board of Directors to issue shares of preferred
stock, which could dilute the voting power and equity interest of
holders of the common stock; and
15
<PAGE>
. the requirement that holders of 66 2/3% of our outstanding common stock
must approve any change of these anti-takeover provisions.
Stockholders sometimes realize a significant premium in their stock price
when an offer is made to purchase a company. Because we have adopted these
provisions, such offers will likely be discouraged, and our stockholders may
lose the benefit of any potential premium. There are also state and federal
laws which regulate direct and indirect takeover attempts of financial
institutions.
Our directors and officers may have significant influence on how our common
stock is voted.
Our directors and executive officers will beneficially own approximately
28.9% of the outstanding shares of our common stock at the closing of this
offering, assuming none of them purchases shares in the offering. If our
directors and executive officers vote together, they could influence the
outcome of certain corporate actions requiring stockholder approval, including
the election of directors and the approval or non-approval of significant
corporate transactions, such as the merger or sale of all or substantially all
of our assets.
You will incur immediate and substantial dilution in your shares.
Investors in this offering will experience an immediate and substantial
dilution in the book value of the common stock. If you purchase shares of our
common stock, and we sell 900,000 shares at an assumed offering price of
$17.00, which is the midpoint of the price range on the cover page of this
prospectus, after giving effect to the issuance of 97,059 shares in the pending
acquisition, the pro forma net tangible book value of your shares at March 31,
1999 will be $9.84. This is $7.16 less than your purchase price. See "Dilution"
and "Pending Acquisition."
Management will have substantial discretion over the use of the proceeds of
this offering.
We have not designated specific uses for all of the net proceeds of this
offering. We intend to immediately use $8.0 million of the net proceeds to
increase the regulatory capital of our PrivateBank subsidiary to support the
growth of our existing banking operations and the planned establishment of a
new office in St. Charles, Illinois. The remaining portion, or approximately
40%, of the proceeds are currently unallocated and will be available to fund
future internal growth or expansion of our business through establishment of
new banking locations and entering into strategic acquisitions and
affiliations, to the extent we identify these opportunities. Accordingly, you
must rely upon the judgment of our management who will have significant
flexibility with respect to applying the net proceeds. At present, other than
the pending acquisition of Towne Square Financial Corporation, we have no
plans, agreements or understandings relating to any specific acquisitions or
alliances. Although part of our business strategy is to pursue acquisitions and
alliances that will broaden our product offerings and add new markets, we
cannot be sure that we will find strategic acquisition opportunities at
favorable prices, that we will have sufficient capital resources to finance our
acquisition strategy, or that any such acquisitions, if consummated, will be
successfully integrated with our business operations.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in this prospectus that are based
upon our current expectations and projections about current events. You can
identify these statements from our use of the words "estimate," "project,"
"believe," "intend," "anticipate," "expect" and similar expressions. These
forward-looking statements include:
. statements of our goals, intentions and expectations;
. statements regarding our business plans and growth strategies;
. statements regarding the asset quality of our loan and investment
portfolios;
. estimates of our risks and future costs and benefits; and
. statements regarding the effectiveness of our efforts to make our
operations year 2000 compliant.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
. fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect our net interest margin, asset valuations
and expense expectations;
. adverse changes in the economy of the greater Chicago metropolitan area,
our primary market, which might affect our business prospects and could
cause credit-related losses and expenses;
. the extent of continuing client demand for the high level of
personalized service that is the key element of our private banking
approach;
. adverse developments in our loan and investment portfolios;
. unforeseen developments or delays relating to the pending acquisition of
Towne Square Financial Corporation or difficulties relating to the
establishment of a St. Charles office;
. difficulties in identifying attractive acquisition opportunities and
strategic partners that will complement our private banking approach;
. competitive factors in the banking industry, such as the trend towards
consolidation in our market;
. changes in banking legislation or the regulatory requirements of federal
and state agencies applicable to bank holding companies and banks like
ours; and
. our effectiveness and that of our suppliers of data processing equipment
and services, government agencies, and other third parties in testing
and implementing year 2000 compliant hardware, software and systems.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results. We discuss these uncertainties and others in the
sections of this prospectus named "Risk Factors," "Business," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
17
<PAGE>
PENDING ACQUISITION
Effective as of June 24, 1999, we entered into a definitive agreement to
acquire Towne Square Financial Corporation, a recently organized Delaware
corporation formed for the purpose of developing a de novo, or start-up, bank
in the community of St. Charles, Illinois, a far western suburb of Chicago.
Demographic data shows that the St. Charles area has been one of the more
rapidly growing areas in Illinois in recent years, and our management believes
the transaction affords us an excellent opportunity to expand our franchise in
an attractive market.
Background
Upon learning of Towne Square's plans to form a de novo bank in the St.
Charles area, Ralph Mandell, our Chairman and CEO, contacted representatives of
the Towne Square group to explore the possibility of a strategic alliance. At
the time we began discussions with Towne Square on April 30, 1999, the company
had already raised initial seed capital from a group of six organizers and
developed a business plan to start a local bank focused on private banking
services, but had not yet commenced operations nor filed any of the required
regulatory applications relating to organization of a new bank. Because of the
similarity of our banking strategies and the compatibility of our management,
in lieu of pursuing its de novo strategy, Towne Square has agreed to merge with
us in a stock-for-stock transaction.
The terms of the transaction are the result of extensive arms' length
negotiations between the parties. In approving the transaction on the
negotiated terms, and concluding that the transaction is in the best interest
of our stockholders, our Board of Directors considered a number of factors,
including, among others, the following:
. the potential market opportunities offered by St. Charles and the
surrounding Fox Valley communities and the opportunity to expand the
PrivateBank franchise consistent with the Company's growth strategy;
. management's opinion that the transaction affords us a unique
opportunity to expand in an attractive market on terms that the Board
believed were fair to our stockholders based on a consideration of the
potential dilutive effect of the transaction to existing stockholders
and new investors in this offering in the short term, weighed against
the potential for a favorable internal return on investment over the
longer term;
. the significant contacts of Thomas Castronovo, an experienced banking
veteran in the Fox Valley area, his perceived compatibility with
management and his willingness to join PrivateBank as a managing
director in connection with the transaction;
. the competitive advantages of forestalling the Towne Square organizers
from pursuing an independent private banking strategy;
. the commitment of the Towne Square organizers, all prominent businessmen
and professionals from St. Charles, to serve on a Fox Valley advisory
board of PrivateBank and to support the efforts of the bank in St.
Charles;
. the strategic benefits of non-compete agreements to be entered into by
the Towne Square organizers in connection with the acquisition;
. the value of the preliminary business plan that had been developed by
Towne Square, including the identification of an attractive banking
location in St. Charles that would be available to PrivateBank at market
rates under a ten-year lease; and
. that, as a result of the transaction, PrivateBank would expect to be in
a position to expedite the organizational activities related to
establishing a new banking location and be able to open a banking office
in St. Charles during the fourth quarter of 1999.
Instead of opening a new bank as Towne Square had planned, we will establish
a new office of PrivateBank in St. Charles to be managed by Mr. Thomas
Castronovo, one of the principal organizers of Towne Square who will be joining
us as a managing director. Mr. Castronovo has 17 years of prior banking
experience and has significant contacts in the St. Charles community. Under
this arrangement, we believe there
18
<PAGE>
are significant opportunities for us in St. Charles and the surrounding Fox
River Valley communities to grow our private banking business.
We expect to file the requisite branch applications with the regulators
during July 1999 and currently anticipate opening the St. Charles office during
the fourth quarter of 1999.
Terms of the Transaction
Pursuant to the contemplated merger, Towne Square will be merged into
PrivateBancorp, Towne Square will cease to exist, and PrivateBancorp will
continue as the surviving corporation. In exchange for their shares of Towne
Square, the stockholders of Towne Square will receive merger consideration
equal to an aggregate of approximately 97,059 shares of PrivateBancorp common
stock, assuming the price of our stock that is used to determine the exchange
ratio for the merger is $17.00. The actual exchange ratio will be calculated
after completion of this offering, with the actual number of shares to be
issued in the merger to be determined by dividing $1,650,000 by the actual
initial public offering price of our stock. Of the shares to be issued in the
merger, approximately 55%, or about 53,000 shares using an exchange ratio based
on a $17.00 price, will be subject to a one year restriction on resale and the
remainder to a three-year resale restriction.
In connection with the transaction, we have agreed to enter into a three-
year employment agreement with Mr. Castronovo providing for, among other
things, a signing bonus in the amount of $150,000 payable in two installments,
one-half at the time we open the St. Charles office and the other half six
months later. It is contemplated that Mr. Castronovo's employment agreement
will commence upon the closing of the transaction. We have also agreed that Mr.
Castronovo will receive options to purchase 7,000 shares, expected to be
granted under our Stock Incentive Plan at the initial public offering price,
and an award of 3,000 shares of restricted stock which will be subject to
forfeiture until fully vested five years after the date of grant. In addition
to our employment of Mr. Castronovo, we have agreed that following consummation
of the merger we will add to our Board of Directors one individual, who must be
acceptable to us, to be designated by the stockholders of Towne Square.
Also as part of the transaction, Towne Square will agree, and will cause
each of its six organizers also to agree, for a period of at least three years
not to compete with our business in the St. Charles market and to support our
efforts to develop relationships in the community. We will be forming a St.
Charles advisory board, to be comprised of the Towne Square organizers plus two
more prominent business people or professionals from the area to be mutually
selected, in order to draw on the experience and contacts of these individuals
in the local community to assist us in the development of our St. Charles
office. Also in connection with the transaction, we will enter into a lease for
space in a building recently acquired by the Towne Square organizers which is
where we will locate our St. Charles office. The lease will run for ten years
and provides for rents not in excess of comparable market rates.
Consummation of the merger is subject to effectiveness of a registration
statement being filed with the SEC relating to the transaction, the approval of
Towne Square's stockholders owning at least a majority of the outstanding
shares of Towne Square, and customary closing conditions. It is currently
anticipated that the transaction will close during the third quarter of 1999
following completion of this offering.
Accounting Treatment; Financial Impact of the Acquisition
Because Towne Square is not yet actively engaged in business, the merger
transaction will not be accounted for as a business combination. Rather, at the
time of closing, we will incur a one-time, nonrecurring charge to earnings in
an amount equal to the excess of the value of our stock issued in the merger
over the net assets of Towne Square on the date of closing. We anticipate that
the net assets of Towne Square, consisting substantially of cash, will
approximate $240,000 at closing. The one-time charge, currently estimated to be
approximately $1.29 million, is expected to be recorded during the third
quarter of 1999 and will adversely affect our 1999 results of operations. The
merger related charge will not be a deductible expense for tax purposes.
In addition to the merger related charge, we will incur additional start-up
costs relating to the opening of the St. Charles office. We currently
anticipate that the total pre-tax start-up costs will be approximately
$430,000, including $75,000 of the signing bonus payable to Mr. Castronovo, and
that the majority of these costs will be expensed during 1999.
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<PAGE>
USE OF PROCEEDS
The net proceeds which we will receive from the sale of 900,000 shares of
common stock in this offering are estimated to be approximately $13,479,000
(assuming an initial public offering price of $17.00, the midpoint of the
estimated per share range, and no exercise of the over-allotment option) after
deducting underwriting discounts and the aggregate expenses payable by us. Such
expenses are currently estimated to be approximately $750,000.
We intend to contribute $8.0 million of the net proceeds from this offering
to increase the regulatory capital of PrivateBank to support the growth of our
existing banking operations and the planned establishment of a new office in
St. Charles, Illinois. We are raising the remainder of the proceeds to have
funds available for future internal growth or expansion of our business
through:
. establishing new offices within the Chicago metropolitan area;
. expanding our presence into new markets located in the Midwest; and
. acquiring or affiliating with companies in businesses complementary to
ours.
Other than the pending acquisition of Towne Square Financial Corporation, we
have not yet identified any specific acquisition or affiliation candidates.
Until we have designated the specific use by the company of the remaining
proceeds, we intend to deposit these funds in an account of the company at
PrivateBank, where we can use them as a temporary funding source for loans or
investments of PrivateBank.
DIVIDENDS; NO PRIOR TRADING MARKET
Holders of our common stock are entitled to receive dividends that our Board
of Directors may declare from time to time. We may only pay dividends out of
funds which are legally available for that purpose. Because our consolidated
net income consists largely of the net income of PrivateBank, our ability to
pay dividends to our stockholders may become dependent upon our receipt of
dividends from PrivateBank. PrivateBank's ability to pay dividends is regulated
by banking statutes. See "Supervision and Regulation-- Bank Regulation--
Dividends." Our declaration of dividends is discretionary and will depend on
our earnings and financial condition, regulatory limitations, tax
considerations, and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity."
We have paid quarterly dividends on our common stock since the third quarter
of 1995. While our Board of Directors expects to continue to declare dividends
quarterly, there can be no assurance that we will continue to pay dividends at
these levels or at all. The following table sets forth the history of per share
cash dividends declared and paid on our stock since the beginning of 1997:
<TABLE>
<S> <C>
1997
First Quarter............................. $0.016
Second Quarter............................ 0.016
Third Quarter............................. 0.019
Fourth Quarter............................ 0.019
1998
First Quarter............................. $0.019
Second Quarter............................ 0.020
Third Quarter............................. 0.020
Fourth Quarter............................ 0.020
1999
First Quarter............................. $0.025
Second Quarter (1)........................ $0.025
</TABLE>
- --------
(1) Payable on June 30, 1999, to stockholders of record on June 7, 1999.
As of March 31, 1999, we had 491 stockholders of record. Prior to this
offering, there has been no established public trading market for our common
stock. We have applied for inclusion of our common stock in The Nasdaq National
Market upon completion of this offering.
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<PAGE>
CAPITALIZATION
The following tables set forth our total capitalization and capital ratios
as of March 31, 1999, and our total capitalization pro forma to give effect to
completion of the pending acquisition and pro forma as adjusted to reflect the
issuance and sale of 900,000 shares of our common stock which we are offering
in this prospectus (assuming the underwriters do not exercise the over-
allotment option) at an assumed initial public offering price of $17.00, the
midpoint of the estimated per share price range.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------
Pro
Pro Forma As
Actual Forma(1) Adjusted
------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized(2);
none designated or outstanding................... $ -- $ -- $ --
Common stock, without par value, 12,000,000 shares
authorized(2); 3,451,824 shares, $1.00 stated
value, issued and outstanding; 3,548,883 shares
outstanding pro forma, and 4,448,883 shares
outstanding pro forma as adjusted(3)............. 3,452 3,549 4,449
Surplus........................................... 22,600 24,028 36,607
Retained earnings................................. 5,853 4,568 4,568
Accumulated other comprehensive income, net of tax
effect........................................... (58) (58) (58)
Deferred compensation............................. (843) (843) (843)
Loan to executive officer......................... (950) (950) (950)
------- ------- -------
Total stockholders' equity...................... $30,054 $30,294 $43,773
======= ======= =======
</TABLE>
- --------
(1) Gives effect to completion of the pending acquisition of Towne Square
Financial Corporation assuming the issuance of 97,059 shares in the
transaction as if the transaction had been consummated on March 31, 1999,
resulting in a one-time charge to earnings of $1,285,000. See "Pending
Acquisition."
(2) Gives effect to the amendment to PrivateBancorp's Restated Certificate of
Incorporation to increase the authorized shares which was approved by
stockholders on April 22, 1999.
(3) These share amounts do not include an aggregate of 632,808 shares of common
stock issuable upon exercise of outstanding options (after giving effect to
option grants through the date of this prospectus), of which 453,408 shares
are subject to currently exercisable options. The pro forma amounts also
exclude 3,000 shares of restricted stock and 7,000 shares to be subject to
options that are expected to be granted in connection with the pending
acquisition. See "Pending Acquisition."
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Capital ratios (at end of period):
Total equity to total assets........................................ 6.97%
Total risk-based capital ratio...................................... 11.21
Tier 1 risk-based capital ratio..................................... 10.05
Leverage ratio...................................................... 7.53
</TABLE>
21
<PAGE>
DILUTION
As of March 31, 1999, we had an aggregate of 3,451,824 shares of common
stock outstanding, and, giving effect to the assumed issuance of 97,059 shares
in the pending Towne Square acquisition, the common stock had a net tangible
pro forma book value of $8.54 per share. "Net tangible pro forma book value per
share" represents our tangible net worth, which is our total assets less our
intangibles and total liabilities as adjusted to give effect to the Towne
Square acquisition, divided by the total number of shares of common stock
outstanding. Net tangible pro forma book value is equal to our reported book
value as adjusted to give effect to the Towne Square acquisition. Without
taking into account any other changes in net tangible book value after March
31, 1999, other than those resulting from application of the net proceeds we
will receive from the sale of 900,000 shares offered hereby at an assumed
initial public offering price of $17.00 (after deduction of the underwriting
discount and estimated offering expenses), the net tangible book value at March
31, 1999, would have been $9.84 per share. This represents an immediate
increase of $1.30 per share to current stockholders and an immediate dilution
in book value of $7.16 per share to new investors. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $17.00
Net tangible pro forma book value per share before the
offering.................................................. $8.54
Increase per share attributable to investors in the
offering.................................................. 1.30
-----
Net tangible pro forma book value per share after the
offering.................................................... 9.84
------
Per share book value dilution to investors in the
offering(1)................................................. $ 7.16
======
</TABLE>
- --------
(1) Does not give effect to and assumes no prior exercise of currently
outstanding options to purchase up to an aggregate of 632,808 shares of
common stock, of which 453,408 are currently exercisable. Further adjusted
as of March 31, 1999, to give effect to the exercise of such options in
accordance with their terms, the estimated net tangible pro forma book
value per share before the offering would be $8.48 and after the offering
would be $9.68, and the estimated per share book value dilution to
investors in the offering would be $7.32.
The following table compares, on a pro forma basis at March 31, 1999:
. the total number of shares of common stock purchased from us, giving
effect to the assumed issuance of 97,059 shares in the pending Towne
Square acquisition;
. the total cash consideration paid;
and the average price per share paid by:
. existing stockholders; and
. new investors.
This table assumes the sale of 900,000 shares at $17.00, before the deduction
of the underwriting discount and estimated offering expenses, and assumes no
exercise of stock options outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
--------------- ---------------- Price
Percent Percent Per
Number of Total Amount of Total Share
------ -------- ------- -------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 3,549 79.8% $26,272 63.2% $ 7.40
Investors in the offering(1)........... 900 20.2 15,300 36.8 17.00
----- ----- ------- -----
Total................................ 4,449 100.0% $41,572 100.0%
===== ===== ======= =====
</TABLE>
- --------
(1) If the over-allotment option is exercised in full, the number of shares of
common stock held by investors in the offering will increase to 1,035,000
shares, or 22.6% of the total shares of common stock outstanding after this
offering.
22
<PAGE>
BUSINESS
Overview
We organized PrivateBancorp as a Delaware corporation in 1989 to provide
highly personalized financial services primarily to professionals,
entrepeneurial individuals and their closely-held businesses. We were one of
the first banks newly formed in the Chicago area in recent years. The
organizers had significant senior level banking experience and many potential
client contacts from prior banking positions.
We believe that as the financial industry has consolidated, many financial
institutions have focused on a mass market approach using automated customer
service which de-emphasizes personal contact. We believe that the
centralization of decision-making power at these large institutions has
resulted in disruption of client relationships as frontline bank employees who
have limited decision-making authority fill little more than a processor role
for their customers. At many of these large institutions, services are provided
by employees in the "home office" who evaluate requests without the benefit of
personal contact with the customer or an overall view of the customer's
relationship with the institution.
We believe that this trend has been particularly frustrating to affluent
individuals, professionals, owners of closely-held businesses and commercial
real estate investors who traditionally were accustomed to dealing directly
with senior bank executives. These customers typically seek banking
relationships managed by a decision maker who can deliver a prompt response to
their requests and custom tailor a banking solution to meet their needs. As
smaller, independent banks have been acquired by national, multi-bank holding
companies, we believe that the personal relationships that these customers
maintained with the management of such banks have eroded, and their
individualized banking services have been lost.
Through our banking subsidiary, The PrivateBank and Trust Company, we
provide our clients with traditional personal and commercial banking services,
lending programs, and trust and asset management services. Using the European
tradition of "private banking" as our model, we strive to develop a unique
relationship with each of our clients, utilizing a team of highly qualified
account executives to serve the client's individual and corporate banking
needs, and tailoring our products and services to meet such needs. Our managing
directors are strategically located in three Chicago-area offices: Downtown
Chicago, Wilmette, Illinois, and Oak Brook, Illinois. We opened our flagship
Chicago location in 1991. We expanded to our Wilmette office in north suburban
Cook County in 1994 after identifying a senior banking officer with existing
relationships and client contacts in this North Shore area. We opened the Oak
Brook facility in west suburban DuPage County in 1997 with the addition of a
managing director who has extensive relationships in that market.
Since our start in 1991, we have experienced rapid internal growth. From
year-end 1995 to March 31, 1999, our compound annual growth rate in loans was
31.6%, in assets was 27.3%, in deposits was 27.0% and in trust assets under
administration was 40.2%. At March 31, 1999, we had total loans of $307.8
million, total assets of $431.1 million, total deposits of $384.5 million,
total stockholders' equity of $30.1 million and total trust assets under
administration of $637.4 million.
Our Market
In response to the need for individualized banking services, we created The
PrivateBank and Trust Company as the first Chicago-based institution dedicated
primarily to providing banking services to professionals, entrepreneurial
individuals, and their business interests. We targeted the affluent segment of
the market because we believe that there is significant unmet demand for
personalized services within this segment, and also because we recognize its
significant growth potential. According to National Decision Systems, San
Diego, California, the number of households in the metropolitan Chicago area
with annual incomes greater than $150,000 was estimated at 190,042 in 1998,
compared to 63,861 households in 1990. This equates to a compound annual growth
rate of 14.6%, versus an annual growth rate for the total number of households
in the
23
<PAGE>
metropolitan Chicago area of 0.6%. By 2003, the number of these affluent
households in the Chicagoland area is expected to increase to approximately
358,000, representing an annual growth rate of 13.5%, while the aggregate
number of households is expected to increase at an annual growth rate of 0.3%.
The following graph illustrates the size and relative growth of this market:
[Perfromance Graph Appears Here]
(1) Based on information from the 1990 U.S. census.
(2) Estimated by National Decision Systems based on, among other things, (a) a
time series of estimates made by the U.S. Census Bureau regarding six of
the counties in the Chicago metropolitan area; and (b) data provided by the
Department of Planning of the City of Chicago.
(3) Generated by National Decision Systems through the application of an
econometric model of the Chicago metropolitan area to the 1998 estimate.
The econometric forecasting model considers the impact of various economic
factors such as employment, inflation, interest rates and housing starts on
future population growth.
The PrivateBank and Trust Approach
We believe that we have developed a unique approach to private banking
designed to provide our clients with unparalleled service. We emphasize
personalized client relationships and custom-tailored financial services,
complemented by the convenience of technology. The key aspects of our private
banking approach are:
. Personal Relationships. Our approach begins with the development of
strong, dedicated relationships with our clients. Each client of
PrivateBank is matched with a team of individuals headed by a managing
director. This managing director becomes our client's central point of
contact with PrivateBank. Our eleven managing directors, who are senior
financial professionals with an average
24
<PAGE>
of 27 years of banking and financial experience, act as the financial
partners of our clients, working with them to identify and service their
banking needs. By dedicating a team of executives to each client, we are
able to build ongoing relationships which allow our managing directors
to use their increasing knowledge of the client's financial history and
goals to quickly adapt our services to the client's individual needs.
Our clients interact with the same persons at PrivateBank for all types
of banking services, enabling them to gain a sense of security and
continuity of personal service in their banking relationship. On the
basis of this trust and confidence, we seek to expand the scope of
services provided to each client, often including banking needs related
to the business affairs of our clients. Satisfied clients provide our
most fertile source of new business and new client referrals as well.
. Affluent Target Client. We believe that the affluent segment of the
population, meaning that segment with annual incomes over $150,000, is
increasing and is diverse in terms of its overall wealth and financial
needs. PrivateBank offers its services to those members of this segment
who are focused on building and preserving wealth. Our clients include
professionals, entrepreneurial individuals and their business interests.
We target service industries such as the accounting, legal and medical
professions, as well as owners of closely-held businesses, commercial
real estate investors and corporate executives. Although we generally
target individuals with high annual incomes and net worths, we recognize
the growth potential of certain young professionals and extend our
services to those individuals whose income or net worth do not initially
meet our criteria. We believe that this segment of the market is most
suited to our business and that these individuals are most likely to
develop long-term relationships with us.
. Customized Financial Services. We realize that many of our clients
require a custom solution to their financial needs. In taking a long-
term, relationship approach to our clients, we are able to differentiate
ourselves from the "one-size-fits-all" mentality of other financial
institutions. We offer our clients a wide variety of financial services
beyond the traditional banking products and are constantly working to
develop and shape our services to meet their growing needs. We take the
time to identify our clients' particular needs and tailor our services
to meet those needs on an individual customized basis, while maintaining
highly competitive rates and fees that take into account the size and
profitability of each client relationship. While we are proud of our
portfolio of products, we believe that it is our service that
distinguishes us from our competition. We encourage our clients to
contact us rather than discourage them. We use regular contact as a way
to strengthen our relationships, increase services to existing clients
and earn referral business.
. Streamlined Decision-Making Process. Unlike most larger banks, we have
not instituted a lengthy chain of command. Our clients deal directly
with their dedicated managing directors, who are given broad decision-
making authority. This allows our managing directors to respond quickly
and efficiently to our clients' needs. We are able to use a streamlined
approach because our organization has many qualified, experienced credit
officers. Officers with credit approval authority make themselves
available on short notice to help consult on or approve credits when
time is of the essence. We use an "on call" approach, rather than
structured meetings, to approve credit. As the amount of the credit and
the complexity increases, we resort to a more traditional process.
. Enhanced Personal Service through Technology. While we encourage our
clients to contact us directly, we also utilize technology to complement
and enhance our service. We created products such as PrivateBank Access,
our internet banking service, MasterMoney debit cards and Private Line
Access, our voice-response communication system, to enhance, not
replace, personal contact. This technology allows us to offer our
clients the convenience of accessing our services from remote locations
at any time of day.
We believe that our PrivateBank Access product is likely to grow in
importance. Our clients may connect to PrivateBank Access directly
through our internet website, without the need for the diskettes or
software downloads found in some competing PC banking systems.
Currently, our product:
25
<PAGE>
. accesses deposit and loan information;
. allows transfers of funds among accounts;
. includes a bill payment service with a variety of options;
. allows information to be exported to financial software packages;
. includes a help desk which is staffed 92 hours per week; and
. sends e-mail messages from clients to PrivateBank personnel.
We are working to supplement our website to enhance our service to
clients. Some features we are planning include:
. applications for our banking products;
. access to trust account information;
. current deposit rate schedules; and
. current mortgage rate schedules.
As technology changes, we intend to modify and enhance our electronic
banking products. We believe that in the future, a growing number of
our clients will desire both personal and electronic services. We
intend to work to offer dual-delivery systems providing the quality of
service to which PrivateBank clients are accustomed.
. Extensive Financial Network. In order to compete with other financial
service providers, we rely on a network of professionals in the
financial and investment communities with whom we have developed
strategic alliances over the years. This enables us to offer our clients
a broad array of high quality services. For example, we work with
selected investment management firms in providing services to our trust
clients. Our clients can either maintain existing investment management
relationships when they become our trust clients, or use our preferred
providers of investment management services. We believe this choice
distinguishes our service from the rigid policies set by some of our
competitors. We, in turn, help our clients select a complete package of
services best suited to their individual needs without incurring the
overhead associated with directly employing diversified portfolio
managers. We also have a contractual fee sharing agreement with Mesirow
Financial, Inc., an independent insurance brokerage company in the
Chicago area. Through this affiliation, we offer a full range of
personal and corporate insurance products to our clients. To complement
our existing financial products and services, we have a contractual
arrangement with Sterling Investment Services, Inc., a registered
securities broker-dealer firm, through which we offer our clients on-
site securities brokerage services.
Strategy for Growth
Our growth strategy entails five key components:
. Developing Our Existing Relationships. An important part of our future
growth will be the continued development of our existing client
relationships. As the needs of our clients change and grow, we seek to
grow with them and continue to provide them with our custom-tailored,
flexible services. For example, we strive to follow our clients from the
purchase of their homes, through the financing of their own business, to
the development and planning of their estate, continuing the
relationship tradition with their children and grandchildren. We believe
we have a significant opportunity to further develop our existing client
relationships in each of our offices.
. Increasing the Reach of Our Existing Offices. In addition to increasing
the services provided to our existing clients, we seek to expand the
market presence of our existing offices, especially our Oak Brook and
Wilmette branches. We believe that the growing need for private banking
services in these regions is largely unmet and we have a significant
opportunity to increase our client base in these branches. We hope to
capitalize on our reputation and the reputations of our managing
directors in
26
<PAGE>
increasing our market presence. Our managing directors, with their
personal and professional contacts in the financial and corporate
arenas, have been instrumental in developing our business to date. We
encourage our senior executives to attend and host business receptions,
charitable activities and promotional gatherings so that we may interact
with our clients in a unique and personal manner. We also hope to grow
our branch offices through referrals from our existing clients.
Referrals have been a significant source of new business for us. We
value this system of networking because it allows us to further develop
and strengthen our personal and professional relationships with both new
and existing clients.
. Opening Additional Offices in the Chicago Metropolitan Area. Our
experience in our Oak Brook and Wilmette offices demonstrates to us that
there exists significant demand by our target client for specialized
private banking services in the Chicago metropolitan area. We built
these offices around senior executive officers whom we recruited for
their strong banking experience and extensive personal and professional
contacts in those areas. To increase our market penetration, we have
recently negotiated the acquisition of Towne Square Financial
Corporation and plan to establish a new office of PrivateBank in St.
Charles, Illinois, a far western suburb of Chicago located in the
rapidly growing Fox River Valley area. We have recruited one of the
organizers of Towne Square, who is an experienced banker with
significant contacts in St. Charles and the surrounding communities, to
join us as a managing director to head this office. See "Pending
Acquisition." We will consider opening additional offices as we identify
locations and other senior executives that will maintain our standards
for high-quality personalized service.
. Expanding into New Markets. We believe the trend toward bank
consolidation and centralized decision-making that has created a demand
for our private banking services is not unique to Chicago. We believe
there is similar demand in other markets within the Midwest and we are
interested in expanding in markets that present opportunities for growth
and development similar to those in the Chicago market. We intend to
pursue selective geographic expansion through possible acquisitions of
existing institutions or by establishing new banking offices.
. Expanding into New Product Lines. We desire to be the primary source of
financial products and services for our clients. By broadening our
product line with additional financial services not currently offered by
PrivateBank, we believe we can increase our franchise value through
diversification of our fee income and strengthening of our client
relationships. To achieve this goal, we intend to consider acquisitions,
joint ventures or strategic alliances with other companies that
emphasize quality service and the value of relationships. Our targets
are businesses that complement our services and enable us to broaden our
product line to better serve our clients.
Our Services
We offer banking services to our clients at a personal level. This is not
the same as personal banking service. We define private banking as offering
banking products and services to our clients when they want it, how they want
it and where they want it. We tailor our products and services to fit our
clients instead of making our clients fit our products and services. Our
services fall into four general categories:
. Commercial Services. PrivateBank offers a full range of lending products
to businesses owned by or affiliated with our clients. We offer lines of
credit for working capital, term loans for equipment and other
investment purposes, and letters of credit to support the commitments
our clients make. PrivateBank tailors these products to meet the varied
needs of the client. Non-credit products we offer include lockbox, cash
concentration accounts, merchant credit card processing, electronic
funds transfer, other cash management products and insurance. We strive
to offer banking packages that are competitive and allow us to provide
service to our clients beyond what is expected in our industry.
. Real Estate Services. PrivateBank provides real estate loan products to
businesses and individuals. Our commercial real estate lending products
are designed for real estate investors. We provide a full range of fixed
and floating rate permanent and mini-permanent mortgages for our clients
to finance a variety of properties such as apartment buildings, office
buildings, strip shopping centers, and other income properties. We also
provide some construction lending for residential and commercial
27
<PAGE>
developments. We believe that our lending products are competitively
priced with terms that are tailored to our clients' individual needs.
Our residential mortgage products range from 30-year fixed rate
products to personal construction lending. The home mortgage market is
very competitive and we believe that our service is what separates
PrivateBank from our competition. Many mortgage lenders cannot work
with borrowers who have non-traditional income sources or non-
traditional properties, such as co-ops. Our mortgage lending staff is
trained to work with successful individuals who have complex personal
financial profiles. We have developed a proficiency for mortgages in
excess of $1.0 million per loan and will work with our clients and our
market sources to place these loans into the secondary market. Our
experience has been that residential lending is an excellent vehicle to
attract new clients.
. Trust and Asset Management. PrivateBank's trust services include
investment management, personal trust and estate services, custodial
services, retirement accounts and brokerage and investment services. Our
investment management professionals work with our clients to define
objectives, goals and strategies for their investment portfolios.
PrivateBank assists the client with the selection of an investment
manager and works to tailor the investment program accordingly. Our
trust and estate account administrators work with our clients and their
attorneys to establish their estate plans. We work closely with our
clients and their beneficiaries to ensure that their needs are met and
to advise them on financial matters. When serving as trustee or
executor, we often structure and oversee investment portfolios. We also
provide our clients with custodial services for safekeeping of their
assets. Consistent with our private banking approach, we emphasize a
high level of personal service in our trust area, including prompt
collection and reinvestment of interest and dividend income, weekly
valuation, tracking of tax information, customized reporting and ease of
security settlement. PrivateBank also offers retirement products such as
individual retirement accounts and administrative services for
retirement vehicles such as profit sharing plans and employee stock
option plans, as well as a full line of brokerage and investment
products.
. Individual Banking Services. Our typical private banking client has
several of the following products: interest bearing checking with credit
line, money market deposit accounts, certificates of deposit, ATM/debit
card, and brokerage accounts. Some of our clients have recently selected
our PrivateBank Access Internet PC banking product. In addition to
residential mortgages, we provide clients a variety of secured and
unsecured personal loans and lines of credit. Through our affiliations
with Mesirow and Sterling, we offer insurance products and securities
brokerage services. We strive to accommodate the individual needs of
each of our clients by offering the convenience of highly personalized
services, including domestic and international wire transfers and
foreign currency exchange.
Lending Activities
We work with our clients to provide a full range of commercial, real estate
and personal lending products and services. Our loans are concentrated in six
major areas: (a) commercial real estate; (b) residential real estate; (c)
commercial; (d) personal; (e) home equity; and (f) construction. We have
adopted a loan policy that contains general lending guidelines and is subject
to review and revision by the Board of Directors. We extend credit consistent
with this comprehensive loan policy. We believe the credit quality of our loan
portfolio is excellent.
The goal of our lending program is to meet the credit needs of our diverse
client base while using sound credit principles to protect the quality of our
assets. Our business and credit strategy is relationship-driven and we strive
to provide a reliable source of credit, a variety of lending alternatives, and
sound financial advice. When extending credit, our decision is based upon our
client's ability to repay us from non-speculative sources. The quality and
integrity of the borrower is crucial in the loan approval process. We monitor
the performance of our loan portfolio through regular contacts with our
clients, continual portfolio review, careful monitoring of delinquency reports
and reliance on our loan review function.
We have retained an independent, outside resource to perform our loan review
function. Using an outside resource ensures that our loan review process
remains independent of the loan production and administration
28
<PAGE>
processes. Our loan reviewer examines individual credits to critique individual
problems and the entire portfolio to comment on systemic weaknesses. The
reviewer reports directly to the audit committee of our Board of Directors on a
quarterly basis. In addition to loan review, the loan/investment committee of
our Board reviews the adequacy of the allowance for loan losses on a quarterly
basis. The committee assesses management's loan loss provisions based on loan
review's findings, delinquency trends, historical loan loss experience and
current economic trends.
Our legal lending limit, based on PrivateBank's financials, is calculated at
20% of capital plus unencumbered reserves. At March 31, 1999, our legal lending
limit was approximately $6.5 million. This is the maximum amount of credit that
we may commit to any one individual or business entity after aggregating all
related credit. Immediately after the offering, our legal lending limit will
increase by $1.6 million based on our intention to contribute $8.0 million of
the proceeds to the capital of PrivateBank.
In addition to our chief credit officer, certain individuals have been
designated acting chief credit officers, credit officers, officers with lending
authority, and residential real estate lending officers. No single individual
has sole authority to approve a loan. As the size of aggregate credit exposure
increases, additional officers are required to approve the loan requests. This
serves several purposes: (a) larger credits get more scrutiny, (b) most senior
credit officers become involved in the decision-making process for the vast
majority of dollars loaned without approving a proportionate number of loan
requests, and (c) we become more consistent in administration of credit as
credit officers experience the dynamics of our overall portfolio and credit
culture. We also believe that our past credit approval practices will mitigate
the effect of the impending retirement of our chief credit officer because our
credit culture is firmly in place.
Our chief credit officer, or his designate, is involved in all credit
decisions when the aggregate credit exposure is in excess of $250,000. Our
loan/investment committee reviews all credit decisions over $1.0 million. Prior
approval is required for credit exposure in excess of $4.0 million and for all
credits related to our board members or our managing directors. Loans are
approved at the bank level by a management loan committee or by small group
presentations to credit officers. We believe that this process allows us to be
more responsive to our clients' needs by being able to approve credit without
waiting for scheduled committee meetings. We also use management committee
meetings to discuss complex credits or when we feel that a particular credit
may be informative to everyone in the loan approval process.
Our lending policy sets guidelines for advance rates on certain types of
collateral including accounts receivable, inventory, equipment and real estate
that we generally do not exceed absent special circumstances. Under the policy
guidelines, the maximum loan-to-value ratios are 80% for accounts receivable,
50% for inventory and 65% for equipment. Under the policy, the maximum loan-to-
value ratio for real estate is 80%, but maximum advance rates on real estate
will differ depending upon the type of real estate taken as collateral. For
example, higher loan-to-value ratios are acceptable for owner-occupied
residential properties than non-owner occupied residential or commercial
properties. Vacant land commands the lowest advance rate guidelines. We accept
primary and secondary liens on properties when appraised values are adequate.
Our lending policy also contains advance rate guidelines for securities and
other financial instruments taken as collateral, including stocks, bonds,
commercial paper, and bank deposit instruments. Under the policy guidelines,
maximum loan-to-value ratios should generally not exceed 75% for stocks, 98%
for government bonds, 80% for non-governmental bonds, 95% for commercial paper
and 100% of bank deposit instruments.
Specific collateral requirements are based upon the facts and circumstances
of each individual credit decision. The financial strength and ascertainable
character of each borrower and guarantor is also a factor in the credit
approval process. Because we tend to lend to clients whom we know well, we
believe we are in a good position to assess our borrowers' strengths and
weaknesses and to make well-informed credit decisions on this basis. We make
loans based upon borrowers' available assets and the condition of their
financial statements. We do not sell credit life insurance to our borrowers.
29
<PAGE>
The following table sets forth our loan portfolio by category as of March
31, 1999:
<TABLE>
<CAPTION>
Percentage
March of total
31, 1999 loans
-------- ----------
<S> <C> <C>
Commercial real estate................................ $108,599 35.3%
Residential real estate............................... 62,208 20.2
Commercial............................................ 53,834 17.5
Personal.............................................. 45,122 14.7
Home equity........................................... 19,860 6.4
Construction.......................................... 18,143 5.9
-------- -----
Total loans......................................... $307,766 100.0%
======== =====
</TABLE>
Commercial Real Estate Loans. Our commercial real estate portfolio is
comprised primarily of loans secured by multi-family housing units located in
the Chicago metropolitan area. Other types of commercial real estate collateral
include: commercial properties owned by clients housing their manufacturing,
warehousing or service businesses, investments in small retail centers, and
investments in other business properties.
Risks inherent in real estate lending are related to the market value of the
property taken as collateral, the underlying cash flows and documentation. It
is important to accurately assess property values through careful review of
appraisals. Some examples of risky commercial real estate lending include loans
secured by properties with widely fluctuating market values or income
properties occupied by renters with unstable sources of income, and not
perfecting liens on property taken as collateral. We mitigate these risks by
understanding real estate values in areas in which we lend, investigating the
sources of cash flow servicing the debt on the property and adhering to loan
documentation policy.
Commercial real estate loan products include mini-permanent and permanent
financing, transaction loans to purchase properties prior to permanent
financing, and lines of credit secured by commercial real estate portfolios. We
typically structure mini-permanent and permanent financing as adjustable rate
mortgages ("ARMs"). ARM structure allows our clients to lock in an interest
rate for a fixed period of time in order to avoid interest rate risk. The vast
majority of our ARM loans have initial fixed pricing for between one to five
years. Each ARM loan has language defining repricing beyond the initial fixed
pricing term. Transaction loans to purchase commercial property typically have
maturities of one year or less. Lines of credit secured by commercial real
estate portfolios are typically granted for one year with annual extensions
after a successful underwriting review. Interest rates for our lines of credit
typically are based on a floating rate formula.
In our credit analysis process for commercial real estate loans, we
typically review the appraised value of the property, the ability of the
property as collateral to service debt, the significance of any outside income
of the borrower or income from other properties owned by the borrowers, and the
strength of guarantors, if any. Our real estate appraisal policy has been
approved by our board loan/investment committee. It addresses selection of
appraisers, appraisal standards, environmental issues and specific requirements
for different types of properties.
Residential Real Estate Loans. Our residential real estate portfolio
consists primarily of first and second mortgage loans for 1-4 unit residential
properties. We do not originate long-term fixed rate loans for our own
portfolio due to interest rate risk considerations. However, we do originate
these loans for sale into the secondary market. This is a significant business
activity in our residential real estate lending unit. For our own portfolio, we
originate ARM loans typically structured with 30 year maturities and initial
rates fixed for between one to five years with annual repricing beyond the
initial term.
Our credit review process mirrors the standards set by traditional secondary
market sources. We review appraised value and debt service ratios, and we
gather data during the underwriting process in accordance with the various laws
and regulations governing residential real estate lending. Our real estate
appraisal policy sets specific standards for valuing residential property.
30
<PAGE>
We require pre-approval from secondary market sources before we approve
loans to be sold into the secondary market. Our internal approval process is
less stringent for loans pre-approved by our secondary market sources. This
allows us to be responsive to the tight time commitments dictated for locking
in rates in the secondary market.
We believe that we have a competitive advantage in our ability to offer
financing for our clients who have non-traditional income sources or require
large mortgage loans. We have developed secondary market sources for mortgages,
including several able to provide financing in amounts in excess of $1.0
million per loan which is occasionally required by our clients. By offering our
own ARM loans, we can offer credit to individuals who are self-employed or have
significant income from partnerships or investments. The secondary market often
will not take the time or will be unable to make exceptions for otherwise
qualified borrowers. We have experience in making loans to qualified borrowers
secured by co-ops. We believe that we are one of a limited number of financial
institutions in the Chicago area making these loans.
Commercial Loans. Our commercial loan portfolio is comprised of lines of
credit for working capital, term loans for equipment and expansion, and letters
of credit. These loans are made to businesses affiliated with our clients, or
to clients directly for business purposes. The vast majority of our commercial
loans are personally guaranteed. Unsecured loans are made to businesses when a
guarantor, as a secondary source of repayment, has a significant ability to
repay and a significant interest in the business entity. Commercial loans can
contain risk factors unique to the business of each borrower. In order to
mitigate these risks, we seek to gain an understanding of the business of each
borrower, place appropriate value on collateral taken and structure the loan
properly to make sure that collateral values are maintained while loans are
committed. Appropriate documentation of commercial loans is also important to
protect our interests.
Our lines of credit typically are limited to a percentage of the value of
the assets securing the line, and priced by a floating rate formula. Lines of
credit typically are reviewed annually and are supported by accounts
receivable, inventory and equipment. Depending on the risk profile of the
borrower, we may require periodic aging of receivables, and inventory and
equipment listings to verify the quality of the borrowing base prior to
advancing funds. Our term loans are typically also secured by the assets of our
clients' businesses. Term loans typically have maturities between one to five
years, with either floating or fixed rates of interest. Commercial borrowers
are required to provide updated personal and corporate financial statements at
least annually. Letters of credit are an important product to many of our
clients. We issue standby or performance letters of credit, and can service the
international needs of our clients through correspondent banks. We use the same
underwriting standards for letters of credit as we do for funded loans.
Our credit approval process for commercial loans is comprehensive. We
typically review the current and future cash needs of the borrower, the
business strategy, management's ability, the strength of the collateral, and
the strength of the guarantors. While our loan policy has guidelines for
advances on different types of collateral, we establish eligible asset values
on a case-by-case basis for each borrower. Our officer on the account must be
able to validate his or her position during the approval process.
Personal Loans. Our personal loan portfolio consists of loans to secure
funds for personal investment, loans to acquire personal assets such as
automobiles and boats, and personal lines of credit. Quite often, our borrowers
prefer not to liquidate assets to secure funds for investment or personal
acquisitions. They will use these assets as collateral for personal loans, or
if their financial statements and personal reputations are sufficient, we will
grant unsecured credit. A key factor in originating personal loans is knowing
our borrowers. When personal loans are unsecured, we believe that the character
and integrity of the borrower becomes as important as the borrower's financial
statement.
Our clients request a combination of lines of credit, floating-rate term
loans and fixed-rate term loan products. Many of our clients use their personal
investment portfolios as collateral for personal loans. Personal lines of
credit are used for a variety of purposes such as the comfort of having funds
available for future uses or establishing a line of credit as overdraft
protection. We respond quickly to the needs of our clients within the limits
set by our loan policy.
31
<PAGE>
Personal loans are subject to the same approval process as all other types
of loans. Each client is underwritten to ensure that they have adequate
collateral coverage and/or cash flow. Annual financial statements are required
of each personal borrower.
Home Equity Loans. Our home equity loan portfolio consists of traditional
home equity lines of credit prevalent in the market today. In general, we
advance up to 80% on the value of a home, less the amount of prior liens.
However, we may vary from that percentage depending on the value of the home,
type of dwelling, and the personal financial situation of the borrower. Home
equity loans are funded either through draws requested by our client or by
special home equity credit drafts that function as bank checks. Home equity
loans are approved using the same standards as residential mortgage loans. Our
borrower's personal cash flow is compared to debt service requirements to
determine our borrower's ability to repay. Home equity loans are competitively
priced based using a floating rate formula.
Construction Loans. Our construction loan portfolio consists of single
residential properties, multi-family properties, and commercial projects. As
construction lending has greater inherent risk, we closely monitor the status
of each construction loan throughout its term. Typically, we require full
investment of the borrower's equity in construction projects prior to injecting
our funds. Generally, we do not let our borrowers recoup their equity from the
sale proceeds of finished units (if applicable) until we have recovered our
funds on the overall project. We use a title company to disburse periodic draws
from the construction line to ensure that there will be no title problems at
the end of the project.
Our construction loans are often the highest yielding loans in our portfolio
due to the inherent risks and the monitoring requirements. These loans
typically have floating rates, commitment fees and release fees. During our
credit approval process, factors unique to construction loans are considered.
These include assessment of the market for the finished product, reasonableness
of the construction budget, ability of the borrower to fund cost overruns, and
the borrower's ability to liquidate and repay the loan at the point when the
loan-to-value ratio is the greatest. We seek to manage these risks by, among
other things, ensuring that the collateral value of the property throughout the
construction process does not fall below acceptable levels, ensuring that funds
disbursed are within parameters set by the original construction budget, and
properly documenting each construction draw. Due to our more stringent
standards for underwriting and monitoring construction loans and the credit
profile of our borrowers, we are comfortable with the risk associated with this
portfolio and are committed to construction lending as an integral part of our
lending program.
Investment Activities
The objective of our investment policy is to maximize income consistent with
liquidity, asset quality, regulatory constraints and asset/liability
objectives. The policy is reviewed at least annually by our Board of Directors.
The Board is provided monthly information recapping purchases and sales with
the resulting gains or losses, average maturity, federal taxable equivalent
yields and appreciation or depreciation by investment categories.
We invest primarily in direct obligations of the United States, obligations
guaranteed as to principal and interest by the United States, obligations of
agencies of the United States, bank-qualified obligations of state and local
political subdivisions and collateralized mortgage obligations. We also may
invest from time to time in corporate debt or other securities as permitted by
our investment policy. In addition, we enter into federal funds transactions
with our principal correspondent banks, and primarily act as a net seller of
such funds. The sale of federal funds are effectively short-term loans from us
to other banks.
Our investment accounts also include minimal equity investments in the
Federal Home Loan Bank of Chicago ("FHLB") and Neighborhood Housing Service
("NHS"). We invest in FHLB in order to be a member, which qualifies us to use
their services, including FHLB borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources." NHS is a not-for-profit organization which helps provide affordable
housing to low and moderate income residents in the Chicago area. The size of
our investment is proportionate to the volume of loans in certain credit
programs offered by NHS. NHS is an important vehicle in our Community
Reinvestment Act ("CRA") lending program.
32
<PAGE>
Rather than incurring the costs of employing a full-time investment manager
with the requisite expertise to establish a diverse investment program, we have
engaged two outside investment advisory firms to help us execute our strategy.
One firm is responsible for helping us select taxable investment products to
meet our investment portfolio objectives. This firm employs a team of
professionals who bring us recommendations on a regular basis. Our other
advisor is a leading investment manager of tax-exempt portfolios and is well-
known to us through his work with our trust clients.
Asset/Liability Management Committee
We have an asset/liability committee ("ALCO") comprised of selected senior
executives who are charged with the dual goals of optimization and
stabilization of net interest income over time while adhering to prudent
banking practices. ALCO oversees asset growth, liquidity and capital, and
directs our overall acquisition and allocation of funds. At our monthly
meetings, ALCO reviews issues including:
. data on economic conditions;
. current interest rate outlook;
. current forecast on loans and deposits;
. mix of interest rate sensitive assets and liabilities;
. bank liquidity position;
. investment portfolio purchases and sales; and
. other matters as presented.
ALCO is also responsible for monitoring compliance with our investment
policy. On a monthly basis, ALCO reports to the loan/investment committee who
reviews the portfolio of reports we prepare for our Board of Directors and all
the decisions made by ALCO affecting net interest income.
Trust and Asset Management
We offer our clients a wide variety of trust and asset management services
designed to meet their individual needs and investment goals. Many of our trust
clients have longstanding relationships with our managing directors. In
administering a trust, we work closely with our client, the beneficiaries and
the trustees' attorneys and accountants on personal and tax matters to assist
the client in accomplishing the stated objectives. As fiduciaries of a trust or
estate our responsibilities may include:
. administering the account pursuant to the applicable document;
. collecting, holding and valuing assets;
. monitoring investment portfolios;
. paying debts, expenses and taxes;
. distributing property; and
. advising beneficiaries.
In addition to trust and estate administration, we offer:
. institutional accounts;
. guardianship administration;
. investment agency accounts;
. Section 1031 exchanges; and
. custodial accounts.
33
<PAGE>
Over the past three years, the average account value of new trusts
administered by PrivateBank was approximately $3.0 million. We believe that our
trust business will continue to grow as we expand our client base and our
clients increasingly reach retirement age and focus on their estate plans.
Our investment management philosophy for our trust assets under
administration is built on two principles: (a) the preservation of capital, and
(b) achievement of maximum total return consistent with each individual
client's objectives. We have chosen to outsource the investment management
aspect of our business so that we may offer our clients diversity and
flexibility of investment representation and to allow us to impartially
evaluate investment performance. This structure also allows our clients to
independently designate one or more specific advisors enabling them to maintain
existing relationships they may have within the financial community. If the
client does not have such a relationship in place, we then help them select an
investment management firm that will best service their needs. Based on the
client's investment strategy and objectives and the account attributes, one or
more investment managers will be selected from our list of approved advisors.
Our trust policy has established controls over our trust activities to
safeguard the assets of our clients against operational and administrative
risk. We have a system of internal controls that is designed to keep our
operating risk at appropriate levels. Our system of internal controls includes
policies and procedures relating to authorization, approval, documentation and
monitoring of transactions. Administrative risk is the risk of loss that may
occur as a result of breaching a fiduciary duty to a client. To manage this
risk, our trust policy has established corporate policies and procedures to
ensure that obligations to clients are discharged faithfully and in compliance
with applicable legal and regulatory requirements. These policies and
procedures provide guidance and establish standards related to the creation,
sale, and management of investment products, trade execution, and counterparty
selection.
Properties
We currently have three physical banking locations and are planning to
establish a new office location in St. Charles, Illinois, subject to necessary
regulatory approvals. See "Pending Acquisition."
The main offices of PrivateBancorp and PrivateBank are located in the
central business and financial district of Chicago. We lease 20,923 square feet
comprising the entire eighth, ninth, and tenth floors and part of the eleventh
floor of a building located at Ten North Dearborn Street. This lease expires on
or about August 31, 2006.
PrivateBank established a north suburban office in the affluent North Shore
area located at 517 Green Bay Road, Wilmette, Illinois, in October 1994.
PrivateBank leases approximately 5,300 square feet on the first floor of a
commercial building. This lease expires on June 30, 1999 and has been renewed
for an additional five-year term.
In January 1997, we opened a second branch office of PrivateBank in rapidly
growing, west suburban DuPage County at 1603 West Sixteenth Street, Oak Brook,
Illinois. We lease approximately 4,200 square feet on the first floor of a two-
story office building. This lease expires on December 14, 2001.
We have a variety of renewal options in each of our properties and certain
rights to secure additional space.
Competition
We do business in the highly competitive financial services industry.
PrivateBank's geographic market is primarily the greater Chicago metropolitan
area. The financial services industry is comprised of commercial banks,
thrifts, credit unions, investment banks, brokerage houses, money managers, and
other providers of financial products and services. These firms compete with
PrivateBank for one or more of the following: loans, deposits, trust services,
or investment products. Some of these firms have business units that promote
34
<PAGE>
themselves as "private banks." The typical private banking competitor is a unit
of a large commercial bank catering to the upper echelon of that bank's
customer base.
We view ourselves as the only private bank in the Chicago market focused
solely on offering an extended range of traditional banking and trust products
to affluent professionals, entrepreneurial individuals and their business
interests. While our products may be similar to those of our competitors, we
attempt to distinguish ourselves by emphasizing consistent, superior levels of
personal service. For commercial and commercial real estate lending, we compete
with a number of major Chicago-area financial institutions and suburban banks.
For trust services, we compete with the largest Chicago-area banks and some
investment managers. For private banking services, we compete with the private
banking departments of major Chicago-area financial institutions, some suburban
banks, and brokerage houses. For residential mortgage lending, our products
compete with banks, savings and loans, mortgage brokers and numerous other
financial services firms offering mortgage loans in our market area. Several of
our competitors are national or international in scope.
Some of our competitors are not subject to the same degree of regulation as
that imposed on bank holding companies and Illinois banking organizations. In
addition, the larger banking organizations, investment banks and brokerage
houses have significantly greater resources than us. As a result, such
competitors have advantages over PrivateBank in name recognition and market
penetration.
Legal Proceedings
From time to time, we may be party to various legal proceedings arising in
the normal course of our business. Since PrivateBank acts as a depository of
funds, we may be named from time to time as a defendant in various lawsuits
(such as garnishment proceedings) involving claims to the ownership of funds in
particular accounts. We are not currently subject to any pending or threatened
material legal proceedings.
Employees
As of March 31, 1999, we had 75 full-time equivalent employees. The majority
of our employees are located at the main office in downtown Chicago.
PrivateBank pays the salaries of all of our employees with the exception of
Messrs. Mandell and Roubitchek, a portion of whose salaries are paid by the
Company.
We provide our employees with a comprehensive program of benefits, some of
which are on a contributory basis, including comprehensive medical and dental
plans, life insurance plans, and 401(k) plans. We consider our relationship
with our employees to be good.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
data of PrivateBancorp. The selected statements of condition and statements of
income data, insofar as they relate to the five years in the five-year period
ended December 31, 1998, have been derived from our consolidated financial
statements. The following information should be read in conjunction with our
audited Consolidated Financial Statements and the Notes thereto, included
elsewhere herein. The selected financial data for the three months ended March
31, 1999 and 1998, are derived from our unaudited interim consolidated
financial statements. Such unaudited interim financial statements include all
adjustments (consisting only of normal, recurring accruals) that we consider
necessary for a fair presentation of the financial position and the results of
operations as of the dates and for the periods indicated. Information for any
interim period is not necessarily indicative of results that may be anticipated
for the full year. You should also read the following information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------- ------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of
Income Data:
Interest income:
Loans, including fees... $5,636 $4,624 $19,619 $16,729 $12,152 $10,053 $6,418
Federal funds sold and
interest-bearing
deposits............... 48 498 2,181 875 1,392 1,149 358
Securities.............. 1,570 727 3,492 2,519 2,396 1,700 1,265
------ ------ ------- ------- ------- ------- ------
Total interest income. 7,254 5,849 25,292 20,123 15,940 12,902 8,041
------ ------ ------- ------- ------- ------- ------
Interest expense:
Interest-bearing demand
deposits............... 142 121 487 377 305 276 210
Savings and money
market deposit
accounts............... 1,800 1,629 6,651 5,880 4,613 3,484 2,139
Other time deposits..... 1,752 1,346 6,155 3,821 2,973 2,620 782
Funds borrowed.......... 144 -- 19 3 143 50 62
------ ------ ------- ------- ------- ------- ------
Total interest
expense.............. 3,838 3,096 13,312 10,081 8,034 6,430 3,193
------ ------ ------- ------- ------- ------- ------
Net interest income... 3,416 2,753 11,980 10,042 7,906 6,472 4,848
Provision for loan
losses.................. 285 91 362 603 524 930 305
------ ------ ------- ------- ------- ------- ------
Net interest income
after provision for
loan losses.......... 3,131 2,662 11,618 9,439 7,382 5,542 4,543
------ ------ ------- ------- ------- ------- ------
Non-interest income:
Banking and trust
services............... 442 273 1,281 1,210 911 674 414
Securities gains........ -- -- 40 -- -- -- --
------ ------ ------- ------- ------- ------- ------
Total non-interest
income............... 442 273 1,321 1,210 911 674 414
------ ------ ------- ------- ------- ------- ------
Non-interest expense:
Salaries and employee
benefits............... 1,115 1,102 4,077 3,902 3,411 2,749 2,054
Occupancy............... 352 334 1,379 1,274 990 946 745
Data processing......... 131 120 508 396 334 282 262
Marketing............... 153 139 567 500 424 296 272
Amortization of
organization costs..... -- -- -- -- 23 280 280
Professional fees....... 178 94 561 448 326 284 253
Insurance............... 41 30 134 115 82 238 342
Other expense........... 285 181 864 627 508 434 321
------ ------ ------- ------- ------- ------- ------
Total non-interest
expense.............. 2,255 2,000 8,090 7,262 6,098 5,509 4,529
------ ------ ------- ------- ------- ------- ------
Income before income
taxes.................. 1,318 935 4,849 3,387 2,195 707 428
Income tax provision.. 291 365 1,839 1,242 762 (403) 3
------ ------ ------- ------- ------- ------- ------
Net income............ $1,027 $ 570 $ 3,010 $ 2,145 $ 1,433 $ 1,110 $ 425
====== ====== ======= ======= ======= ======= ======
Per Share Data:
Basic earnings.......... $ 0.30 $ 0.18 $ 0.91 $ 0.69 $ 0.49 $ 0.39 $ 0.17
Diluted earnings........ 0.28 0.17 0.86 0.65 0.47 0.38 0.16
Dividends............... 0.03 0.02 0.08 0.07 0.07 0.03 --
Book value (at end of
period)................ 8.71 7.86 8.53 7.67 6.84 6.47 6.13
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial
Condition Data
(at end of period):
Total securities(1)..... $ 105,136 $ 48,322 $116,891 $ 65,383 $ 44,617 $ 38,296 $ 24,669
Total loans............. 307,766 223,746 281,965 218,495 171,343 126,069 98,380
Total assets............ 431,055 331,924 416,308 311,872 246,734 196,917 141,826
Total deposits.......... 384,454 304,660 364,994 285,773 222,571 176,868 122,925
Funds borrowed.......... 10,000 -- 20,000 -- 3,000 700 1,000
Total stockholders'
equity................. 30,054 25,400 29,274 24,688 20,222 18,445 17,471
Trust assets under
administration......... $ 637,422 $ 524,019 $611,650 $469,646 $328,662 $212,456 $168,872
Selected Financial
Ratios and Other
Data(2):
Performance Ratios:
Net interest margin(3). 3.57% 3.65% 3.61% 4.01% 3.73% 3.95% 4.09%
Net interest spread(4). 3.02 2.96 2.98 3.31 3.03 3.16 3.42
Non-interest income to
average assets........ 0.42 0.34 0.37 0.45 0.42 0.40 0.35
Non-interest expense to
average assets........ 2.13 2.49 2.29 2.71 2.79 3.31 3.79
Net overhead ratio(5).. 1.71 2.15 1.91 2.26 2.38 2.90 3.44
Efficiency ratio(6).... 58.45 67.65 60.82 64.53 69.17 77.09 86.07
Return on average
assets(7)............. 0.97 0.71 0.85 0.80 0.66 0.67 0.36
Return on average
equity(8)............. 13.84 9.11 11.27 9.49 7.38 6.22 2.94
Dividend payout ratio.. 8.36 10.63 8.74 10.13 12.88 8.03 --
Asset Quality Ratios:
Non-performing loans to
total loans........... 0.12 0.32 0.36 0.24 0.65 1.90 0.15
Allowance for possible
loan losses to:
total loans........... 1.20 1.40 1.21 1.40 1.43 1.55 1.04
non-performing loans.. 1,025 440 336 578 220 82 711
Net charge-offs to
average total loans... -- -- -- -- 0.02 -- 0.01
Non-performing assets
to total assets....... 0.08 0.21 0.24 0.17 0.45 1.22 0.10
Balance Sheet Ratios:
Loans to deposits...... 80.1 73.4 77.3 76.5 77.0 71.3 80.0
Average interest-
earning assets to
average interest-
bearing liabilities... 114.2 117.0 116.4 117.7 118.6 120.7 123.8
Capital Ratios:
Total equity to total
assets................ 6.97 7.65 7.03 7.92 8.20 9.37 12.32
Total risk-based
capital ratio......... 11.21 11.47 11.53 11.75 12.21 14.56 19.58
Tier 1 risk-based
capital ratio......... 10.05 10.22 10.40 10.50 10.96 13.31 18.49
Leverage ratio......... 7.53 7.87 7.88 8.70 8.71 9.76 13.03
</TABLE>
- --------
(1) For all periods after 1994, the entire securities portfolio was classified
"Available for Sale." For 1994, the entire securities portfolio was
classified "Held to Maturity."
(2) Certain financial ratios for interim periods have been annualized.
(3) Net interest income divided by average interest-earning assets.
(4) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(5) Non-interest expense less non-interest income divided by average total
assets.
(6) Non-interest expense divided by the sum of net interest income plus non-
interest income.
(7) Net income divided by average total assets.
(8) Net income divided by average common equity.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected
Consolidated Financial Data" and our Consolidated Financial Statements and
Notes thereto, each appearing elsewhere in this prospectus. In addition to
historical information, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ significantly from those anticipated in these forward-looking statements
as a result of certain factors, including those discussed in "Risk Factors"
contained elsewhere in this prospectus.
Overview
PrivateBancorp was organized in 1989 to serve as the holding company for a
de novo bank, The PrivateBank and Trust Company which provides personal and
commercial banking services to affluent individuals, professionals and their
business interests in the Chicago metropolitan area. We opened our flagship
Chicago location in 1991, and our full-service offices in the affluent
communities of Wilmette, Illinois, a North Shore suburb of Chicago, in 1994,
and Oak Brook, Illinois, located in the rapidly growing western suburbs, in
1997.
Effective as of June 24, 1999, we entered into a definitive agreement to
acquire Towne Square Financial Corporation which we believe provides us an
attractive opportunity to establish a new office in St. Charles, Illinois, a
far western suburb of Chicago. Upon consummation of the transaction, we will
incur a one-time, merger-related charge to earnings, currently estimated to be
approximately $1.29 million. See "Pending Acquisition" for a discussion of the
anticipated financial impact of this transaction and start-up costs associated
with the planned opening of the St. Charles branch.
Since inception, we have experienced rapid internal growth as a result of:
. developing new banking relationships through the lending expertise of
our senior banking officers;
. developing new clients primarily through referrals from professional
advisors and existing clients;
. expanding our products offered and cross-marketing our existing
products;
. expanding our business lines through strategic partnerships; and
. opening new branches.
Since year-end 1995, we have grown our asset base at a compound annual rate
of 27.3% to $431.1 million as of March 31, 1999. During the same period, loans
have grown at a compound annual rate of 31.6% to $307.8 million, deposits at a
compound annual rate of 27.0% to $384.5 million and trust assets under
administration at a compound annual rate of 40.2% to $637.4 million. Due to our
increased size, we expect that these growth rates will moderate over time.
The profitability of our operations depends on our net interest income,
provision for possible loan losses, non-interest income, and non-interest
expense. Net interest income is the difference between the income we receive on
our loan and investment portfolios and our cost of funds, which consists of
interest paid on deposits and borrowings. The provision for possible loan
losses reflects the cost of credit risk in our loan portfolio. Non-interest
income consists primarily of trust fee income, and to a lesser extent, \net
securities gains and fees for ancillary banking services. Non-interest expense
includes salaries and employee benefits as well as occupancy, data processing,
marketing, professional fees, insurance, and other expenses.
Net interest income is dependent on the amounts and yields of interest-
earning assets as compared to the amounts and rates on interest-bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and our asset/liability management procedures in coping with such
changes. The provision for loan losses is dependent on increases in the loan
portfolio, management's assessment of the collectibility of the loan portfolio,
loss, experience as well as economic and market factors. We earn trust fees for
managing and administering investment funds for a variety of individuals,
families and fiduciary relationships. Non-interest expenses are heavily
influenced by the growth of operations. Growth in the number of client
relationships directly affects the majority of our expense categories.
38
<PAGE>
Our primary financial objectives are to continue to grow our loan portfolio
while maintaining high asset quality, and to increase non-interest income while
maintaining strong expense controls. We have maintained high asset quality
while managing rapid internal growth since our inception. We believe our
history of strong credit quality is testament to our sound credit practices, as
well as evidence that our affluent target client is a better than average
credit risk, resulting in lower loan charge-offs and lower loan loss provisions
than at traditional banks. The following table shows our growth in loans and
our credit quality history:
<TABLE>
<CAPTION>
December 31,
March --------------------------------------
31, 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average loans, net of
unearned discount....... $288,322 $233,987 $195,237 $140,767 $111,637
Net charge-offs to
average loans........... -- -- -- 0.02% --
Non-performing loans to
total loans............. 0.12% 0.36% 0.24% 0.65% 1.90%
</TABLE>
Our 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
high service charge income typical of community banks. In 1998, we entered into
an alliance with Mesirow Financial to provide insurance services to our
clients. It is expected that fees related to the sale of insurance services
will increase in 1999 and future years.
Higher account balances result in relatively low levels of transactions per
account dollar and therefore our accounts are less costly to maintain. We
believe that as we continue to grow, we will continue to experience lower
overhead costs than other banks with similar aggregate levels of loans and
deposits. We intend to continue to improve our operating efficiency by growing
net interest income and non-interest income at a faster rate than non-interest
expense, and developing new sources of non-interest income. The following table
highlights our improving efficiency measures:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------
1999 1998 1997 1996 1995
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest expense to average assets.... 2.13% 2.29% 2.71% 2.79% 3.31%
Net overhead ratio........................ 1.71 1.91 2.26 2.38 2.90
Efficiency ratio.......................... 58.5 60.8 64.5 69.2 77.1
</TABLE>
Results of Operations
Net income
In 1998, we earned $3.0 million as compared to $2.1 million in 1997. This
40.3% increase in earnings was primarily the result of growth in the balance
sheet, particularly in the loan portfolio. Also contributing to improved
performance were increases in the investment portfolio, a reduced provision for
loan losses, increases in trust fees, and improved operating expense levels
which grew at a slower rate than the combined income components.
Diluted earnings per share for 1998 were $0.86, as compared to $0.65 for
1997, an increase of 30.3%. The growth rate of diluted earnings per share was
lower than the growth rate in earnings due to an increase in the number of
shares outstanding between the years and the value of existing stock options.
Return on average assets for 1998 was 0.85%, as compared to 0.80% for 1997.
Return on average equity for 1998 was 11.27%, as compared to 9.49% for 1997.
In 1997, we earned $2.1 million as compared to $1.4 million in 1996. This
49.7% increase was primarily the result of growth in the loan portfolio and
other balance sheet categories. Fees from banking and trust services grew by
32.8% in 1997 over 1996, while the provision for loan losses and other expense
grew by a combined 18.8%. Diluted earnings per share for 1997 were $0.65, as
compared to $0.47 for 1996. Return on
39
<PAGE>
average assets for 1997 was 0.80%, as compared to 0.66% for 1996. Return on
average equity for 1997 was 9.49%, as compared to 7.38% for 1996.
During the first quarter of 1999, we earned $1.0 million as compared to
$570,000 during the first quarter of 1998. This 80.1% increase was primarily
the result of improvements in net interest income and non-interest income which
more than offset increases in the provision for loan losses and non-interest
expenses. Tax strategies implemented in late 1998 resulted in a reduced tax
provision in the first quarter of 1999 as compared to the first quarter of
1998, despite higher pre-tax earnings. Diluted earnings per share for the first
quarter of 1999 was $0.28 as compared to $0.17 for the first quarter of 1998.
Annualized return on average assets and annualized return on average equity for
the first quarter of 1999 were 0.97% and 13.84%, respectively, as compared to
0.71% and 9.11% for the first quarter of 1998, respectively.
Net interest income and net interest margin.
In 1998, net interest income increased from 1997 by $1.9 million, or 19.3%,
to $12.0 million. During the same period, the net interest margin decreased
from 4.01% to 3.61%. Net interest income is affected by both the volume of
assets and liabilities we hold, and the corresponding rates earned and paid.
Earning assets, on average, grew by $80.3 million in 1998, while yields
dropped from 8.03% in 1997 to 7.65% in 1998. Rates earned on assets were
affected by a general reduction in interest rate levels. During 1998, the
Federal Open Market Committee lowered the target federal funds rate on three
separate occasions, by a total of 75 basis points. Similar reductions in
Treasury rates, which are used as indices for several loan products, affected
the average yield on our loan portfolio.
In 1998, average interest-bearing liabilities grew by $71.8 million, while
average rates paid on interest bearing liabilities dropped from 4.72% in 1997
to 4.67% in 1998. Due to rate compression and competitive pressures, we were
unable to reduce rates paid as quickly or as significantly as experienced on
the asset side of the balance sheet. The volume of non-interest bearing funds,
largely comprised of demand deposits and capital, also affects the net interest
margin. In 1998, the effect of non-interest bearing funds on the net interest
margin added 63 basis points to the margin. In 1997, the effect was an addition
of 70 basis points to the net interest margin.
In 1997, net interest income increased from 1996 by $2.1 million, or 27.0%,
to $10.0 million. During the same period, net interest margin increased from
3.73% to 4.01%. Average earning assets grew by $45.7 million, while yields
increased from 7.66% in 1996 to 8.03% in 1997. Yields on assets were affected
by a slight increase in interest rate levels throughout the year. In 1996,
loans comprised 68.5% of earning assets as compared to 77.7% of earning assets
in 1997. Comparatively, this had a positive effect on asset yields in 1997. In
1997, interest-bearing liabilities, on average, grew by $40.2 million while
average rates paid on interest-bearing liabilities increased from 4.63% in 1996
to 4.72% in 1997. Rates paid increased slightly in all categories in 1997. The
effect of non-interest-bearing funds on the net interest margin was 70 basis
points in both 1996 and 1997.
Net interest income increased by 24.1% from $2.8 million in the first
quarter of 1998, to $3.4 million in the first quarter of 1999. Lower interest
rate levels and an increased percentage of assets funded by interest-bearing
liabilities compressed the net interest margin from 3.65% in the first quarter
of 1998, to 3.57% in the first quarter of 1999. The increase in average assets
of more than $100 million reflects increases in both loans and investment
securities. The average balance of federal funds sold in the first quarter of
1999 was significantly less than in the first quarter of 1998. The cost of
interest-bearing liabilities in the first quarter of 1999 was 4.38%, as
compared to 4.83% in the first quarter of 1998.
40
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
The following table sets forth the average balances, the interest earned or
paid thereon, and the effective interest rate yield or cost for each major
category of interest-earning assets, interest-bearing liabilities and
stockholders' equity for the three months ended March 31, 1999 and 1998, and
for the years ended December 31, 1998, 1997 and 1996 on a tax-equivalent
basis, assuming a 34% tax rate.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------
1999 1998 1998
-------------------------- -------------------------- ----------------------
Average Average Average Average Average
Balance Yield/ Balance Yield/ Balance
(1) Interest Cost (1) Interest Cost (1) Interest
-------- -------- ------- -------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold. $ 4,167 $ 48 4.61% $ 36,775 $ 498 5.42% $ 40,230 $ 2,181
Taxable investment
securities......... 112,724 1,570 6.28 48,339 727 6.16 57,427 3,491
Loans, net of
unearned discount.. 288,322 5,636 7.88 219,133 4,624 8.55 233,987 19,620
-------- ------ -------- ------ -------- -------
Total earning
assets.......... 405,213 7,254 7.40 304,247 5,849 7.79 331,644 25,292
-------- ------ -------- ------ -------- -------
Cash and due from
banks--non-interest
bearing............ 11,664 8,784 9,989
Allowance for
possible loan
losses............. (3,470) (3,082) (3,218)
Premises and
equipment, net..... 1,569 1,885 1,781
Other assets....... 4,898 3,704 4,187
-------- -------- --------
Total assets.... $419,874 $315,538 $344,383
======== ======== ========
Liabilities and
Stockholders'
Equity
Deposits-interest
bearing:
Interest-bearing
demand accounts... $ 27,199 142 2.12% $ 21,742 121 2.26% $ 22,073 487
Savings and money
market deposits... 177,600 1,800 4.11 142,077 1,629 4.65 151,558 6,651
Time deposits..... 139,512 1,752 5.10 96,226 1,346 5.68 111,407 6,155
-------- ------ -------- ------ -------- -------
Total interest-
bearing
deposits........ 344,311 3,694 4.36 260,045 3,096 4.83 285,038 13,293
-------- ------ -------- ------ -------- -------
Funds borrowed..... 10,485 144 5.07 -- -- 373 19
Term-debt and
subordinated debt.. -- -- -- -- -- --
-------- ------ -------- ------ -------- -------
Total interest-
bearing
liabilities..... 354,796 3,838 4.38 -- 3,096 285,411 13,312
-------- ------ -------- ------ -------- -------
Non-interest
bearing deposits... 32,990 28,594 31,335
Other liabilities.. 3,487 3,620 3,246
Stockholders'
equity............. 28,601 23,279 24,391
-------- -------- --------
Total
liabilities and
stockholders'
equity.......... $419,874 $315,538 $344,383
======== ======== ========
Net interest
income/spread...... $3,416 3.02% $2,753 2.96% $11,980
====== ==== ====== ==== =======
Net interest
margin............. 3.57% 3.65%
==== ====
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1997 1996
-------------------------- --------------------------
Average Average Average Average Average
Yield/ Balance Yield/ Balance Yield/
Cost (1) Interest Cost (1) Interest Cost
------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold. 5.35% $ 15,917 $ 875 5.43% $ 26,287 $ 1,393 5.22%
Taxable investment
securities......... 6.20 40,164 2,519 6.27 38,569 2,396 6.21
Loans, net of
unearned discount.. 8.40 195,237 16,729 8.60 140,767 12,151 8.51
--------- -------- --------- --------
Total earning
assets.......... 7.65 251,318 20,123 8.03 205,623 15,940 7.66
--------- -------- --------- --------
Cash and due from
banks--non-interest
bearing............ 7,642 6,183
Allowance for
possible loan
losses............. (2,791) (2,198)
Premises and
equipment, net..... 1,995 1,280
Other assets....... 2,690 2,113
--------- ---------
Total assets.... $260,854 $213,001
========= =========
Liabilities and
Stockholders'
Equity
Deposits-interest
bearing:
Interest-bearing
demand accounts... 2.21% $ 17,722 377 2.13% $ 14,523 305 2.10%
Savings and money
market deposits... 4.39 127,560 5,880 4.61 102,759 4,613 4.48
Time deposits..... 5.53 68,252 3,821 5.60 53,601 2,973 5.54
--------- -------- --------- --------
Total interest-
bearing
deposits........ 4.67 213,534 10,078 4.72 170,883 7,891 4.61
--------- -------- --------- --------
Funds borrowed..... 5.06 49 3 5.83 2,483 143 5.67
Term-debt and
subordinated debt.. -- -- -- -- -- -- --
--------- -------- --------- --------
Total interest-
bearing
liabilities..... 4.67 213,583 10,081 4.72 173,366 8,034 4.63
--------- -------- --------- --------
Non-interest
bearing deposits... 25,053 20,783
Other liabilities.. 1,645 1,073
Stockholders'
equity............. 20,573 17,779
--------- ---------
Total
liabilities and
stockholders'
equity.......... $260,854 $213,001
========= =========
Net interest
income/spread...... 2.98% $10,042 3.31% $ 7,906 3.03%
======= ======== ======= ======== =======
Net interest
margin............. 3.61% 4.01% 3.73%
======= ======= =======
</TABLE>
- ----
(1) Average balances were generally computed using daily balances.
41
<PAGE>
The following table shows the dollar amount of changes in interest income
and interest expense by major categories of interest-earning assets and
interest-bearing liabilities attributable to changes in volume or rate or both,
for the periods indicated. Volume variances are computed using the change in
volume multiplied by the previous year's rate. Rate variances are computed
using the changes in rate multiplied by the previous year's volume. The change
in interest due to both rate and volume has been allocated between the factors
in proportion to the relationship of the absolute dollar amounts of the change
in each.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------- -------------------------------------------
1998 Compared to 1997 Compared to
1999 Compared to 1998 1997 1996
----------------------- --------------------- ---------------------
Change Change Change Change Change Change
Due to Due to Total Due to Due to Total Due to Due to Total
Rate Volume Change Rate Volume Change Rate Volume Change
------- ------ ------ ------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold...... $ (72) $ (378) $ (450) $ (11) $1,317 $1,306 $ 52 $ (570) $ (518)
Investment securities... 26 817 843 (30) 1,002 972 23 100 123
Loans, net of unearned
discount............... (2,155) 3,167 1,012 (414) 3,305 2,891 96 4,482 4,578
------- ------ ------ ----- ------ ------ ---- ------ ------
Total interest income.. (2,201) 3,606 1,405 (455) 5,624 5,169 171 4,012 4,183
------- ------ ------ ----- ------ ------ ---- ------ ------
Interest-bearing demand
accounts............... (44) 65 21 14 96 110 4 68 72
Savings and money market
deposits............... (995) 1,166 171 (292) 1,063 771 126 1,141 1,267
Time deposits........... (842) 1,248 406 (56) 2,390 2,334 27 821 848
Funds borrowed.......... -- 144 144 -- 16 16 4 (144) (140)
------- ------ ------ ----- ------ ------ ---- ------ ------
Total interest expense. (1,881) 2,623 742 (334) 3,565 3,231 161 1,886 2,047
------- ------ ------ ----- ------ ------ ---- ------ ------
Net interest income..... $ (320) $ 983 $ 663 $(121) $2,059 $1,938 $ 10 $2,126 $2,136
======= ====== ====== ===== ====== ====== ==== ====== ======
</TABLE>
Provision for loan losses.
The provision for loan losses decreased 60.0% from $603,000 in 1997 to
$362,000 in 1998. Throughout 1998, the allowance for loan losses was reassessed
to determine the appropriate level to be maintained. This analysis was
influenced by the following factors: the volume and quality of loans and
commitments in the portfolio, loss experience, and economic conditions. The
reduced provision, despite an increasing portfolio, reflects management's
assessment of the overall risk in the loan portfolio.
The provision for loan losses increased from $524,000 in 1996 to $603,000 in
1997. This 15.1% increase was less than the rate of increase of the loan
portfolio. The quality of the loan portfolio in 1997 continued to be as strong
as experienced in 1996.
The provision for loan losses in the first quarter of 1999, was $285,000 as
compared to $91,000 in the first quarter of 1998. The reason for this increase
was the sharp increase in loan balances of $25.8 million during the first three
months of 1999 as compared to $5.3 million in the first three months of 1998.
Non-interest income.
Our total non-interest income increased 9.2% from $1.2 million in 1997 to
$1.3 million in 1998. The largest component of other income is trust fees.
Trust fees increased 9.7% from $937,000 in 1997 to $1.0 million in 1998,
reflecting growth in trust assets under administration of $141.6 million, or
30.1%, to $611.6 million at year end 1998. Trust assets have more than doubled
since mid-1996. This growth is in part attributable to our success in
attracting larger blocks of business and the favorable stock market. During
1997, we earned fees of $119,000 while administering a problem account. This
account was transferred to another trust institution late in 1997. Without this
income in 1997, the increase in trust income in 1998 over 1997 would have been
$210,000, or 25.7%. In 1998, we realized gains from securities sales of
$40,000.
Our non-interest income increased 32.8% from $911,000 in 1996 to $1.2
million in 1997. During this period, trust fees increased 62.4% from $577,000
in 1996 to $937,000 in 1997. Without fees earned on the
42
<PAGE>
transferred trust account (on which we earned $59,000 in 1996), our annual
increase from 1996 to 1997 would have been 57.9%. In 1997, other income was
enhanced by consulting fees of $132,000 which were of a non-recurring nature.
Non-interest income increased by 61.9% to $442,000 in the first quarter of
1999, as compared to $273,000 in the first quarter of 1998. The major component
of non-interest income, trust fees grew to $320,000 in the first quarter of
1999, as compared to $229,000 in the first quarter of 1998. This 39.7% increase
follows similar increases in trust assets under administration.
Non-interest expense.
<TABLE>
<CAPTION>
Three Months
Ended March Year Ended December
31, 31,
------------- --------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits............... $1,115 $1,102 $4,077 $3,902 $3,411
Occupancy.................................... 352 334 1,379 1,274 990
Data processing.............................. 131 120 508 396 334
Marketing.................................... 153 139 567 500 424
Amortization of organization costs........... -- -- -- -- 23
Professional fees............................ 178 94 561 448 326
Insurance.................................... 41 30 134 115 82
Other expense................................ 285 181 864 627 508
------ ------ ------ ------ ------
Total non-interest expense................. $2,255 $2,000 $8,090 $7,262 $6,098
====== ====== ====== ====== ======
</TABLE>
Total non-interest expense increased 11.4% from $7.3 million in 1997, to
$8.1 million in 1998. Non-interest expense as a percentage of average assets
declined from 2.7% in 1997 to 2.3% in 1998, reflecting the increased efficiency
of our infrastructure in supporting our growth rate. Similar improvements in
efficiency have been achieved in each year of the Company's existence. Non-
interest expense increased 19.1% from $6.1 million in 1996, to $7.3 million in
1997. Non-interest expense as a percentage of average assets declined from 2.8%
in 1996 to 2.7% in 1997.
The efficiency ratio, which measures the percentage of net revenue that is
paid as non-interest expense, has improved each year from 69% in 1996, to 65%
in 1997, to 61% in 1998. This is an indication that expenses have not grown as
quickly as revenues. It also supports the statement that the Company was able
to grow into the infrastructure established in its early years.
Salaries and employee benefits increased 4.5% to $4.1 million in 1998 from
$3.9 million in 1997. Growth from 1996 to 1997 was $491,000, or 14.4%. Staff
levels have been kept under control with the number of full time equivalent
employees increasing from 59.0 at year-end 1996, to 66.5 at year-end 1997 and
70.5 at year-end 1998. Except for staffing of the Oak Brook facility at year-
end 1996, there have been no additions at the executive level for the periods
discussed. Staff additions have been necessary to support growth of the
business.
Occupancy costs related to our facilities showed increases of $105,000, or
8.2% from 1997 to 1998, and $284,000, or 28.7% from 1996 to 1997. The majority
of our increase in operating expenses in 1997 was related to the opening of our
Oak Brook office in January 1997, and a full year's rent paid in 1997 for an
additional floor of the Chicago office.
Insurance costs related to our property, liability, and bond coverages
increased by $19,000, or 16.5%, from 1997 to 1998. The increased costs are
primarily related to increases in coverage commensurate with our growth.
Deposit insurance was an insignificant expense in each of the years.
Data processing increases for 1997 and 1998 are volume-related. During the
third quarter of 1999, we will be converting the processing of our loan and
deposit applications to a different service bureau. This is the result
43
<PAGE>
of our current processor's announcement that it will be terminating operations
in 2000. We expect our data processing expense to increase in 1999 as a result
of this conversion, and remain at higher levels in the years to follow.
Professional fees which include legal, accounting and consulting services
increased by $113,000, or 25.2% from 1997 to 1998, and $122,000, or 37.4% from
1996 to 1997. Reasons for these increases include increased usage of audit and
accounting services, consulting services related to regulatory compliance, and
in 1998, increases in investment advisory services related to our investment
portfolio.
Other expenses include office supplies, postage, telephone, delivery,
training, director fees, filing fees and duplicating. The majority of increases
in these items are related to growth of the Company.
Non-interest expense increased by 12.8% to $2.3 million in the first quarter
of 1999, as compared to $2.0 million in the first quarter of 1998. This
percentage increase was well below increase percentages earned in net interest
income and non-interest income. Most notable were increases in professional
fees related to bank investment portfolio consultants, year 2000 consultants
and internal audit expenses.
Provision for income taxes.
Our consolidated income tax rate varies from statutory rates principally due
to certain interest income which is tax-exempt for federal and state purposes,
and our expenses which are disallowed for tax purposes. Increases in our income
tax provision for the three years ended December 31, 1998 are primarily related
to increases in pre-tax earnings.
Income taxes in the first quarter of 1999, included the effect of federally
non-taxable interest earned on our municipal bond portfolio and the result of a
tax-advantaged investment program initiated in February 1999.
Financial Condition
Loans.
Our loan clients include individuals, partnerships and corporations. Loan
types include commercial real estate, which is concentrated in apartment
buildings, residential real estate, commercial, personal, home equity, and
construction. Loan quality has remained high with low levels of delinquencies
and minimal charge-offs.
The following table sets forth our loan portfolio by category as of March
31, 1999, and as of December 31 for the previous five fiscal years:
<TABLE>
<CAPTION>
December 31,
March -------------------------------------------
31, 1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate..... $108,599 $ 94,392 $ 55,429 $ 39,452 $ 29,114 $22,402
Residential real estate.... 62,208 54,171 56,307 45,012 25,973 21,696
Commercial................. 53,834 46,800 33,862 28,004 22,906 18,092
Personal................... 45,122 44,094 42,077 35,339 28,150 20,466
Home equity................ 19,860 20,100 20,680 20,683 18,707 11,504
Construction............... 18,143 22,408 10,140 2,853 1,219 747
Bankers' acceptances....... -- -- -- -- -- 3,473
-------- -------- -------- -------- -------- -------
Total loans.............. $307,766 $281,965 $218,495 $171,343 $126,069 $98,380
======== ======== ======== ======== ======== =======
</TABLE>
44
<PAGE>
The following table classifies the loan portfolio, by category, at March 31,
1999, by date at which the loans mature:
<TABLE>
<CAPTION>
More than one
After year
One year From one five ----------------
or less to five years years Total Fixed Variable
-------- ------------- -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate.. $ 16,388 $ 53,400 $ 38,811 $108,599 $36,538 $ 55,673
Residential real estate. 3,142 4,639 54,427 62,208 13,476 45,590
Commercial.............. 32,233 21,236 365 53,834 4,741 16,860
Personal................ 38,018 6,191 913 45,122 1,092 6,012
Home equity............. 1,032 9,941 8,887 19,860 -- 18,828
Construction............ 11,932 5,906 305 18,143 1,993 4,218
-------- -------- -------- -------- ------- --------
Total loans........... $102,745 $101,313 $103,708 $307,766 $57,840 $147,181
======== ======== ======== ======== ======= ========
</TABLE>
Asset Quality.
The following table classifies our non-performing loans as of the dates
shown:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------------
1999 1998 1997 1996 1995 1994
--------- ------ ---- ------ ------ ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans................. $-- $ -- $-- $ -- $2,298 $--
Loans past due 90 days or more... 361 1,016 527 1,116 100 144
---- ------ ---- ------ ------ ----
Total non-performing loans..... 361 1,016 527 1,116 2,398 144
---- ------ ---- ------ ------ ----
Other real estate owned.......... -- -- -- -- -- --
---- ------ ---- ------ ------ ----
Total non-performing assets.... $361 $1,016 $527 $1,116 $2,398 $144
==== ====== ==== ====== ====== ====
Total non-performing loans to
total loans..................... 0.12% 0.36% 0.24% 0.65% 1.90% 0.15%
Total non-performing assets to
total assets.................... 0.08 0.24 0.17 0.45 1.22 0.10
</TABLE>
It is our policy to discontinue the accrual of interest income on any loan
for which we have reasonable doubt as to the payment of interest or principal.
Nonaccrual loans are returned to an accrual status when the financial position
of the borrower indicates there is no longer any reasonable doubt as to the
payment of principal or interest.
Other than those loans reflected in the table above, we had no significant
loans for which the terms had been renegotiated or restructured, or for which
we had serious doubts as to the ability of the borrower to comply with
repayment terms. We did not have any Other Real Estate Owned as of any of the
dates shown.
Potential Problem Loans. In addition to those loans reflected in the table
above, we have identified some loans through our problem loan identification
system which exhibit a higher than normal credit risk. Loans in this category
include those with characteristics such as those past maturity more than 90
days, those that have recent adverse operating cash flow or balance sheet
trends, or have general risk characteristics that the managing director
believes might jeopardize the future timely collection of principal and
interest payments. The principal amount of loans in this category as of March
31, 1999 was $960,000. At March 31, 1999, there were no significant loans which
were classified by any bank regulatory agency that are not included above as
nonaccrual, past due or restructured.
Loan Concentrations. Loan concentrations are considered to exist when there
are amounts loaned to a multiple number of borrowers engaged in similar
activities which would cause them to be similarly impacted by economic or other
conditions. Other than loans made to borrowers residing in the Chicago
metropolitan area and our involvement in lending secured by real estate, we had
no concentrations of loans exceeding 10% of total loans at March 31, 1999.
45
<PAGE>
Allowance for Loan Losses.
We believe our loan loss experience to date reflects the high credit quality
of our loan portfolio. The following table shows changes in the allowance for
loan losses resulting from additions to the allowance and loan charge-offs for
each of the periods shown. All charge-offs have been of loans in the personal
loan category. There were no recoveries on loans previously charged off in any
of the periods. Charge-offs as a percentage of average total loans have been
negligible.
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------
1999 1998 1997 1996 1995 1994
--------- -------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period.................. $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025 $ 728
Loans charged-off:
Commercial real estate... -- -- -- -- -- --
Residential real estate.. -- -- -- -- -- --
Commercial............... -- -- -- -- -- --
Personal................. -- 2 3 29 -- 8
Home equity.............. -- -- -- -- -- --
Construction............. --
-------- -------- -------- -------- -------- -------
Total loans charged-
off................... -- 2 3 29 -- 8
-------- -------- -------- -------- -------- -------
Provision for loan
losses.................. 285 362 603 524 930 305
-------- -------- -------- -------- -------- -------
Balance at end of period. $ 3,695 $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025
======== ======== ======== ======== ======== =======
Average total loans...... $288,987 $234,486 $195,605 $141,043 $111,855 $80,717
======== ======== ======== ======== ======== =======
</TABLE>
The following table shows our allocation of the allowance for loan losses by
specific category at the end of each of the periods shown. We considered
various qualitative and quantitative factors about the loan portfolio which we
deemed relevant.
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of % of
Total Total Total Total Total Total
Amount Allowance Amount Allowance Amount Allowance Amount Allowance Amount Allowance Amount Allowance
------ --------- ------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real
estate.......... $ 928 25.1% $ 732 21.5% $ 429 14.1% $ 295 12.0% $ 226 11.6% $ 174 17.0%
Residential real
estate.......... 303 8.2 277 8.1 306 10.0 254 10.4 142 7.3 125 12.2
Commercial....... 833 22.5 693 20.3 464 15.2 422 17.2 913 46.7 271 26.4
Personal......... 509 13.8 545 16.0 1,037 34.0 973 39.7 392 20.1 290 28.3
Home equity...... 217 5.9 201 5.9 201 6.6 184 7.5 164 8.4 105 10.2
Construction..... 185 5.0 236 6.9 106 3.5 28 1.1 13 0.7 7 0.7
Unallocated...... 720 19.5 726 21.3 507 16.6 294 12.0 105 5.4 53 5.2
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total........... $3,695 100.0% $3,410 100.0% $3,050 100.0% $2,450 100.0% $1,955 100.0% $1,025 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Control of our loan quality is continually monitored by management and is
reviewed by the loan/investment committee of the Board of Directors of
PrivateBank on a monthly basis. The amount of additions to the allowance for
loan losses which are charged to earnings through the provision for loan losses
are determined based on a variety of factors, including assessment of the
credit risk of the portfolio, delinquent loans, an evaluation of current and
prospective economic conditions in the market area, actual charge-offs during
the year and historical loss experience.
We maintain an allowance for loan losses sufficient 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 and is
supported by all available
46
<PAGE>
and relevant information. The allowance contains provisions for probable
losses that have been identified relating to specific borrowing relationships
as well as probable losses inherent in our loan portfolio and credit
undertakings that are not specifically identified. We believe that the
allowance for loan losses is adequate to provide for estimated probable credit
losses inherent in our loan portfolio.
Investment Securities.
Investments are substantially comprised of federal funds sold and
securities. "Federal funds sold" are overnight investments in which, except
for cash reserves, all remaining funds are invested. Our securities portfolio
is primarily comprised of U.S. Treasury securities and agency obligations,
municipal bonds, collateralized mortgage obligations, and corporate
securities. In the fourth quarter of 1998, we invested in municipal bonds to
take advantage of their favorable taxable equivalent yields. Equity securities
consist of minimal investments in the FHLB and NHS.
All of our investment securities are classified as "available for sale" to
give us the flexibility to alter the composition of our portfolio, and are
carried at fair value. The table below shows the estimated fair value of
investment securities at the dates indicated, presented by category.
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1999 1998 1997 1996
--------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale
U.S. Treasury securities and U.S. Government
agency obligations......................... $ 5,058 $ 6,095 $ 6,066 $ 7,095
State and political subdivision obligations. 40,608 37,804 -- --
Collateralized mortgage obligations......... 47,536 61,414 40,308 14,171
Corporate debt securities................... 10,280 10,263 18,269 21,951
Equity securities........................... 1,654 1,315 740 1,400
-------- -------- ------- -------
Total investment securities............... $105,136 $116,891 $65,383 $44,617
======== ======== ======= =======
</TABLE>
Maturities of investment securities, by category, as of March 31, 1999, are
shown in the following table.
<TABLE>
<CAPTION>
Within From one From five to After Equity
one year to five years ten years ten years securities Total
-------- ------------- ------------ --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... $4,039 $1,019 $ -- $ -- $ -- $ 5,058
State and political
subdivision
obligations............ 451 2,598 2,764 34,795 -- 40,608
Collateralized mortgage
obligations............ -- -- 4,707 42,829 -- 47,536
Corporate debt
securities............. -- -- -- 10,280 -- 10,280
Equity securities....... -- -- -- -- 1,654 1,654
------ ------ ------ ------- ------ --------
Total investment
securities........... $4,490 $3,617 $7,471 $87,904 $1,654 $105,136
====== ====== ====== ======= ====== ========
</TABLE>
The weighted average yield (computed on a tax equivalent basis) for each
range of maturities of securities, by category, is shown below as of March 31,
1999:
<TABLE>
<CAPTION>
Within From one From five to After Equity
one year to five years ten years ten years securities Total
-------- ------------- ------------ --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... 6.02% 5.80% -- -- -- 5.97%
State and political
subdivisions
obligations............ 4.82 5.27 5.98% 7.09% -- 6.88
Collateralized mortgage
obligations............ -- -- 5.22 5.88 -- 5.81
Corporate debt
securities............. -- -- -- 7.05 -- 7.05
Equity securities....... -- -- -- -- 6.10% 6.10
---- ---- ---- ---- ---- ----
Total investment
securities........... 5.90% 5.42% 5.50% 6.50% 6.10% 6.36%
==== ==== ==== ==== ==== ====
</TABLE>
47
<PAGE>
Deposits.
In 1998, total deposits increased by $79.2 million, or 27.7%, to $365.0
million. Over each of the past three years, our deposits have grown at rates in
excess of 25% per year. We rely upon our clients to provide funds to support
our lending and investment activities. Our deposit mix is substantially
comprised of interest-bearing deposits. As a client service, we facilitate
quick and convenient transfers of funds to checking accounts on an as-needed
basis. This contributes to our clients keeping account balances that we believe
to be in excess of those at most other financial institutions. While these
larger, interest-bearing accounts tend to increase our cost of funds, we are
able to support our asset base with a smaller number of accounts to service, at
a lower cost per dollar of deposits, than at similar banks of similar asset
size. For the period ended March 31, 1999, the average aggregate balance per
client relationship was approximately $94,000.
The following table presents the balances of deposits by category, and each
category as a percentage of total deposits, at March 31, 1999 and at December
31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
March 31, 1999 1998 1997 1996
----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent
Balance of Total Balance of Total Balance of Total Balance of Total
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand.................. $ 32,582 8.5% $ 39,490 10.8% $ 34,234 12.0% $ 21,177 9.5%
Savings................. 499 0.1 482 0.1 640 0.2 258 0.1
Interest-bearing demand. 27,390 7.1 26,508 7.3 26,084 9.1 17,263 7.8
Money market............ 180,372 46.9 170,231 46.6 134,985 47.3 122,589 55.1
Certificates of deposit. 143,611 37.4 128,283 35.2 89,830 31.4 61,284 27.5
-------- ----- -------- ----- -------- ----- -------- -----
Total deposits........ $384,454 100.0% $364,994 100.0% $285,773 100.0% $222,571 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The aggregate amounts of time deposits, in denominations of $100,000 or
more, by maturity, are shown below as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
March ------------------------
31, 1999 1998 1997 1996
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Three months or less................... $ 89,109 $ 67,922 $37,389 $26,833
Over three through six months.......... 16,478 18,974 16,200 7,638
Over six through twelve months......... 14,348 17,664 16,100 9,353
Over twelve months..................... 1,248 904 941 400
-------- -------- ------- -------
Total................................ $121,183 $105,464 $70,630 $44,224
======== ======== ======= =======
</TABLE>
Over the past several years, in a low interest rate, relatively flat yield
curve environment, our clients have chosen to keep the maturities of their
deposits short. We expect these short-term certificates of deposit to be
renewed on terms and with maturities similar to those currently in place. In
the event that certain of these certificates of deposits are not renewed and
the funds are withdrawn from the bank, we will replace those deposits with
other forms of borrowed money or capital as discussed below, or liquidate
assets to reduce our funding needs.
Liquidity and Capital Resources
The following table reflects various measures of our capital at March 31,
1999, and at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------
1999 1998 1997 1996
--------- ----- ----- -----
<S> <C> <C> <C> <C>
Total equity to total assets............... 6.97% 7.03% 7.92% 8.20%
Total risk-based capital ratio............. 11.21 11.53 11.75 12.21
Tier 1 risk-based capital ratio............ 10.05 10.40 10.50 10.96
Leverage ratio............................. 7.53 7.88 8.70 8.71
</TABLE>
48
<PAGE>
At March 31, 1999, we exceeded the minimum levels of all regulatory capital
requirements, and PrivateBank was considered "well-capitalized" under
regulatory standards. Based on guidelines established by the Federal Reserve
Bank, a bank holding company is required to maintain a leverage ratio (Tier 1
capital/total assets less intangibles) of 4.0%, a ratio of Tier 1 capital to
risk-based assets of 4.0% and a ratio of total capital to risk-based assets of
8.0%.
Since inception, we have raised over $22 million in a series of common stock
offerings to provide the necessary capital to support our growth. The proceeds
of these common stock offerings have been the principal source of funds at the
holding company level. We have regularly infused capital into our bank
subsidiary as and when needed to maintain adequate capital ratios and have
tended to retain the balance of the holding company funds on deposit in a non-
interest bearing account at PrivateBank to be available for its funding and
liquidity purposes. The following table shows the funds we have raised through
private placements of our common stock:
<TABLE>
<CAPTION>
Number of Price Per Gross Proceeds Net Proceeds
Shares Sold Share to Company to Company
Date of Offering ----------- --------- -------------- ------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
4Q 1989................. 80,800 $ 6.25 $ 505 $ 505
1Q 1991................. 1,334,400 6.25 8,340 8,340
3Q 1992................. 412,208 6.88 2,834 2,781
2Q 1994................. 1,023,264 7.81 7,994 7,877
2Q 1997................. 208,256 10.94 2,278 2,251
4Q 1998................. 46,000 16.00 736 736
</TABLE>
Liquidity management at PrivateBank involves planning to meet anticipated
funding needs at a reasonable cost. Liquidity management is guided by policies,
formulated and monitored by our senior management and the Bank's
asset/liability committee, which takes into account the marketability of
assets, the sources and stability of funding and the level of unfunded
commitments. PrivateBank's principal sources of funds are deposits, short-term
borrowings and capital contributions by the Company out of the proceeds of our
common stock offerings.
PrivateBank's core deposits, the most stable source of liquidity for
PrivateBank due to the nature of long-term relationships generally established
with clients, are available to provide long-term liquidity. At March 31, 1999,
61.1% of our total assets were funded by core deposits. At December 31, 1998,
62.5% of our total assets were funded by core deposits. At December 31, 1997
and 1996, 69.5% and 72.8% of total assets were funded by core deposits,
respectively.
We periodically use services of the FHLB for short-term funding needs and
other correspondent services. At March 31, 1999, we had a short-term advance of
$10.0 million outstanding at 5.00% with a maturity of April 5, 1999, and at
December 31, 1998, we had a short-term advance of $20.0 million at 5.20% which
matured on January 7, 1999. In addition, we periodically use the FHLB to supply
letters of credit as collateral to support public fund deposits. At March 31,
1999, we had FHLB letters of credit of $17.3 million outstanding. At December
31, 1998, we had no FHLB letters of credit outstanding. We pay 0.125% per annum
for FHLB letters of credit. The following table shows our maximum availability
for and usage of FHLB advances and letters of credit.
<TABLE>
<CAPTION>
Availability Usage
Date ------------ -------
(in thousands)
<S> <C> <C>
March 31, 1999.............. $52,117 $27,340
December 31, 1998........... 45,842 20,000
December 31, 1997........... 32,673 7,905
December 31, 1996........... 25,214 10,890
</TABLE>
Liquid assets refers to money market assets such as federal funds sold, as
well as available-for-sale securities. Net liquid assets represent the sum of
the liquid asset categories less the amount of assets pledged to
49
<PAGE>
secure public funds. At March 31, 1999, net liquid assets were approximately
$83.1 million. At December 31, 1998, net liquid assets totaled approximately
$104.5 million, compared to approximately $76.2 million at December 31, 1997
and $55.4 million at December 31, 1996.
PrivateBank accepts deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. The State of Illinois also
accepts FHLB letters of credit as collateral. At March 31, 1999 and December
31, 1998, 1997 and 1996, PrivateBank had approximately $9.7 million, $15.0
million, $13.1 million and $11.5 million, respectively, of securities
collateralizing such public deposits. Deposits requiring pledged assets are not
considered to be core deposits, and the assets that are pledged as collateral
for these deposits are not deemed to be liquid assets.
Our Information Systems and the Year 2000
The year 2000 issue is a computer programming concern that centers on the
inability of certain computer systems to recognize the year 2000 and other year
2000-sensitive dates. Many existing computer programs and systems were
originally programmed to accept only six-digit date fields. In these systems,
the calendar year is identified by the last two digits only. This problem may
leave these programs and computers unable to distinguish between dates in the
twentieth and twenty-first centuries. For example, some computers will treat
"00" as the year 1900, rather than 2000. These computers may also be unable to
correctly identify the year 2000 as a leap year. The inability of these
computer systems to recognize dates could result in the failure of critical
applications of the generation of inaccurate results. Therefore, these systems
must be replaced or upgraded to become compliant with the year 2000 and to
avoid these errors.
Like most providers of financial services, we are particularly sensitive to
the year 2000 issue because our operations depend on computer-generated
financial information. Software, hardware and equipment both within and outside
of our direct control, and third parties with whom we electronically or
operationally interact may be adversely affected by this issue. These third
parties include our clients as well as third party vendors providing data
processing services, information systems management, computer system
maintenance and credit bureau information. In addition, under certain
circumstances, failure to address adequately the year 2000 issue could
adversely affect the viability of our suppliers and creditors and the
creditworthiness of our borrowers. If not adequately addressed, the year 2000
issue could have a significant adverse effect on our products, services and
competitive condition and ultimately our financial condition and results of
operations.
Regulatory Oversight. Regulators of financial institutions have increased
their focus on year 2000 compliance issues, have issued guidance concerning the
responsibilities of senior management and directors and are conducting periodic
examinations to ascertain the state of year 2000 compliance readiness. The
Federal Financial Institutions Examination Council ("FFIEC") has issued a
number of interagency statements on Year 2000 Project Management Awareness.
These statements require financial institutions to, among other things, examine
the year 2000 implications of their reliance on vendors and with respect to
data exchange and the potential impact of the year 2000 issue on their
customers, suppliers and borrowers. These statements also require each
federally regulated financial institution to survey its exposure, measure its
risk and prepare a plan to address the year 2000 issue. In addition, the
federal banking regulators have issued safety and soundness guidelines to be
followed by insured depository institutions to ensure resolution of any year
2000 problems. The federal banking agencies have asserted that year 2000
testing and certification is a key safety and soundness issue in conjunction
with regulatory examinations. Consequently, an institution's failure to
appropriately and timely address the year 2000 issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, which almost certainly would involve the denial of future applications
for approval of mergers or acquisitions until compliance is achieved. In
certain egregious situations, civil money penalties may be imposed.
Our Readiness. At the direction of our Board of Directors, we have
established a year 2000 readiness committee and have engaged consultants
qualified to help us address our year 2000 issues. Our consultants are
experienced with technology issues and year 2000 compliance, and have worked
closely with our year 2000 readiness committee.
50
<PAGE>
Following the guidelines established by the FFIEC, we have broken down our
compliance efforts into six stages: awareness, assessment, renovation,
validation, implementation and contingency planning.
. Awareness. During our awareness phase, we educated ourselves on the
issues and risks associated with the year 2000 problem. We also
identified the aspects of our operations which are year 2000 sensitive.
. Assessment. During this stage, we were able to determine the scope of
our entire year 2000 readiness project. We reviewed our systems,
equipment, vendors, client exposure, counterparties and fiduciary risk.
As part of this stage, we established a formal liquidity risk management
plan, which included a contingency plan to aid in mitigating risks
involved with potential withdrawal of client funds before or after the
year 2000 rollover date. This plan has been approved by our Board of
Directors.
. Renovation. For most companies, this phase is time consuming and
complicated. It involves upgrading or replacing all sensitive systems
and equipment. Because we rely on third party vendors for virtually all
of our systems and for our data processing needs, our internal
renovations were minimal. We have undertaken efforts to ensure that our
third party vendors are also year 2000 compliant. We have polled each of
our third party vendors regarding their compliance efforts, and our year
2000 project manager monitors the year 2000 readiness and financial
status of all of our vendors at least on a quarterly basis. However, we
cannot be sure that each of our third party vendors will complete their
compliance efforts in a timely manner or successfully maintain year 2000
readiness.
We consider those third party vendors who provide us significant
services to be "mission critical" to our operations. As of May 28,
1999, we had received responses to our inquiries regarding their year
2000 compliance efforts from 100% of them, and each of them claims to
be year 2000 compliant. In connection with our inquiries and their
responses, we have also completed an assessment of the financial and
operational capabilities of each of these "mission critical" vendors.
Although we do not have any contractual assurances that our "mission
critical" vendors are or will be year 2000 compliant, based on their
responses and our assessments, we believe each of them has taken
appropriate steps to prepare for the year 2000, and that we will have
no material exposure from our vendors involving the year 2000 issue.
We have also undertaken to assess the year 2000 readiness of our
significant borrowers and other clients consistent with the guidelines
of the banking regulations. Each of these clients has been contacted
regarding the year 2000 issue and the need for readiness. Management
continues to solicit client response and to monitor clients'
preparedness for year 2000. Failure of clients to prepare for year 2000
could have a significant adverse effect on their operations and
profitability, potentially causing their ability to repay loans to be
impaired, which could adversely affect our results. At this time, we
are unable to estimate with reliability the extent to which our
significant borrowers and other clients are susceptible to potential
problems relating to the year 2000 issue, or to quantify the potential
impact to us in this case.
. Validation. We have completed the validation, or testing, phase of our
readiness project. Using a comprehensive test plan developed with our
consultants, we have tested, either individually or in collaboration
with our third party vendors, each system and piece of equipment
currently in place in our offices for year 2000 readiness and
compatibility with other systems with which they interface. Our plan,
which we modeled on FFIEC recommendations, indicates, on a system-by-
system basis, the methods used to validate each system and includes
procedures for documenting test results. Our consultants have monitored
the maintenance of process controls throughout the testing process. Our
internal auditors have reviewed the results of our year 2000 testing.
We are currently in the process of transferring our loan and deposit
processing to a new provider. Our conversion date is scheduled for the
end of August 1999. We have been working with our new vendor since
early April 1999. The pre-conversion preparation process is
approximately 50% complete. Through the use of proxy testing, we will
be validating the results of our new vendor's year 2000 readiness. This
validation process has not yet begun but will be completed before the
51
<PAGE>
actual conversion date. In addition, we have received contractual
assurances from this new data processing provider that its software
systems are and will be year 2000 compliant. However, if this vendor
ultimately fails to be prepared for the year 2000, we have by contract
waived any rights to claim damages from them. Our business may be
disrupted in the event of failure of the data processing system to
handle the century date change successfully, and we could be materially
adversely affected in this event.
. Implementation. We have completed the testing and have implemented
necessary changes to computer hardware, network equipment and operating
systems owned by us and located in our offices. We are currently using
most of these systems in their year 2000 compliant version. As we
continue to evaluate and modify these systems as needed, we will use our
best efforts to maintain our year 2000 compliance. Because virtually all
of our year 2000-related software modifications are handled by third-
party processing services, and because we have no control over the
renovation of software code, we will continue to monitor software
application upgrade releases from our vendors and the year 2000
implications of such releases. We will continue to implement such
changes as are necessary based on the results of our validation efforts
and our ongoing monitoring efforts.
. Contingency. The final stage of our readiness project involves the
creation of a business continuity plan which outlines how our operations
will continue in the event that we are unable to ensure that all of our
operations will be compliant, or if we experience a failure of any of
our systems. Our business continuity plan is completed and we expect to
have our business resumption validation procedures completed prior to
June 30, 1999. In our business continuity plan, we identify possible
scenarios which could be the result of year 2000 failures. These
scenarios include malfunction of automated systems, loss of electrical
power and extraordinary needs for cash. In each case, our plan considers
solutions including use of electronic and manual alternatives to our
primary operating systems, operating from alternative physical sites and
acquiring replacements for equipment. During the third quarter of 1999,
where practical, we will selectively test our business resumption
validation procedures.
The Costs of Our Compliance Efforts. We estimate that the entire cost of our
year 2000 readiness project will be approximately $650,000. These costs
include:
. upgrades of existing systems and equipment;
. acquisitions of new systems and equipment;
. consultant fees and expenses; and
. allocated personnel costs.
Through March 31, 1999, we have spent approximately $400,000 toward our year
2000 readiness.
The Risks Involved in Our Efforts. Although we are working closely with our
consultants, our third party vendors and our regulators to upgrade our systems
and operations, there can be no assurance that all of our operations will be
year 2000 compliant. In the event of system failure, either internally, or on
the part of one or more of our vendors, our operations may be adversely
affected. We may experience an interruption in our business and incur
significant losses.
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 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
52
<PAGE>
limits as a percentage of funding sources, exposure to correspondent banks and
brokers, and reliance on non-core deposits. Our policy also states the
reporting requirements to our Board of Directors. Our investment policy
complements our asset/liability 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.
The following table illustrates our estimated interest rate sensitivity and
periodic and cumulative gap positions calculated as of March 31, 1999.
<TABLE>
<CAPTION>
Time to Maturity or Repricing
---------------------------------------
0-90 91-365 1-5 Over 5
Days Days Years Years Total
-------- --------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans...................... $163,231 $ 22,535 $107,224 $ 14,732 $307,722
Investments................ 9,717 27,096 30,736 37,682 105,231
Federal funds sold......... 7,759 -- -- -- 7,759
-------- --------- -------- -------- --------
Total interest-earning
assets.................. $180,707 $ 49,631 $137,960 $ 52,414 $420,712
======== ========= ======== ======== ========
Interest-Bearing Liabilities:
Interest-bearing demand.... $ -- -- -- 27,390 $ 27,390
Savings and money market... 138,109 42,263 -- 499 180,871
Time deposits.............. 100,815 $ 39,452 $ 3,344 -- 143,611
Funds borrowed............. 10,000 -- -- -- 10,000
-------- --------- -------- -------- --------
Total interest-bearing
liabilities............. $248,924 $ 81,715 $ 3,344 $ 27,889 $361,872
======== ========= ======== ======== ========
Cumulative:
Rate sensitive assets
(RSA)..................... $180,707 $ 230,338 $368,298 $420,712
Rate sensitive liabilities
(RSL)..................... $248,924 $ 330,639 $333,983 $361,872
GAP (GAP = RSA-RSL)...... $(68,217) $(100,301) $ 34,315 $ 58,840
RSA/RSL...................... 72.6% 69.7% 110.3% 116.3%
RSA/Total assets............. 41.9 53.4 85.4 97.6
RSL/Total assets............. 57.7 76.7 77.4 84.0
GAP/Total assets............. 15.8% 23.3% 8.0% 13.7%
GAP/RSA...................... 16.2 23.8 8.2 14.0
</TABLE>
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.
We have structured the assets and liabilities of our company to mitigate the
risk of either a rising or falling interest rate environment. We manage our gap
position at the one year horizon. Depending upon our assessment of economic
factors such as the magnitude and direction of projected interest rates over
the short- and long-term, we generally operate within guidelines set by our
asset/liability policy and attempt to maximize our returns within an acceptable
degree of risk. Our policy states that we shall maintain a gap position at the
one year horizon of between 0.70 and 1.30. Our position at March 31, 1999 was
0.697 and was outside of the guidelines of our policy. We have continued to
maintain our gap position near the low end set by our policy guidelines and
expect to continue to operate in this manner as long as the general rate
structure of the economy and our business opportunities remain consistent.
Therefore, generally speaking, a short-term rise in interest rates will hurt
earnings, while a short-term drop in interest rates would help earnings.
53
<PAGE>
Interest rate changes do not affect all categories of assets and liabilities
equally or simultaneously. There are other factors which are difficult to
measure and predict that would influence the effect of interest rate
fluctuations on our income statement. For example, a rapid drop in interest
rates might cause our loans to repay at a more rapid pace and certain mortgage-
related investments to prepay more quickly than projected. This could mitigate
some of the benefits of falling rates as are expected when negatively gapped.
Conversely, a rapid rise in rates could give us an opportunity to increase our
margins and stifle the rate of repayment on our mortgage-related loans which
would increase our returns.
The following table shows the "rate shock" results of a simulation model
that attempts to measure the effect of rising and falling interest rates over a
two-year horizon in a rapidly changing rate environment.
<TABLE>
<CAPTION>
+200 Basis -200 Basis
Points Points
---------- ----------
<S> <C> <C>
Percentage change in net interest income due to an
immediate 200 basis point change in interest rates
over a two-year time horizon...................... -8.7% +10.3%
</TABLE>
This table shows that if there was an instantaneous, parallel shift in the
yield curve of +200 basis points, we would suffer a decline in net interest
income of 8.7% over a two year horizon. Conversely, a like shift of -200 basis
points would increase net interest income by 10.3% over a two year horizon. We
used a sensitivity model which simulated these interest rate changes on our
earning assets and interest-bearing liabilities. This process allows us to
explore the complex relationships among the financial instruments in various
interest rate environments.
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.
Interest rate exposure is measured by the potential impact on our income
statement of possible changes in interest rates. We use information from our
gap analysis and rate shock calculations as input to help manage our exposure
to changing interest rates. During the past year, we have managed our balance
sheet in a negatively gapped position, reflecting our outlook that the U.S.
economy will be stable with general interest rate levels stable to falling. We
recognized opportunities to extend maturities on assets to take advantage of
higher interest rates at longer maturities.
We use our rate shock information to tell us how much exposure we have to
rapidly changing rates. Based on historical information and our assessment of
future interest rate trends, we do not believe there is a substantial risk of
rapidly rising rates, which would negatively impact our income statement.
Conversely, we also believe there is minimal likelihood of rapidly falling
rates, which would positively impact our income statement.
We feel that more likely scenarios include gradual changes in interest rate
levels. We continue to monitor our gap and rate shock reports to detect changes
to our exposure to fluctuating rates. We have the ability to shorten or
lengthen maturities on newly acquired assets, sell investment securities, or
seek funding sources with different maturities in order to change our asset and
liability structure for the purpose of mitigating the effect of interest rate
risk.
Inflation
Our consolidated financial statements and the related notes thereto,
presented elsewhere in this prospectus, have been prepared in accordance with
generally accepted accounting principles and practices within the
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<PAGE>
banking industry. Under these principles and practices, we are required to
measure our financial position in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike many industrial companies, virtually all of our assets and
liabilities are monetary in nature. As a result, interest rates have a more
significant impact on our performance than the general level of inflation. Over
short periods of time, interest rates may not necessarily move in the same
direction or in the same magnitude as inflation.
Recent Accounting Pronouncements
We follow generally accepted accounting principles in the preparation of our
financial statements. There have been several recent authoritative accounting
pronouncements issued by the Financial Accounting Standards Board that we have
adopted or will adopt in the future:
. Effective January 1, 1999, Reporting on the Costs of Start-Up Activities
(AICPA Statement of Position 98-5) requires start-up costs and
organizational costs to be charged to expense when incurred. This new
accounting standard will apply to start-up costs associated with our
planned St. Charles office, currently anticipated to approximate
$430,000 pre-tax. See "Pending Acquisition."
. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS No. 125) requires that after a
transfer of financial assets, we must continue to recognize the
financial and servicing assets we control and the liabilities incurred
until control has been surrendered and liabilities extinguished. Our
adoption of SFAS No. 125 had no effect on our reported consolidated
financial position and results of operations.
. Reporting Comprehensive Income (SFAS No. 130) establishes standards for
reporting and display of comprehensive income and its components. Our
adoption of SFAS No. 130 had no effect on the reported consolidated
financial position and results of operations.
. Accounting for Derivatives Instruments and for Hedging Activities (SFAS
No. 133) will be effective for our fiscal quarters beginning after June
15, 1999. SFAS No. 133 requires that all derivatives be recognized as
assets or liabilities on the balance sheet and be measured at fair
value. Currently, however, we do not own any derivative instruments.
Accordingly, this statement is not expected to affect our reported
consolidated financial position and results of operations.
55
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, their ages, and their principal
position(s) with the company are shown in the table below. All of our directors
are also directors of PrivateBank except Mr. Farrell and Mr. Gottlieb. Our
officers are elected annually by our Board to serve for the terms provided in
our By-laws.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Ralph B. Mandell(3)(4)........... 58 Chairman, President and CEO
Caren L. Reed(5)................. 64 Vice Chairman
Donald A. Roubitchek(5).......... 48 Chief Financial Officer and Director
Donald L. Beal(2)(5)............. 53 Director
Naomi T. Borwell(1)(4)........... 71 Director
William A. Castellano(1)(3)(4)... 58 Director
Robert F. Coleman(2)(3)(6)....... 54 Director
W. James Farrell(4).............. 57 Director
John E. Gorman(2)(3)(5).......... 54 Director
Alvin J. Gottlieb(4)............. 72 Director
James M. Guyette(1)(2)(3)(6)..... 54 Director
Philip M. Kayman(6).............. 57 Director
William R. Langley(2)(3)(4)...... 58 Director
Thomas F. Meagher(1)(6).......... 68 Director
Michael B. Susman(1)(5).......... 61 Director
Gary S. Collins.................. 41 Managing Director of PrivateBank
M. Gail Fitzgerald............... 56 Managing Director of PrivateBank
Hugh H. McLean................... 40 Managing Director of PrivateBank
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Planning Committee.
(4) Serves as a Class I director with a term expiring in 2002.
(5) Serves as a Class II director with a term expiring in 2000.
(6) Serves as a Class III director with a term expiring in 2001.
Ralph B. Mandell, a director since 1989, is a co-founder of PrivateBancorp
and PrivateBank. A Managing Director of PrivateBank, he has served as Chairman
and Chief Executive Officer of PrivateBancorp and PrivateBank since 1994 and
assumed the additional title of President of both entities in March 1999. From
inception until 1994, Mr. Mandell had the title of Co-Chairman and Co-Chief
Executive Officer. Prior to starting PrivateBank and PrivateBancorp, Mr.
Mandell was the Chief Operating Officer of First United Financial Services,
Inc., from 1985 to 1989, and served as its President from 1988 to 1989. First
United, a company that was traded on the Nasdaq National Market, was sold to
First Chicago Corporation in 1987. He also served as President of Oak Park
Trust & Savings Bank from 1985 until 1988. Prior thereto, Mr. Mandell had
served as Executive Vice President of Oak Park Trust & Savings Bank since 1979.
Caren L. Reed, a director since 1990, is one of PrivateBank's founding
directors. A Managing Director of PrivateBank, he currently serves as Vice
Chairman of PrivateBancorp and PrivateBank, and functions as Chief Credit
Officer. From 1990 to March 1999, Mr. Reed also held the title of President of
PrivateBancorp and PrivateBank. Prior to joining
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<PAGE>
PrivateBank, Mr. Reed was an Executive Vice President of Continental Bank,
Chicago with a career spanning 34 years. His responsibilities included North
American Banking, Multinational Banking-Europe, U.S. Capital Markets, and the
London Merchant Bank.
Donald A. Roubitchek has been a director since 1997. He has been the
Secretary/Treasurer and Chief Financial Officer of PrivateBancorp, and Managing
Director and Chief Operating Officer of PrivateBank, since inception. He has 27
years' experience in the banking industry and a concentrated background in
finance. Prior to joining PrivateBank, Mr. Roubitchek served in various
capacities with LaSalle Community Banks, and its predecessor, Lakeview Bank.
Donald L. Beal, a director since 1991, has been the owner of Kar-Don, Inc.
d/b/a Arrow Lumber Company, located in Chicago, Illinois, since 1980. Prior to
that, Mr. Beal served as Vice President of Hyde Park Bank & Trust with
responsibilities including commercial lending and personal banking. Mr. Beal is
also the sole owner of Ashland Investment, Inc. In 1994, Ashland Investment
filed for Chapter 11 relief under the federal bankruptcy laws and emerged from
bankruptcy after reorganization in April 1995.
Naomi T. Borwell has been a director since 1990. She is a private investor.
Mrs. Borwell is a former director of First Chicago Bank of Oak Park and First
United Trust Company.
William A. Castellano has been a director since 1991. From 1996 to present
he has been Chairman and founder of both Workspace, Inc. and Worknet, Inc.,
located in Oakbrook Terrace, Illinois. Workspace provides office furniture to
businesses, and Worknet provides computer networking services to businesses. He
was the founder of and served as the Chief Executive Officer to Chrysler
Systems Leasing from 1977 to 1991.
Robert F. Coleman, a director since 1990, is a principal of Robert F.
Coleman & Associates, a law firm located in Chicago, Illinois. He concentrates
his practice on business and professional litigation.
W. James Farrell, a director since 1990, has been an executive with Illinois
Tool Works, Inc. ("ITW"), a manufacturer of fasteners, components, assemblies
and systems, since 1965, and became its Chairman and CEO in 1997. He currently
serves as a director of ITW as well as The Quaker Oats Company, Morton
International, Inc., Premark International, Inc. and Allstate Insurance
Company, each of which is traded on the New York Stock Exchange.
John E. Gorman has been a director since 1994. Since 1982, Mr. Gorman has
been a General Partner of the Jorman Group, a privately-owned organization with
diversified business holdings.
Alvin J. Gottlieb, a director since 1990, is a private investor. Since 1961,
Mr. Gottlieb has served in various capacities on the Board of Directors of
Gottlieb Memorial Hospital, located in Melrose Park, Illinois, and he currently
holds the position of Vice Chairman.
James M. Guyette has been a director since 1990. Since 1997, he has been
President and Chief Executive Officer of Rolls Royce North America, Inc. Mr.
Guyette served as Executive Vice President of UAL Corporation from 1985 to 1995
when he retired after more than 25 years of employment with that company. He is
currently a director of Rolls-Royce plc (London) and Pembroke Capital (Dublin),
and formerly a director of First United Financial Services and United Airlines
Employees Credit Union.
Philip M. Kayman, a director since 1990, has been a senior partner with the
law firm of Neal Gerber & Eisenberg in Chicago, Illinois since the firm's
founding in 1986.
William R. Langley, a director since 1989, is a co-founder of PrivateBancorp
and PrivateBank. Mr. Langley held the title of Co-Chairman of PrivateBancorp,
and was active in day-to-day management of the company until 1995 when he
retired. Prior to the formation of PrivateBancorp, Mr. Langley had served as
Chief Executive Officer of First United Financial Services, Inc. from 1985 to
1987 and as Chairman from 1987 to 1989. First United, a company that was traded
on the Nasdaq National Market, was sold to First Chicago Corporation in 1987.
Prior to that, he served as Chairman and President of Oak Park Trust and
Savings Bank, where he had been employed since 1973.
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<PAGE>
Thomas F. Meagher has been a director since 1996. Mr. Meagher has been the
Chairman of Howell Tractor and Equipment Co., a distributor of heavy equipment
located in Elk Grove Village, Illinois, since 1980. He has had an extensive
career in the transportation industry and currently serves on the Board of
Directors of Trans World Airlines, Inc., a New York Stock Exchange company.
Michael B. Susman has been a director since 1990. He has been a partner in
the law firm of Spitzer, Addis, Susman & Krull, located in Chicago, Illinois,
since 1974.
Gary S. Collins has been a Managing Director of PrivateBank since 1991. As a
specialist in real estate lending, Mr. Collins has spent more than 20 years
managing diverse real estate transactions and the full range of mortgage
financing. Before joining PrivateBank in 1991, he held senior positions at
several Chicagoland financial institutions, including First Chicago Bank of Oak
Park, First Colonial Bancshares and Avenue Bank of Oak Park.
M. Gail Fitzgerald has been a Managing Director of PrivateBank since 1996.
She serves as the bank's director of Trust and Investment Services. Ms.
Fitzgerald has over 20 years' banking experience, most of which is in the trust
area. She served as Trust Division President of Firstar Bank of Illinois from
1995 to 1996. She also served as Chairman, President, and Chief Executive
Officer of First Colonial Trust Company in Illinois from 1993 to 1995 and
Senior Vice President of First Chicago Trust Company of Illinois from 1988 to
1993.
Hugh H. McLean has been a Managing Director of PrivateBank since 1996. He
serves as head of credit marketing and manager of the Oak Brook office. Prior
to joining the bank, he served as a regional manager with Firstar Bank Illinois
and its predecessor from 1990 to 1996, and as head of a commercial banking
division at American National Bank and Trust Company in Chicago, Illinois, from
1987 to 1990, where he was employed from 1980 to 1990.
Board of Directors
Our Board of Directors currently consists of 15 members divided into three
classes of directors who are elected to hold office for staggered three-year
terms as provided in our Restated Certificate of Incorporation and Amended and
Restated By-laws. Although our charter documents have fixed the size of our
Board at 16 members, there currently is one Class III director vacancy due to
the recent resignation of a director. Those persons currently serving as Class
I directors have been elected to hold office until the annual stockholders'
meeting to be held in 2002; Class II directors have been elected to hold office
until the annual stockholders' meeting to be held in 2000; and Class III
directors have been elected to hold office until the annual stockholders'
meeting to be held in 2001.
Committees of the Board of Directors
We have appointed certain members of our Board to serve on various
committees of the Board of Directors. The Board of Directors has established
three standing committees: (a) the Compensation Committee; (b) the Audit
Committee; and (c) the Planning Committee.
Compensation Committee. The Compensation Committee is responsible for
reviewing the performance of our Chief Executive Officer; reviewing and
recommending the compensation of the company's officers, including the Chief
Executive Officer; recommending and approving stock option grants and
restricted stock awards to management; reviewing and recommending non-cash
compensation programs including stock option grants, 401(k) contributions and
annual bonuses; reviewing and recommending director compensation; and advising
the Chief Executive Officer on miscellaneous compensation issues. The members
of the Compensation Committee are Messrs. Guyette (Chairman), Castellano,
Meagher and Susman and Mrs. Borwell.
Audit Committee. The Audit Committee reports to the Board of Directors in
discharging its responsibilities relating to our accounting, reporting and
financial control practices. The Audit Committee has general
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<PAGE>
responsibility for oversight of financial controls, as well as our accounting,
regulatory, year 2000 and audit activities, and annually reviews the
qualifications of the independent auditors. The Audit Committee is composed
entirely of outside directors. The members of the Audit Committee are Messrs.
Coleman (Chairman), Beal, Gorman, Guyette and Langley.
Planning Committee. The Planning Committee is responsible for studying
strategic issues prior to submission to the entire Board of Directors for
approval. The Planning Committee consists of Messrs. Mandell (Chairman),
Castellano, Coleman, Gorman, Guyette and Langley.
We have not designated a nominating committee. The entire Board of Directors
acts to nominate persons for election as directors.
Director Compensation
In 1992, we commenced a program of compensating those of our outside
directors who are also outside directors of PrivateBank with stock option
awards in lieu of cash retainers. Our philosophy has been to increase our
directors' equity stake in the company and further enhance the alignment of
their interests with those of our stockholders. The director options have been
granted each year in amounts determined at the discretion of the Board. The
options are fully vested at the end of the year of grant, subject to a full
year of service. In each case, the options have been granted at an exercise
price equal to or greater than the estimated fair market value of our common
stock at the date of grant. Partial awards have been made for partial year
service. As of March 31, 1999, there were outstanding options granted to non-
employee directors pursuant to this program to purchase an aggregate of 179,920
shares of common stock at an average weighted per share exercise price of
$11.13. In March 1999, the Board granted each non-employee director of
PrivateBank an option to purchase 1,500 shares of common stock at the initial
public offering price of shares sold in this offering.
In addition to stock options, non-employee members of PrivateBancorp's Board
of Directors receive fees of $200 for each board meeting attended. The
directors also receive $100 per meeting for attendance at meetings of any
committees of the Board on which they serve. Those directors who serve on the
board of PrivateBank are also entitled to the same meeting fees. During 1998,
the Boards of Directors of each of PrivateBancorp and PrivateBank met monthly.
Total board and committee meeting fees paid in 1998 was $58,800.
We intend to reevaluate the structure of our director compensation program
following the offering and anticipate that we may seek stockholder approval of
a stock-based director compensation plan at our next stockholders' meeting.
Compensation Committee Interlocks and Insider Participation
Messrs. Guyette and Castellano and Ms. Borwell each serve on the
Compensation Committee of our Board of Directors. During our last fiscal year,
each of these individuals has engaged in certain transactions as clients of
PrivateBank, in the ordinary course of PrivateBank's business, including
borrowings, all of which transactions are or were on substantially the same
terms (including interest rates and collateral on loans) as those prevailing at
the time for comparable transactions with unaffiliated persons. In the opinion
of our management, none of these transactions involved more than the normal
risk of collectibility or presented any other unfavorable features. See
"Certain Transactions."
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<PAGE>
Executive Compensation
The following table summarizes the compensation paid by PrivateBancorp and
PrivateBank to the Chairman, President and Chief Executive Officer and the five
other most highly paid executive officers (the "Named Executive Officers")
during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------- ---------------------
Other Annual Securities All Other
Compen- Restricted Underlying Compen-
Name and Principal Salary Bonus sation(1) Stock(2) Options(3) sation
Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- ------- ------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell........ 1998 210,000 100,000 18,845 77,000(4) 6,400 34,723(5)
Chairman, President and
CEO
Caren L. Reed........... 1998 146,000 45,000 14,795 -- 4,800 3,200(6)
Vice Chairman
Donald A. Roubitchek.... 1998 138,000 37,000 1,776 22,000(7) 6,400 3,200(6)
Chief Financial Officer
Hugh H. McLean.......... 1998 115,000 35,000 11,756 22,000(7) 5,600 3,005(6)
Managing Director
M. Gail Fitzgerald...... 1998 112,000 40,000 3,206 22,000(7) 5,600 3,067(6)
Senior Trust Officer
and Managing Director
Gary S. Collins......... 1998 112,000 29,000 9,429 22,000(7) 5,600 2,749(6)
Managing Director
</TABLE>
- --------
(1) Represents automobile allowances, life insurance premiums and club
membership dues and fees paid by the company.
(2) Reflects restricted stock awards under our Stock Incentive Plan.
PrivateBancorp has paid regular dividends on all shares of restricted stock
outstanding. These shares of restricted stock are subject to forfeiture
until the fifth anniversary of the grant date.
(3) Options to purchase shares of common stock were granted in 1998 at an
exercise price of $17.1875 (representing 125% of fair market value at the
date of grant) and vest at the end of five years; however, these options
may vest before the fifth anniversary subject to performance-based
acceleration terms providing for complete vesting upon the third or fourth
anniversary of their grant date if the cumulative annualized growth rate of
the fair market value of the common stock (including dividends paid) equals
at least 15% as of such anniversary date.
(4) Represents award of 5,600 shares of restricted stock at a value of $13.75
per share.
(5) Represents (a) matching contributions to the company's 401(k) plan, and (b)
dollar value benefit of accrued imputed interest (assuming full forgiveness
of cumulative accrued interest) relating to a loan from PrivateBancorp in
connection with Mr. Mandell's 1998 stock purchase transaction. See "Certain
Transactions."
(6) Represents matching contributions to the company's 401(k) plan made by the
company for the benefit of the executive officer.
(7) Represents award of 1,600 shares of restricted stock at a value of $13.75
per share.
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The table below summarizes certain information about the options which we
granted in 1998 to each Named Executive Officer. All options were granted at
per share exercise prices equal to 125% of the fair market value per share on
the date of grant.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential
Realizable Value
at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Shares Granted to Exercise Appreciation for
Underlying Employees or Base Option Term ($)
Options in Fiscal Price Expiration ----------------
Name Granted Year ($/Sh) Date 5% 10%
---- ---------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell........ 6,400 11.19% 17.1875 6/24/08 $33,343 $118,249
Caren L. Reed........... 4,800 8.39% 17.1875 6/24/08 25,007 88,687
Donald A. Roubitchek.... 6,400 11.19% 17.1875 6/24/08 33,343 118,249
Gary S. Collins......... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
M. Gail Fitzgerald...... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
Hugh H. McLean.......... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
</TABLE>
The following table summarizes for each Named Executive Officer the number
of shares of common stock subject to outstanding options and the value of such
options that were unexercised at December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Shares Options at Money Options at December
Acquired on December 31, 1998 (#) 31, 1998 ($)(2)
Exercise Value ---------------------------- ----------------------------
Name (#) Realized ($) Exercisable/Unexercisable(1) Exercisable/Unexercisable(1)
---- ----------- ------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ralph B. Mandell........ -- -- 71,840/10,400 656,190/32,750
Caren L. Reed........... 65,600 533,500 3,840/ 8,000 37,440/26,200
Donald A. Roubitchek.... -- -- 36,736/ 8,400 333,661/16,375
Gary S. Collins......... -- -- 30,016/ 7,200 272,956/13,100
M. Gail Fitzgerald...... -- -- 8,000/13,600 53,000/53,000
Hugh H. McLean.......... -- -- 8,000/13,600 53,000/53,000
</TABLE>
- --------
(1) The numbers and amounts in the above table represent shares of common stock
subject to options granted that were unexercised as of December 31, 1998.
(2) The estimated fair market value of our common stock at December 31, 1998
was $16.00.
Employment Agreements
We have entered into employment agreements, to be effective as of July 1,
1999, with two of our executive officers: Ralph B. Mandell, our Chairman,
President and Chief Executive Officer, and Donald A. Roubitchek, our Chief
Financial Officer. Under the provisions of his agreement, which has a term of
two years, Mr. Mandell is entitled to an annual base salary of $230,000. Mr.
Roubitchek's agreement has a term of one year and provides for an annual base
salary of $145,000. Both Mr. Mandell and Mr. Roubitchek may receive
discretionary bonuses to the extent determined by the Board of Directors and
are entitled to participate in benefit plans and other fringe benefits
available to our managing directors.
Under each agreement, the executive officer's employment may be terminated
by the company at any time for "cause," as defined in the agreements, in which
case, or if the executive resigns from the company without "good reason," the
agreement immediately terminates, and the officer would be entitled only to
unpaid
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benefits accrued during the term of his employment. If the executive chooses to
resign with good reason, or the company chooses to terminate his employment
without cause, the officer is also entitled to receive severance in the amount
equal to 18 months of his then current base annual salary for Mr. Mandell and
12 months for Mr. Roubitchek, plus a pro rata bonus for the year of termination
based on the prior year's bonus amount, if any. The agreements also provide for
death benefits equal to six months of then current annual base salary.
In the event that Mr. Mandell is terminated after a change in control of the
company, he will be entitled to a lump sum payment equal to three times the sum
of (1) his annual base salary; (2) the greater of (a) his bonus amount, if any,
for the prior year or (b) his average bonus, if any, for the three preceding
years; and (3) the sum of the contributions that would have been made by the
company under any benefit plan and the annual value of any other executive
perquisites. Mr. Roubitchek will be entitled to a lump sum payment equal to
twice the sum of these amounts for him. The agreements entitle the executives
to receive gross up payments to cover any federal excise taxes payable by them
in the event the change in control benefits are deemed to constitute "excess
parachute payments" under Section 280G of the Internal Revenue Code. A change
in control is defined under the agreements as an occurrence of any one of the
following events as determined by our Board:
. if any person, as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, becomes the beneficial owner of 10% or more of
the total voting power of our then outstanding voting capital stock;
provided, however, that if that person becomes a beneficial owner of 10%
or more of our voting capital stock as a result of an acquisition of
stock directly from the company, or a decrease in the number of
outstanding shares due to a repurchase of shares by the company, it
shall not be considered a change in control;
. if during any period of two consecutive years, those individuals who at
the beginning of the period constitute our Board of Directors cease to
make up a majority of the Board;
. the consummation of a reorganization, merger or consolidation of the
company, or the sale of all or substantially all of our assets;
provided, that so long as more than 50% of the voting stock of the
successor entity is held by stockholders who had been beneficial owners
of our stock immediately before the transaction, and at least a majority
of the board of the successor entity is made up of members of our Board,
the merger or sale shall not be considered a change in control; and
. the approval by our stockholders of a plan of complete liquidation or
dissolution.
The agreements also contain non-compete provisions, which prohibit the
executive from soliciting, either for his own account or for the benefit of any
entity located within a twenty-five mile radius of the company or any of our
subsidiaries, any of our clients or employees. These non-compete provisions
remain in effect for a period of one year after the termination of employment.
The non-compete provisions do not apply in the event of a change in control.
Stock Incentive Plan
We maintain a Stock Incentive Plan pursuant to which we may grant our
executive officers and key employees stock options and restricted stock awards.
We also have a director compensation program for our non-employee directors.
See "Management--Director Compensation." The purpose of the Stock Incentive
Plan is to enhance our ability to attract and retain officers, executives and
key employees and to align the interests of such individuals with those of our
stockholders. The Stock Incentive Plan is administered, construed and
interpreted by the Compensation Committee of the Board of Directors. The
Compensation Committee may at any time alter, amend or terminate the Stock
Incentive Plan provided that no action of the Board may adversely affect a
participant's rights under any previously-granted stock option or restricted
stock award without the consent of the participant. Any amendment to the Stock
Incentive Plan which increases the number of shares of Common Stock which may
be awarded or changes the class of persons eligible to receive awards must be
approved by the company's stockholders within twelve months prior to or after
the effective
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<PAGE>
date of such amendment. Deductions by the company for compensation amounts
under the Stock Incentive Plan are not expected to be limited by Section 162(m)
of the Internal Revenue Code.
There are currently 476,607 shares of common stock remaining available for
issuance under the Stock Incentive Plan. Of such shares, 426,488 are subject to
options that are currently outstanding and 50,119 remain available for future
grant as options or restricted stock awards.
In the event of any change to the outstanding shares of stock of the company
by reason of stock dividend or distribution, recapitalization, merger or
consolidation, the Compensation Committee will adjust the number of shares of
stock which may be issued under the Stock Incentive Plan and will provide for
an equitable adjustment of any outstanding options or restricted stock grants.
No individual participant in the Stock Incentive Plan may receive options to
purchase more than 100,000 shares of common stock during any calendar year. As
of March 31, 1999, there were outstanding options to purchase an aggregate of
426,488 shares of common stock under the Stock Incentive Plan, at exercise
prices ranging from $6.25 to $18.00. In March 1999, we granted a total of
60,600 stock options, effective upon completion of this offering, at the
initial public offering price. These options vest 50% after two years, 75%
after three years, and are fully vested after four years. A total of 20,400
shares of restricted stock were also granted in March 1999 which will be fully
vested after five years, at which time these shares will no longer be subject
to forfeiture. In connection with the pending acquisition of Towne Square, we
have agreed to grant Mr. Castronovo options to purchase 7,000 shares of our
stock at the initial public offering price and to award him 3,000 shares of
restricted stock. See "Pending Acquisition."
All stock options granted pursuant to the Stock Incentive Plan are evidenced
by agreements stating the number of shares covered thereby, the exercise price,
the period or periods of time within which each option will become fully or
partially exercisable, and whether an option is an "incentive stock option" as
such term is defined in Section 422 of the Internal Revenue Code or a non-
qualified stock option. The Compensation Committee has the authority to
determine exercisability of an option and may in its discretion accelerate the
time or times for exercise. No stock option may be exercisable after the
expiration of 10 years from the date it is granted, and, in the case of an
incentive stock option granted to a 10% stockholder, the option must be
exercised within five years from the date it is granted. The price to be paid
for the shares upon the exercise of each option may not be less than the fair
market value of such shares on the date on which the option is granted, as
determined by the Compensation Committee. An incentive stock option granted to
a 10% stockholder must have an exercise price of at least 110% of the fair
market value of the stock subject to the option as of the date of grant. The
aggregate fair market value (determined as of the time the option is granted)
of stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year (under all option plans of
the company) may not exceed $100,000, provided that, to the extent that such
limitation is exceeded, any excess options shall be deemed not to be incentive
stock options.
All restricted stock awards granted pursuant to the Stock Incentive Plan are
evidenced by a written grant document in a form approved by the Compensation
Committee. The grant document specifies the period or periods of time within
which each grant of restricted stock will no longer be subject to restrictions
on sale, transfer or alienation of the stock. The grant document shall also
specify the treatment of the stock upon termination of employment before the
restrictions are lifted.
Certain Federal Income Tax Consequences
The following summary discusses certain of the federal income tax
consequences associated with (a) the grant of a stock option under our Stock
Incentive Plan, and (b) the exercise of such option. This summary is limited
and does not describe state or local income or other tax consequences.
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Non-Qualified Stock Options.
The grant of a non-qualified stock option (including any option exceeding
the limitations on incentive stock options described above) will not be a
taxable event to the optionee. Upon the exercise of a non-qualified stock
option, the optionee generally must recognize ordinary compensation income
equal to the difference between the exercise price and the fair market value of
the common stock on the date of exercise. This compensation income will be
subject to applicable withholding. At the time of exercise, the company will
generally be entitled to a tax deduction in the amount of such compensation
income. The optionee's tax basis for the stock received pursuant to the
exercise will equal the sum of the recognized compensation income and the
exercise price.
Incentive Stock Options.
The grant of an incentive stock option will not be a taxable event to the
optionee. In addition, in contrast to the exercise of a non-qualified stock
option, the timely exercise of an incentive stock option will not cause the
optionee to recognize taxable income for regular income tax purposes (although
the employee could be subject to an alternative minimum tax liability as
described below). Also, the company shall not be entitled to a tax deduction
for either the grant or the exercise.
Upon exercise of an incentive stock option by an optionee, the alternative
minimum taxable income of such optionee must be determined as if such incentive
stock option were a non-qualified stock option (see "Non-Qualified Stock
Options," above). Accordingly, such optionee will be required to include as
alternative minimum taxable income the excess (if any) of the value of shares
received upon exercise as of the date such shares are vested over the amount
paid for such shares. Such employee would then be required to pay the greater
of such optionee's regular or alternative minimum tax liability computed with
respect of such year.
If optionee engages in the disqualifying disposition of the stock subject to
an incentive stock option, however, the exercise of the incentive stock option
may give rise to taxable compensation income to the optionee and a tax
deduction to the company. The optionee's sale or exchange of shares required
upon the exercise of an incentive stock option more than one year after the
transfer of the shares to such optionee and more than two years after the date
of grant of the incentive stock option will result in any difference between
the net sale proceeds and the exercise price being treated as long-term capital
gain or loss to the optionee. If such sale or exchange takes place within two
years after the date of the grant of the incentive stock option or within one
year from the date of transfer of the shares to the optionee, the sale or
exchange will generally be a "disqualifying disposition" and will have the
following results: any excess of (x) the lesser of (1) the fair market value of
the shares at the time of exercise and (2) the amount realized on the
disqualifying disposition of the shares over (y) the option exercise price of
such shares, will be ordinary income to the optionee, subject to applicable
withholding taxes, and the company will be entitled to a tax deduction in the
amount of such income. Any further gain or loss after the date of exercise will
generally qualify as capital gain or loss and will not result in any deduction
by the company.
Withholding Taxes.
To the extent that any amount recognized by an optionee upon exercise of an
option is subject to withholding taxes, the company may require the optionee to
pay, in addition to the amount required to exercise the option, the appropriate
amount of withholding. To the extent compensation income is recognized by an
optionee in connection with the exercise of a non-qualified stock option, the
company generally would be entitled to a matching compensation deduction
(assuming the requisite withholding requirements are satisfied).
Restricted Stock Awards.
Ordinarily, the award of restricted stock under the Stock Incentive Plan
will not be a taxable event to the grantee. The grantee will incur ordinary
compensation income, however, when the restrictions on the stock are
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lifted, in an amount equal to the fair market value of the stock at the time
the restrictions are lifted. Similarly, while the company will not be entitled
to a tax deduction for the restricted stock at the time of grant, at the time
the restrictions are lifted, the company will generally be entitled to a tax
deduction in the amount of the then-current fair market value of the stock. Any
dividends paid on restricted stock will be taxable income to the grantee at the
time issued.
As an exception to the above paragraph, under Internal Revenue Code (S)83(b)
a grantee may elect to include in current gross income restricted stock at the
time it is granted. If the grantee makes such an election, the fair market
value of the restricted stock at the time of grant, without regard to any
restrictions, shall be includable in the grantee's gross income. If the
restricted stock is subsequently forfeited by the grantee, either by
termination of employment before restrictions are lifted or otherwise, no
deduction to the grantee's income may be made. If the granted makes an election
under (S)83(b), the company will generally be entitled to a tax deduction at
the time of the grant for the then-current fair market value of the restricted
stock, without regard to restrictions.
CERTAIN TRANSACTIONS
Some of our executive officers and directors are, and have been during the
preceding three years, clients of PrivateBank, and some of our executive
officers and directors are direct or indirect owners of 10% or more of the
stock of corporations which are, or have been in the past, clients of
PrivateBank. As such clients, they have had transactions in the ordinary course
of business of PrivateBank, including borrowings, all of which transactions are
or were on substantially the same terms (including interest rates and
collateral on loans) as those prevailing at the time for comparable
transactions with nonaffiliated persons. In the opinion of our management, none
of the transactions involved more than the normal risk of collectibility or
presented any other unfavorable features. At March 31, 1999, PrivateBank had
$12,148,755 in loans outstanding to certain directors and executive officers
and their business interests of the company and certain executive officers of
PrivateBank.
In May 1998, Ralph B. Mandell, our Chairman, President and Chief Executive
Officer, purchased 72,720 shares of newly issued common stock at $13.75 per
share from PrivateBancorp. The purpose of the transaction was to enhance Mr.
Mandell's interest in the long-term performance of the company and further
align his interests with those of our stockholders. At the request of the Board
of Directors of the company, one of the underwriters, EVEREN Securities, Inc.,
provided a fairness opinion to the company relating to the sale price
established by our Board in connection with the transaction. As part of the
transaction, we loaned Mr. Mandell approximately 95% of the purchase price on a
full recourse basis. The loan matures in five years but becomes payable prior
to the fifth year in the event Mr. Mandell sells any of the 72,720 shares or
Mr. Mandell's employment is terminated. Interest accrues at 5.69% per annum,
compounded annually (the applicable Federal rate), on the principal amount of
the loan; however, provided Mr. Mandell does not sell any of the shares
purchased and remains in our employ, 25% of the accumulated interest on the
loan will be forgiven on the loan's second anniversary, 50% of the accumulated
interest on the loan will be forgiven on its third anniversary, 75% of the
accumulated interest on the loan will be forgiven on its fourth anniversary,
and 100% of the accumulated interest on the loan will be forgiven on the loan's
fifth anniversary. Mr. Mandell pledged all of the shares of common stock
purchased in the transaction as collateral for the loan he received from us,
but he is entitled to vote, and receive dividends on, the shares.
During 1998, we incurred professional fees for services provided by the law
firm Spitzer, Addis, Susman & Krull. Michael B. Susman, who is one of our
directors, is a partner of that firm.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the common stock
as of March 31, 1999, and as adjusted to give effect to the offering assuming
900,000 shares are sold in the offering (assuming no exercise of the over-
allotment option and no additional purchases of shares in the offering by the
persons shown), with respect to (a) each of our directors and Named Executive
Officers; and (b) all of our directors and Named Executive Officers as a group.
<TABLE>
<CAPTION>
Shares
Subject to
Exercisable
Options to Percentage Percentage
Shares of Purchase Total Ownership Ownership
Common Common Beneficial Before After
Stock(1) Stock(2) Ownership Offering(3) Offering(3)
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Directors
Ralph B. Mandell** (4).. 221,320 75,840 297,160 8.42% 6.71%
Caren L. Reed** (5)..... 9,600 7,040 16,640 * *
Donald A. Roubitchek**
(6).................... 31,920 38,736 70,656 2.02% 1.61%
Donald L. Beal (7)...... 17,464 12,720 30,184 * *
Naomi T. Borwell (8).... 164,800 12,720 177,520 5.12% 4.07%
William A. Castellano
(9).................... 132,400 12,720 145,120 4.19% 3.32%
Robert F. Coleman (10).. 26,400 12,720 39,120 1.13% *
W. James Farrell........ 10,400 6,240 16,640 * *
John E. Gorman.......... 49,000 8,400 57,400 1.66% 1.32%
Alvin J. Gottlieb....... 105,600 6,240 111,840 3.23% 2.57%
James M. Guyette........ 12,000 12,720 24,720 * *
Philip M. Kayman........ 12,800 12,720 25,520 * *
William R. Langley...... 89,600 68,240 157,840 4.48% 3.57%
Thomas F. Meagher....... 12,500 6,480 18,980 * *
Michael B. Susman....... 22,400 12,720 35,120 1.01% *
Other Named Executive
Officers
Gary S. Collins (11).... 28,180 31,616 59,796 1.72% 1.36%
M. Gail Fitzgerald (12). 13,200 8,000 21,200 * *
Hugh H. McLean (13)..... 45,528 12,000 57,528 1.66% 1.32%
Directors and executive
officers
as a group (18
persons)............... 1,005,112 357,872 1,362,984 35.78% 28.94%
</TABLE>
- --------
*Less than 1%
**Denotes person who serves as director and as an executive officer.
(1) Unless otherwise noted, represents all shares held individually, held in
individual retirement accounts or revocable trusts for the benefit of the
director or executive officer, and held jointly with spouse.
(2) Includes options which are currently exercisable or exercisable within 60
days of the date of this prospectus.
(3) Beneficial ownership percentages are calculated in accordance with SEC
Rule 13d-3 promulgated under the Securities Exchange Act of 1934. Does not
give effect to the planned issuance of shares in the pending acquisition.
See "Pending Acquisition."
(4) Includes 26,600 shares of restricted stock granted to Mr. Mandell under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
included are 72,720 shares which have been pledged as collateral to secure
a loan from the company to Mr. Mandell. See "Certain Transactions." Also
includes 23,600 shares held by Mr. Mandell's spouse. Mr. Mandell's
business address is c/o The PrivateBank & Trust Company, Ten North
Dearborn Street, Chicago, Illinois 60602.
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(5) Includes 9,600 shares of restricted stock granted to Mr. Reed under our
Stock Incentive Plan. These shares vest at various dates between 2001 and
2002, and are subject to forfeiture until such time as they vest.
(6) Includes 13,200 shares of restricted stock granted to Mr. Roubitchek under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
includes 400 shares held by Mr. Roubitchek's children.
(7) Includes 10,364 shares held by Mr. Beal's spouse and children.
(8) Ms. Borwell's address is 1040 N. Lake Shore Drive, Chicago, Illinois
60611.
(9) Includes 14,000 shares held by Mr. Castellano's children.
(10) Includes 800 shares held by Mr. Coleman's spouse and 3,200 shares held by
the Robert F. Coleman & Associates Retirement Savings Plan of which Mr.
Coleman is a participant.
(11) Includes 10,400 shares of restricted stock granted to Mr. Collins under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
includes 4,170 shares owned by Mr. Collins' spouse and children.
(12) Includes 6,800 shares of restricted stock granted to Ms. Fitzgerald under
our Stock Incentive Plan. These shares vest at various dates between 2002
and 2004, and are subject to forfeiture until such time as they vest.
(13) Includes 7,800 shares of restricted stock granted to Mr. McLean under our
Stock Incentive Plan. These shares vest at various dates between 2002 and
2004, and are subject to forfeiture until such time as they vest.
SUPERVISION AND REGULATION
General
Banking is a highly regulated industry. We have attempted to summarize
several applicable statutes and regulations, but you should understand that
these summaries are not complete, and you should refer to the statutes and
regulations for more information. Also, these statutes and regulations are
likely to change in the future, and we cannot predict what effect these
changes, if made, will have on our operations. Finally, please remember that
supervision, regulation and examination of banks and bank holding companies by
bank regulatory agencies are intended primarily for the protection of
depositors rather than stockholders of banks and bank holding companies.
Bank Holding Company Regulation
PrivateBancorp is registered as a "bank holding company" with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") pursuant to the
Bank Holding Company Act of 1956 (the Bank Holding Company Act of 1956 and the
regulations issued thereunder are collectively referred to as the "BHC Act"),
and we are subject to regulation, supervision and examination by, and we are
required to file reports and additional information with the Federal Reserve.
Minimum Capital Requirements. The Federal Reserve has adopted risk-based
capital requirements for assessing bank holding company capital adequacy. These
standards revise the normal definition of capital and establish minimum capital
standards in relation to assets and off-balance sheet exposures, as adjusted
for credit risks. At December 31, 1998, our consolidated assets were
approximately $416 million. Under the Federal Reserve's risk-based guidelines
applicable to the company, capital is classified into two categories.
For bank holding companies, Tier 1, or "core", capital consists of:
. common stockholders' equity;
. perpetual preferred stock (subject to some limitations); and
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. minority interests in the common equity accounts of consolidated
subsidiaries
less:
. goodwill;
. specified intangible assets; and
. specified investments in other corporations.
Tier 2 capital consists of:
. the allowance for loan and lease losses;
. perpetual preferred stock and related surplus;
. hybrid capital instruments;
. perpetual debt securities;
. mandatory convertible debt securities;
. term subordinated debt and related surplus; and
. intermediate-term preferred stock, including related securities.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying total capital to risk-
weighted assets of 8%, of which at least 4% must be in the form of Tier 1
capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1
capital to total assets of 3%. Bank holding companies not rated in the highest
category under the regulatory rating system are required to maintain a leverage
ratio of one percent to two percent above the stated minimum. The 3% Tier 1
capital to total assets ratio is the minimum leverage standard for bank holding
companies, and the Federal Reserve uses this minimum standard in conjunction
with the risk-based ratio in determining the overall capital adequacy of
banking organizations. In addition, the Federal Reserve continues to consider
the Tier 1 leverage ratio in evaluating proposals for expansion or new
activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
As of March 31, 1999, we had regulatory capital in excess of the Federal
Reserve's minimum requirements. Our total risk-based capital ratio at March 31,
1999 was 11.21% and our leverage ratio was 7.53%.
Acquisitions. The BHC Act requires prior Federal Reserve approval for, among
other things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank or bank holding company, or for a merger or
consolidation of a bank holding company with another bank holding company. With
limited exceptions, the BHC Act prohibits a bank holding company from acquiring
direct or indirect ownership or control of voting shares of any company which
is not a bank or bank holding company and from engaging directly or indirectly
in any activity other than banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding company
may, however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined, by regulation or order, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto, such as owning and operating a savings association,
trust company, or investment or financial advisory business. Under the BHC Act
and Federal Reserve regulations, we are prohibited from engaging in tie-in
arrangements in connection with an extension of credit, lease, sale of
property, or furnishing of services. That means that, in most circumstances, we
may not condition a client's purchase of one of our services on the purchase of
another service.
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Interstate Banking and Branching Legislation. Under the Interstate Banking
and Efficiency Act, adequately capitalized and adequately managed bank holding
companies are allowed to acquire banks across state lines subject to various
limitations. In addition, under the Interstate Banking Act, banks are
permitted, under some circumstances, to merge with one another across state
lines and thereby create a main bank with branches in separate states. After
establishing branches in a state through an interstate merger transaction, a
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger could have established or
acquired branches under applicable federal and state law.
Ownership Limitations. Any person, including that person's associates,
affiliates and groups acting in concert with him or her, who purchases or
subscribes for 5% or more of our common stock may be required to obtain prior
approval of the Commissioner and the Federal Reserve. Under the Illinois
Banking Act, any person who thereafter acquires more than 10% of our stock may
be required to obtain the prior approval of the Commissioner. Under the Change
in Bank Control Act, a person may be required to obtain the prior regulatory
approval of the Federal Deposit Insurance Corporation ("FDIC") and the Federal
Reserve before acquiring the power to directly or indirectly control the
management, operations or policies of PrivateBancorp or PrivateBank or before
acquiring control of 25% or more of any class of PrivateBancorp's or
PrivateBank's outstanding voting stock. In addition, any corporation,
partnership, trust or organized group that acquires a controlling interest in
PrivateBancorp or PrivateBank may have to obtain approval of the Federal
Reserve to become a bank holding company and thereafter be subject to
regulation as a bank holding company.
Dividends. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies. In the policy statement, the
Federal Reserve expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to prohibit or limit the payment of dividends by banks
and bank holding companies.
Under a longstanding policy of the Federal Reserve, PrivateBancorp is
expected to act as a source of financial strength to PrivateBank and to commit
resources to support PrivateBank. The Federal Reserve takes the position that
in implementing this policy, it may require PrivateBancorp to provide financial
support when the company otherwise would not consider itself able to do so.
In addition to the restrictions on dividends imposed by the Federal Reserve,
Delaware law also places limitations on our ability to pay dividends. For
example, we may not pay dividends to our stockholders if, after giving effect
to the dividend, we would not be able to pay our debts as they become due.
Because a major source of our revenue is dividends which we receive and expect
to receive from PrivateBank, our ability to pay dividends will depend on the
amount of dividends paid by PrivateBank. We cannot be sure that PrivateBank
will, in any circumstances, pay such dividends to us.
Bank Regulation
Under Illinois law, PrivateBank is subject to supervision and examination by
the commissioner of the Illinois Office of Banks and Real Estate (the
"Commissioner"). As an affiliate of PrivateBank, PrivateBancorp is also subject
to examination by the Commissioner. PrivateBank is a member of the Federal Home
Loan Bank ("FHLB") of Chicago and may be subject to examination by the FHLB of
Chicago. In addition, the deposits of PrivateBank are insured by the Bank
Insurance Fund ("BIF") thereby rendering PrivateBank subject to the provisions
of the Federal Deposit Insurance Act ("FDIA") and, as a state nonmember bank,
to supervision and examination by the FDIC. The FDIA requires the FDIC approval
of any merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIC also
supervises compliance with the provisions of federal law and regulations which
place restrictions on loans by FDIC-insured banks to their directors, executive
officers and other controlling persons.
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Furthermore, all banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The Federal Reserve's monetary policies have had a
significant effect on the operating results of commercial banks in the past and
we expect this trend to continue in the future.
Dividends. The Illinois Banking Act provides that an Illinois bank may not
pay dividends of an amount greater than its current net profits after deducting
losses and bad debts while such bank continues to operate a banking business.
For the purpose of determining the amount of dividends that an Illinois bank
may pay, bad debts are defined as debts upon which interest is past due and
unpaid for a period of six months or more unless such debts are well-secured
and in the process of collection.
In addition to the foregoing, the ability of the company and PrivateBank to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
Federal Reserve System. PrivateBank is subject to Federal Reserve
regulations requiring depository institutions to maintain noninterest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3% reserves on the
first $47.8 million of transaction accounts plus 10% on the remainder. The
first $4.7 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. PrivateBank is
in compliance with that requirement.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the Federal Reserve, together with the other federal bank regulatory agencies,
to prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The FDIC and the other federal
bank regulatory agencies have adopted a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. In addition, the FDIC adopted regulations
that authorize, but do not require, the FDIC to order an institution that has
been given notice by the FDIC that it is not satisfying any of the safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the FDIC must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association
is subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the FDIC may seek to enforce
its order in judicial proceedings and to impose civil money penalties. The FDIC
and the other federal bank regulatory agencies also proposed guidelines for
asset quality and earning standards.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve and the FDIC, to take prompt corrective action
with respect to depository institutions that fall below minimum capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions,
including restrictions on growth, investment activities, capital distributions
and affiliate transactions, and will be required to submit a capital
restoration plan which, to be accepted by the regulators, must be guaranteed in
part by any company having control of the institution (for example, the company
or a
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stockholder controlling the company). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for under-capitalized institutions. The capital-
based prompt corrective action provisions of FDICIA and their implementing
regulations apply to FDIC-insured depository institutions. However, federal
banking agencies have indicated that, in regulating bank holding companies, the
agencies may take appropriate action at the holding company level based on
their assessment of the effectiveness of supervisory actions imposed upon
subsidiary insured depository institutions pursuant to the prompt corrective
action provisions of FDICIA.
As of March 31, 1999, PrivateBank had capital in excess of the requirements
for a "well-capitalized" institution.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution,
PrivateBank is required to pay deposit insurance premiums based on the risk it
poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve designated reserve
ratios in the insurance funds and to impose special additional assessments. The
FDICIA assessment rate schedule for BIF-insured deposits provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of deposits
depending on capital and supervisory factors. Each depository institution is
assigned to one of three capital groups: "well capitalized," "adequately
capitalized" or "less than adequately capitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups: "healthy,"
"supervisory concern" or "substantial supervisory concern." Accordingly, there
are nine combinations of capital groups and supervisory subgroups to which
varying assessment rates would be applicable. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. During 1998, PrivateBank paid deposit insurance premiums in the
aggregate amount of $33,572.
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practice, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. We do not know any
practice, condition or violation that might lead to termination of our deposit
insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 provides
that beginning with semi-annual periods after December 31, 1996, BIF deposits
will also be assessed to pay interest on the bonds issued in the late 1980s by
the Financing Corporation (the "FICO Bonds") to recapitalize the now defunct
Federal Savings & Loan Insurance Corporation. For purposes of the assessments
to pay interest on the FICO Bonds, BIF deposits will be assessed at a rate of
20% of the assessment rate applicable to SAIF deposits until December 31, 1999.
After the earlier of December 31, 1999 or the date on which the last savings
association ceases to exist, full pro rata sharing of FICO assessments will
begin. It has been estimated that the rates of assessment for the payment of
interest on the FICO Bonds will be approximately 1.3 basis points for BIF-
assessable deposits and approximately 6.4 basis points for SAIF-assessable
deposits. The payment of the assessment to pay interest on the FICO Bonds
should not materially affect the Bank.
Community Reinvestment. Under the CRA, a financial institution has a
continuing and affirmative obligation to help meet the credit needs of its
entire community, including low- and moderate-income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop the
types of products and services that it believes are best suited to its
particular community. However, institutions are rated on their performance in
meeting the needs of their communities. Performance is judged in three areas:
(a) a lending test, to evaluate the institution's record of making loans in its
assessment areas; (b) an investment test, to evaluate the institution's record
of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and business; and (c) a
service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices. The CRA requires each federal banking agency,
in connection with its examination of a financial institution, to assess and
assign one of four ratings to the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation
of certain
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applications by the institution, including applications for charters, branches
and other deposit facilities, relocations, mergers, consolidations,
acquisitions of assets or assumptions of liabilities, and savings and loan
holding company acquisitions. The CRA also requires that all institutions make
public disclosure of their CRA ratings.
PrivateBank was assigned a "satisfactory" rating in January 1999 as a result
of its last CRA examination. This is the second highest rating a bank may
receive.
Compliance with Consumer Protection Laws. PrivateBank is subject to many
federal consumer protection statutes and regulations including the CRA, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Real Estate Settlement Procedures Act and the
Home Disclosure Act. Among other things, these acts:
. require banks to meet the credit needs of their communities;
. require banks to disclose credit terms in meaningful and consistent
ways;
. prohibit discrimination against an applicant in any consumer or business
credit transaction;
. prohibit discrimination in housing-related lending activities;
. require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects;
. require lenders to provide borrowers with information regarding the
nature and cost of real estate settlements;
. prohibit certain lending practices and limit escrow account amounts with
respect to real estate transactions; and
. prescribe possible penalties for violations of the requirements of
consumer protection statutes and regulations.
From time to time we have been made aware of certain deficiencies in our
consumer compliance program. Management believes that any deficiencies have
already been or are in the process of being corrected. In the event that
consumer compliance deficiencies were to continue over time, enforcement or
administrative actions by the appropriate federal banking regulators may affect
the implementation of our growth strategies.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
an enforcement action against an institution that fails to comply with
regulatory requirements, particularly capital requirements. Possible
enforcement actions range from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance.
Other. PrivateBank is also subject to state and federal restrictions upon:
. extensions of credit to the company and any non-banking affiliates,
. the purchase of assets from affiliates,
. the issuance of guarantees, acceptances or letters of credit on behalf
of affiliates, and
. investments in stock or other securities issued by affiliates or
acceptance thereof as collateral for an extension of credit.
PrivateBancorp and PrivateBank are subject to restrictions with respect to
engaging in the issuance, underwriting, public sale or distribution of certain
types of securities. In addition, PrivateBank must maintain reserves against
deposits and is subject to restrictions upon:
. the nature and amount of loans which it may make to a single borrower
(and, in some instances, a group of affiliated borrowers),
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. the nature and amount of securities in which it may invest,
. the amount of investment in PrivateBank premises, and
. the manner in and extent to which it may borrow money.
Pending Legislation. Because of the concerns relating to competitiveness and
the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. We cannot
predict whether or in what form any of these proposals will be adopted or the
extent to which the proposals will affect our operations, if at all.
Monetary Policy and Economic Conditions
The earnings of banks and bank holding companies are sensitive to changes in
prevailing interest rates and are affected by general economic conditions and
the fiscal and monetary policies of federal regulatory agencies, including the
Federal Reserve. Through changes in the discount rate, availability of
borrowing at the "discount window," open market transactions, and imposition of
changes in the reserve requirements, the Federal Reserve exerts considerable
influence over the cost and availability of funds obtainable for lending or
investing. Monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments and deposits, and
such use may affect interest rates charged on loans or paid on deposits.
Monetary and fiscal policies have affected the operating results of commercial
banks in the past and are expected to do so in the future. We cannot fully
predict the nature or the extent of any effects which fiscal or monetary
policies may have on our business and earnings.
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DESCRIPTION OF CAPITAL STOCK
The information in this prospectus gives effect to a 2-for-1 stock split
effective as of June 28, 1999, and to an amendment to PrivateBancorp's Restated
Certificate of Incorporation to increase the authorized shares approved by
stockholders on April 22, 1999. The amendment was filed on June 25, 1999, with
the Secretary of State of the State of Delaware.
Common Stock
We are authorized to issue 12,000,000 shares of common stock, without par
value, of which 3,451,824 shares were outstanding prior to the offering. As of
March 31, 1999, 632,808 shares of common stock were reserved for issuance upon
the exercise of currently outstanding options. The outstanding shares of common
stock currently are, and the shares of common stock to be issued in the
offering will be (when issued and delivered in accordance with the terms and
conditions of the offering), fully paid and nonassessable. Each share of common
stock has the same relative rights as, and is identical in all respects with,
each other share of common stock. Each holder of record of common stock is
entitled to one vote per share on all matters voted upon by our stockholders.
Upon completion of the public offering, holders of shares of common stock will
have no preemptive, redemption or cumulative voting rights. In the event of
liquidation, the holders of shares of common stock are entitled to share
ratably in any of our assets retained after payment in full of creditors and,
if any preferred stock is then authorized, issued and outstanding, after
payment to holders of such preferred stock but only to the extent of any
liquidation preference.
Dividends. The holders of our common stock are entitled to receive and share
equally in such dividends, if any, declared by the Board of Directors out of
funds legally available therefor. We may pay dividends if, as and when declared
by our Board of Directors. The payment of dividends by the company is subject
to limitations imposed by the Delaware General Corporation Law ("DGCL"). See
"Dividends." If we issue preferred stock, the holders thereof may have a
priority over the holders of the common stock with respect to dividends.
Voting Rights. The holders of our common stock possess voting rights in the
company. Stockholders elect our Board of Directors and act on such other
matters as are required to be presented to them under the DGCL or our Amended
and Restated Certificate of Incorporation, or as are otherwise presented to
them by the Board of Directors. Each holder of common stock will be entitled to
one vote per share and will not have any right to cumulate votes in the
election of directors. Accordingly, holders of more than fifty percent of the
outstanding shares of common stock will be able to elect all of the Directors
to be elected each year. Although there are no present plans to do so, if we
issue preferred stock, holders of the preferred stock may also possess voting
rights. Certain matters require a two-thirds stockholder vote. See "Certain
Anti-Takeover Effects of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding up of
the company, the holders of our common stock would be entitled to receive,
after payment or provision for payment of all of our debts and liabilities, all
of our assets available for distribution. If preferred stock is issued, the
holders thereof may have a priority over the holders of the common stock in the
event of any liquidation or dissolution.
Preemptive Rights and Redemption. Holders of our common stock will not be
entitled to preemptive rights with respect to any shares which we may issue in
the future. The common stock is not subject to mandatory redemption by us.
Preferred Stock
Our Board of Directors is authorized, pursuant to the Amended and Restated
Certificate of Incorporation, to issue 1,000,000 shares of preferred stock,
without par value, in one or more series with respect to which the Board,
without stockholder approval, may determine voting, conversion and other rights
which could adversely affect the rights of the holders of our common stock.
Currently, no shares of our authorized preferred stock are issued or
outstanding. Stockholders will not have preemptive rights to subscribe for
shares of preferred stock.
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The rights of the holders of the common stock would generally be subject to
the prior rights of the preferred stock with respect to dividends, liquidation
preferences and other matters. The dividend rights, dividend rates, conversion
rights, conversion prices, voting rights, redemption rights and terms
(including sinking fund provisions, if any), the redemption price or prices and
the liquidation preferences of any series of the authorized preferred stock and
the numbers of such shares of preferred stock in each series will be
established by the Board of Directors as such shares are to be issued. It is
not possible to state the actual effect of the preferred stock on the rights of
holders of common stock until the Board of Directors determines the rights of
the holders of a series of the preferred stock. However, such effects might
include:
. restrictions on dividends;
. dilution of the voting power to the extent that the preferred stock were
given voting rights;
. dilution of the equity interest and voting power if the preferred stock
were convertible into common stock; and
. restrictions upon any distribution of assets to the holders of common
stock upon liquidation or dissolution until the satisfaction of any
liquidation preference granted to holders of the preferred stock.
Furthermore, although we have no present intention to do so, the Board of
Directors could direct us to issue, in one or more transactions, shares of
preferred stock or additional shares of common stock or rights to purchase such
shares (subject to the limits imposed by applicable laws and the rules of any
stock exchange or automated dealer quotation system to the extent that such
rules may become applicable to, or may be observed by, us) in amounts which
could make more difficult and, therefore, less likely, a takeover, proxy
contest, change in our management or any other extraordinary corporate
transaction which might be opposed by the incumbent Board of Directors. Any
issuance of preferred stock or of common stock could have the effect of
diluting the earnings per share, book value per share and voting power of
common stock held by our stockholders.
Certain Anti-Takeover Effects of the Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and Delaware Law
General. Certain provisions of our Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and the DGCL may have the effect of
impeding the acquisition of control of the company by means of a tender offer,
a proxy fight, open-market purchases or otherwise in a transaction not approved
by our Board of Directors. These provisions may have the effect of discouraging
a future takeover attempt which is not approved by our Board of Directors but
which individual stockholders may deem to be in their best interests or in
which stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of our current Board of Directors or
management more difficult.
The provisions of the Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws described below are designed to reduce, or have
the effect of reducing, our vulnerability to an unsolicited proposal for the
restructuring or sale of all or substantially all of our assets or an
unsolicited takeover attempt which is unfair to our stockholders. The following
description of certain of the provisions of our Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws is general, and
you should read it with our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws.
Authorized Shares. Our Amended and Restated Certificate of Incorporation
authorizes the issuance of 12,000,000 shares of common stock and 1,000,000
shares of preferred stock. We have authorized these amounts to provide our
Board of Directors with flexibility to effect, among other things,
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these authorized shares may also be used by
the Board of Directors consistent with its fiduciary duty to deter future
attempts to gain control of the company.
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The Board of Directors also has sole authority to determine the terms of any
one or more series of preferred stock, including voting rights, conversion
rates, and liquidation preferences. As a result of the ability to fix voting
rights for a series of preferred stock, the Board of Directors has the power to
the extent consistent with its fiduciary duty to issue a series of preferred
stock to persons friendly to management in order to attempt to block a merger
or other transaction by which a third party seeks control, and thereby assist
the incumbent Board of Directors and management to retain their respective
positions.
Classified Board of Directors; Filling of Board Vacancies and Qualifying
Shares. Our Board of Directors is divided into three classes, each of which
contains approximately one-third of the whole number of the members of the
Board of Directors. Each class serves a staggered three-year term, with
approximately one-third of the total number of Directors being elected each
year. Under the DGCL, members of a staggered board may only be removed for
cause unless the Certificate of Incorporation provides otherwise. Our Amended
and Restated Certificate of Incorporation does not provide for removal of
directors without cause. The staggered board is intended to provide for
continuity of the Board of Directors and to make it more difficult and time
consuming for a stockholder group to fully use its voting power to gain control
of the Board of Directors without the consent of the incumbent Board of
Directors.
Our Amended and Restated By-laws provide that there shall be sixteen
Directors. Our Amended and Restated By-laws also provide that any vacancy
occurring on the Board of Directors, including a vacancy created by an increase
in the number of directors, will be filled by a majority vote of the directors
then in office. Directors so chosen shall hold office until their successors
are elected and qualified or until their earlier resignation or removal.
No Cumulative Voting; Limitation on Action by Written Consent and
Stockholder Meetings. Our Amended and Restated Certificate of Incorporation
does not provide for cumulative voting. Our Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws also provide that any action
required or permitted to be taken by the stockholders must be effected at an
annual or special meeting and may not be effected by written consent in lieu of
a meeting. Our Amended and Restated By-laws provide that special meetings of
the stockholders may only be called by the Chairman of the Board, the President
or the Secretary at the written request of a majority of the Board of
Directors.
Delaware Business Combination Statute. Section 203 of the DGCL provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (a) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (b) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (c) at or subsequent to such time the business combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as otherwise specified in Section 203, an interested
stockholder is defined to include any person that is (x) the owner of 15% or
more of the outstanding voting stock of the corporation, or (y) is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date of determination, and the affiliates and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. We have not elected to
be exempt from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage persons interested in acquiring us to negotiate in
advance with our Board of Directors since the stockholder approval requirement
would be avoided if a majority of the directors then in office approves either
the business combination or the transaction which results in any such person
becoming an interested
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stockholder. Such provisions also may have the effect of preventing changes in
our management. It is possible that such provisions could make it more
difficult to accomplish transactions which our stockholders may otherwise deem
to be in their best interests.
Amendment of the Restated Certificate of Incorporation and By-laws. Our
Amended and Restated Certificate of Incorporation provides that the affirmative
vote of the holders of at least 66 2/3% of our outstanding voting stock, voting
together as a single class, is required to amend, repeal, or adopt any
provision inconsistent with, the provisions of our Amended and Restated
Certificate of Incorporation classifying directors, eliminating cumulative
voting, prohibiting stockholder action without a meeting or specifying the vote
required to amend such provisions. Our By-laws may be amended by the
stockholders or the Board of Directors; however, the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock, voting together as
a single class, is required to amend, repeal, or adopt any provision
inconsistent with, the provisions of the Amended and Restated By-laws
describing how special meetings of the stockholders must be called, prohibiting
stockholder action without a meeting, regarding properly bringing business
before a stockholder meeting, stating the number of and classifying directors,
relating to filling director vacancies, and specifying the vote required to
amend such provisions.
Certain By-Law Provisions. Our Amended and Restated By-laws also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting, to
provide us advance notice of at least 120 days. The notice provision requires a
stockholder who desires to raise new business at an annual stockholder meeting
to provide us certain information concerning the nature of the new business,
the stockholder and such stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide us with certain information concerning the nominee and
such proposing stockholder.
The provisions described above are intended to reduce our vulnerability to
takeover attempts and certain other transactions which have not been negotiated
with and approved by our Board of Directors.
Attempts to take over corporations have become increasingly common. An
unsolicited, nonnegotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the company and our
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage nonnegotiated takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price that reflects our true value and that
otherwise is in the best interest of all stockholders.
Limitation of Director Liability and Indemnification
Our Amended and Restated Certificate of Incorporation provides that no
director will be personally liable to the company or our stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that directors will have liability (a) for any breach of a director's duty of
loyalty to the company or our stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit.
Our Amended and Restated By-laws provide that we will indemnify any person
made or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the company, or is or was serving at our request
as a director, trustee, officer, employee or agent of another corporation or
other enterprise against expenses actually and reasonably incurred by such
person in connection with such action, suit or proceeding. To the extent that a
person seeking indemnification has been successful on the merits or otherwise
in defense of any action, suit, or proceeding, such person will be indemnified
for his or her expenses which were actually and reasonably incurred. Any
indemnification payment must be authorized upon a determination that the
individual seeking indemnification met the necessary standard of conduct for
such indemnification. Such determination will be made by a majority vote of a
quorum
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consisting of directors not involved with the action, suit or proceeding; a
written opinion of independent legal counsel, if the described quorum cannot be
obtained or if the majority vote of the described quorum directs; a vote of the
stockholders; or a decision of the court in which the action was brought. To
qualify for indemnification, such person must have acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was lawful. Expenses may be paid
by us as they are incurred, in advance of a final disposition, as authorized by
the Board of Directors and upon receipt of an undertaking by the person seeking
indemnification to repay the advanced amount if it is later determined that he
or she was not entitled to indemnification. The indemnification and advancement
of expenses provided by the Amended and Restated By-laws are not to be deemed
exclusive of any other rights to which any person seeking indemnification may
be entitled as a matter of law or under our Amended and Restated Certificate of
Incorporation, the Amended and Restated By-laws, any agreement, vote of
stockholders, any insurance purchased by us, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
such office, and will continue as to a person who has ceased to be such
director, trustee, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
We have entered into indemnification agreements with our directors and
executive officers to indemnify them against certain liabilities. Consistent
with the provisions of our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws, under the terms of the agreements, we will
indemnify our directors and executive officers to the fullest extent permitted
under applicable law against all expenses, liabilities and losses incurred in
connection with any legal proceeding brought against any of them by reason of
their status as directors, officers, employees, agents or fiduciaries of the
company. The expenses, liabilities and losses which we are obligated to pay may
include judgments, fines and amounts paid in settlement of such legal
proceedings by our directors and executive officers so long as they acted in
good faith and in a manner which they reasonably believed was in the best
interests of the company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Illinois Stock
Transfer Company, Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 4,351,824 of common stock
issued and outstanding (4,486,824 shares if the underwriters exercise their
over-allotment option in full), assuming no exercise of any options. Of these
shares, 2,770,550 shares, including the 900,000 shares to be sold in this
offering (assuming no exercise of the over-allotment option), will be freely
tradeable in the public market without restriction or registration under the
Securities Act, unless held by our "affiliates" as that term is defined under
the Securities Act. The remaining 1,581,274 shares are subject to certain
restrictions on trading, as described below. All shares sold in the Towne
Square transaction will be subject to contractual holding periods of one to
three years. See "Pending Acquisition."
Restricted stock awards granted to our employees.
Pursuant to the terms of our Stock Incentive Plan, we have awarded 21,600
shares of restricted stock to certain of our employees who are not executive
officers. Although our employees have full voting rights with regard to these
shares and may receive any dividends we declare, they may not transfer the
shares until they are fully vested. Each restricted stock award will vest in
its entirety on the fifth anniversary of the date of grant. Unless earlier
forfeited, the awards will vest according to the following schedule:
<TABLE>
<CAPTION>
Year Shares Vested
---- -------------
<S> <C>
2001....................... 4,800
2002....................... 9,600
2003....................... 1,600
2004....................... 5,600
</TABLE>
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Shares held by our executive officers and directors.
Our executive officers and directors currently hold 1,005,112 shares of our
common stock, representing 23.1% of the shares that will be outstanding upon
completion of this offering. Of these shares, 74,400 shares were granted to our
officers pursuant to restricted stock awards and are subject to forfeiture
until the fifth anniversary of the date of grant. These restricted stock awards
will vest between the years 2001 and 2004. The remaining shares held by our
officers and directors may be sold in the public market under the provisions of
Rule 144 of the Securities Act, upon the expiration of certain holding periods
specified in Rule 144.
Lock-up Agreements. Our directors and officers and certain of our
stockholders have entered into lock-up agreements with the underwriters
pursuant to which they have agreed not to offer, sell or contract to sell any
of their shares of common stock for a period of 180 days from the date of this
prospectus without the underwriters' prior written consent. An aggregate of
1,477,774 shares of our common stock are subject to these agreements. Upon the
expiration of this 180-day period, our directors and officers and stockholders
may resell their shares, if vested, subject to the restrictions discussed
below.
Shares Subject to Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell, within a three-month period, that number of shares which does
not exceed the greater of:
. one percent of the outstanding shares of our common stock (approximately
43,518 shares immediately following the offering); or
. the average weekly reported trading volume of our common stock during
the four calendar weeks preceding the sale.
Sales made under Rule 144 are also subject to certain requirements pertaining
to:
. the manner of such sales;
. notices of such sales; and
. the availability of current public information about us.
Under Rule 144(k), a person other than an affiliate may sell shares freely,
without regard to the above restrictions, if that person has held the shares
for a period of two years or more. Affiliates, such as our directors and
officers, are always subject to these manner of sale and volume restrictions,
regardless of the length of time that they have held their shares.
Currently there are 101,900 shares of our common stock held by non-
affiliates which are subject to the provisions of Rule 144. Of such shares,
20,000 are subject to the lock-up agreements discussed above. Non-affiliates
may sell the remaining shares pursuant to the Rule 144 restrictions beginning
in September 1999, except for 20,000 of these shares that are subject to a
lock-up agreement. All of these shares will be freely tradable by non-
affiliates by December 2000.
Registration Rights of Certain of Our Stockholders.
Pursuant to the terms of our private placement offering materials, we have
granted certain "piggyback" registration rights to holders of 2,769,872 shares
of our common stock. These stockholders, including some of our affiliates, are
entitled to have their shares registered for sale under the Securities Act in
the event that we determine to register shares of our common stock in
connection with an underwritten public offering or otherwise. These rights are
subject to certain limitations and conditions, including:
. our ability to preclude or limit the number of shares which these
stockholders may include in the underwritten offering or registration;
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. the right of the managing underwriter, in its sole discretion, to limit
the number of shares to be underwritten; and
. the requirement that each participating stockholder bear a pro rata
portion of the underwriting discounts and commissions.
Of the shares entitled to these registration rights, all shares held by non-
affiliates are currently tradable pursuant to the terms of Rule 144(k), as
described above. Those shares held by our affiliates are subject to the manner
of sale and volume restrictions of Rule 144, as set forth above. None of the
registration rights with respect to these shares have been exercised in
connection with this offering.
Shares Reserved For Issuance Pursuant to Options.
Effective upon completion of this offering, we will have an aggregate of
632,808 shares reserved for issuance pursuant to outstanding stock options
granted to certain key employees, officers and directors. Options to purchase
453,408 shares are currently exercisable. In addition, there are 50,119 shares
remaining available for future awards under our Stock Incentive Plan, out of
which the option grant and restricted stock award are expected to be made to
Tom Castronovo in connection with the Towne Square Financial Corporation
transaction. We intend to register under the Securities Act the shares of
common stock reserved for issuance under our stock plans, whereupon all of
these shares will be freely tradeable, subject to compliance by affiliates with
the Rule 144 volume and manner of sale limitations.
Our Nasdaq Symbol.
Our common stock has been approved for quotation and trading on The Nasdaq
National MarketSM under the symbol "PVTB."
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, for whom EVEREN Securities, Inc. and Stifel, Nicolaus
& Company, Incorporated are acting as representatives (the "Representatives"),
have severally agreed to purchase from us, and we have agreed to sell to them,
the respective number of shares of common stock set forth opposite each
underwriter's name below:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ -------
<S> <C>
EVEREN Securities, Inc...........................................
Stifel, Nicolaus & Company, Incorporated.........................
-------
Total........................................................ 900,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The nature of the underwriters'
obligation is such that they are committed to purchase and pay for all shares
of common stock (other than those covered by the over-allotment options
discussed below) if any are purchased.
The underwriters propose to offer the shares of our common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to certain securities dealers (who may include the
underwriters) at such price, less a concession not in excess of $ per
share of common stock. The underwriters may allow, and such selected dealers
may reallow, a concession not in excess of $ per share of common stock
to certain brokers and dealers. After this offering, the price to the public,
concession, allowance and reallowance may be changed by the Representatives.
The Representatives have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
We have granted the underwriters an option to purchase up to 135,000
additional shares of common stock at the same price per share as we will
receive for the 900,000 shares that the underwriters have agreed to purchase.
This option is exercisable during the 30-day period after the date of this
prospectus, solely to cover over-allotments, if any. To the extent that the
underwriters exercise this option, each of the underwriters will be committed,
subject to certain conditions, to purchase such additional shares of common
stock in approximately the same proportions as set forth in the above table. If
purchased, the underwriters will sell the additional shares on the same terms
as the 900,000 shares are being sold. If the underwriters exercise the over-
allotment in full, the total public offering price will be $ , total
underwriting discounts and commissions will be $ , and total proceeds
to us will be $ .
The offering of the common stock is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject any order for the purchase of common stock.
Subject to certain exceptions, we have agreed not to issue, and each of our
officers and directors (and certain stockholders of the company) has agreed not
to offer, sell or otherwise dispose of any of our shares of common stock or our
other equity securities for a period of 180 days after the date of this
prospectus (other than shares sold pursuant to this prospectus and shares
issuable in the transaction with Towne Square Financial Corporation) without
the prior written consent of EVEREN Securities.
Subject to certain exceptions for registration statements on Form S-8, we
have agreed not to file a registration statement relating to any of our shares
of common stock or other equity securities for a period of 180 days after the
date of this prospectus (other than the shares to be issued in this offering
and the shares issuable in the transaction with Towne Square Financial
Corporation) without the prior written consent of EVEREN Securities.
81
<PAGE>
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or to contribute to payments the underwriters may be
required to make in respect thereof.
Prior to this offering, there has been no public market for our common
stock. Consequently, we negotiated the initial public offering price with the
underwriters. Among the factors considered in such negotiations were:
. prevailing market conditions;
. an assessment of our management;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of other companies
which we and the Representatives believe to be comparable to us; and
. estimates of our business potential.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to this offering at or above the initial public offering price. The
initial public offering price should not be considered an indication of the
actual value of our common stock. Such price is subject to change as a result
of market conditions and other factors. We cannot assure you that our common
stock can be resold at or above the initial public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of our common stock during and after the offering, such as the
following:
. the underwriters may over-allot or otherwise create a short position in
the common stock for their own account by selling more shares of common
stock than we have been sold to them;
. the underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising
the over-allotment option;
. the underwriters may stabilize or maintain the price of our common stock
by bidding for or purchasing shares of common stock in the open market;
. the underwriters may engage in passive market making transactions; and
. the underwriters may impose penalty bids, under which selling
concessions allowed to syndicate members of other broker-dealers
participating in this offering are reclaimed if shares of common stock
previously distributed in the offering are repurchased in connection
with stabilization transactions or otherwise.
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our common stock
to the extent that it discourages resales thereof. No representation is made as
to the magnitude or effect of any such stabilization or other transactions.
Such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
EVEREN Securities has provided in the past, and both Representatives may
provide in the future, investment banking services to PrivateBancorp for which
they have received and would expect to receive customary fees and commissions.
82
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering, including the
validity of the common stock, are being passed upon for the company by Vedder,
Price, Kaufman & Kammholz, Chicago, Illinois. Certain legal matters are being
passed upon for the underwriters by Jenner & Block, Chicago, Illinois.
EXPERTS
The consolidated financial statements for each of the three years in the
three-year period ended December 31, 1998, included in this prospectus, have
been audited by Arthur Andersen LLP, independent certified public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act
with the SEC in connection with the common stock offered by this prospectus.
This prospectus omits certain information, exhibits and undertakings set forth
in the registration statement which we have filed with the SEC. You may inspect
and copy those materials upon payment of prescribed rates, at the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional office of the SEC at the following locations: Seven World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. This
information is also available on the Internet at the SEC's website. The address
for the web site is: http://www.sec.gov. For further information about the
company, reference is hereby made to the registration statement and the
exhibits thereto. Statements contained in this prospectus concerning the
provisions of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the registration statement
for a full statement of the provisions thereof. Each such statement in this
prospectus is qualified in all respects by such reference.
83
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PRIVATEBANCORP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............. F-2
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December
31, 1998 and 1997........................................................ F-3
Consolidated Statements of Income for the three months ended March 31,
1999 and 1998 (unaudited) and for the years ended December 31, 1998, 1997
and 1996................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
months ended March 31, 1999 (unaudited) and for the years ended December
31, 1998, 1997 and 1996.................................................. F-5
Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998 (unaudited) and for the years ended December 31, 1998, 1997
and 1996................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
PrivateBancorp, Inc.:
We have audited the accompanying consolidated balance sheets of
PRIVATEBANCORP, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
PrivateBancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 29, 1999 (except with respect to the matter discussed in Note 19, as to
which the date is June 25, 1999)
F-2
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of March 31, 1999 and December 31, 1998 and 1997
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash and due from banks-noninterest
bearing............................. $ 8,220,209 $ 11,894,781 $ 9,229,704
Federal funds sold................... 7,759,124 3,619,437 16,976,417
------------ ------------ ------------
Total cash and cash equivalents.. 15,979,333 15,514,218 26,206,121
------------ ------------ ------------
Available-for-sale securities, at
fair value.......................... 105,135,775 116,890,739 65,383,252
------------ ------------ ------------
Loans................................ 307,766,039 281,964,896 218,494,547
Less: Allowance for loan losses.... (3,695,000) (3,410,000) (3,050,000)
------------ ------------ ------------
Net loans.......................... 304,071,039 278,554,896 215,444,547
------------ ------------ ------------
Bank premises and equipment, net..... 1,528,416 1,587,720 1,904,338
------------ ------------ ------------
Accrued interest receivable.......... 2,685,131 2,264,195 1,581,728
------------ ------------ ------------
Other assets......................... 1,654,854 1,496,071 1,352,145
------------ ------------ ------------
Total assets..................... $431,054,548 $416,307,839 $311,872,131
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing................ $ 28,178,279 $ 39,490,083 $ 34,233,722
Interest-bearing................... 31,793,923 26,508,202 26,083,741
Savings and money market deposit
accounts............................ 180,871,333 170,713,032 135,624,494
Other time deposits.................. 143,610,570 128,282,346 89,831,506
------------ ------------ ------------
Total deposits................... 384,454,105 364,993,663 285,773,463
Accrued interest payable............. 994,331 720,874 453,056
Funds borrowed....................... 10,000,000 20,000,000 --
Other liabilities.................... 5,552,114 1,319,654 957,857
------------ ------------ ------------
Total liabilities................ 401,000,550 387,034,191 287,184,376
------------ ------------ ------------
Stockholders' equity:
Preferred stock, 1,000,000 shares
authorized........................
Common stock, without par value;
12,000,000 shares authorized;
3,451,824, 3,431,424 and 3,217,184
shares issued and outstanding in
1999, 1998 and 1997, respectively. 3,451,824 3,431,424 3,217,184
Surplus............................ 22,600,302 22,273,902 19,782,477
Retained earnings.................. 5,853,156 4,912,359 2,165,310
Accumulated other comprehensive
income, net of tax effect......... (58,045) 149,471 29,117
Deferred compensation.............. (843,498) (543,767) (506,333)
Loan to executive officer.......... (949,741) (949,741) --
------------ ------------ ------------
Total stockholders' equity....... 30,053,998 29,273,648 24,687,755
------------ ------------ ------------
Total liabilities and
stockholders' equity............ $431,054,548 $416,307,839 $311,872,131
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1999 and 1998, and
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- -----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees. $5,635,595 $4,624,309 $19,619,603 $16,729,277 $12,151,454
Federal funds sold and
interest-bearing
deposits............. 48,268 498,263 2,181,013 874,981 1,392,465
Securities............ 1,570,161 726,566 3,491,622 2,518,675 2,396,461
---------- ---------- ----------- ----------- -----------
Total interest
income............. 7,254,024 5,849,138 25,292,238 20,122,933 15,940,380
---------- ---------- ----------- ----------- -----------
Interest expense:
Deposits:
Interest-bearing
demand............. 142,080 121,077 487,073 376,833 304,807
Savings and money
market deposit
accounts........... 1,800,196 1,628,727 6,651,280 5,879,689 4,613,396
Other time.......... 1,751,289 1,346,153 6,154,468 3,821,473 2,972,891
Funds borrowed........ 144,420 -- 19,136 2,903 143,026
---------- ---------- ----------- ----------- -----------
Interest expense.... 3,837,985 3,095,957 13,311,957 10,080,898 8,034,120
---------- ---------- ----------- ----------- -----------
Net interest income. 3,416,039 2,753,181 11,980,281 10,042,035 7,906,260
Provision for loan
losses................. 285,000 91,370 361,986 602,991 523,679
---------- ---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses.......... 3,131,039 2,661,811 11,618,295 9,439,044 7,382,581
---------- ---------- ----------- ----------- -----------
Non-interest Income:
Banking and trust
services............. 441,456 273,243 1,280,585 1,210,273 910,786
Securities gains...... -- -- 39,894 -- --
---------- ---------- ----------- ----------- -----------
Total non-interest
income............. 441,456 273,243 1,320,479 1,210,273 910,786
---------- ---------- ----------- ----------- -----------
Non-interest Expense:
Salaries and employee
benefits............. 1,115,449 1,101,860 4,076,523 3,901,662 3,410,676
Occupancy............. 352,051 333,527 1,379,059 1,274,058 990,098
Data processing....... 131,039 120,490 508,181 395,665 334,211
Marketing............. 152,990 138,793 566,960 500,482 424,235
Amortization of
organizational costs. -- -- -- -- 23,295
Professional fees..... 177,796 93,843 560,715 448,441 325,663
Insurance............. 41,415 30,015 134,365 114,955 82,001
Other................. 284,040 181,668 863,539 626,412 508,292
---------- ---------- ----------- ----------- -----------
Total non-interest
expense............ 2,254,780 2,000,196 8,089,342 7,261,675 6,098,471
---------- ---------- ----------- ----------- -----------
Income before income
taxes.............. 1,317,715 934,858 4,849,432 3,387,642 2,194,896
Income tax provision.... 291,132 364,594 1,839,294 1,242,347 761,873
---------- ---------- ----------- ----------- -----------
Net income............ $1,026,583 $ 570,264 $ 3,010,138 $ 2,145,295 $ 1,433,023
---------- ---------- ----------- ----------- -----------
Basic earnings per
share.................. $ .30 $ .18 $ .91 $ .69 $ .49
========== ========== =========== =========== ===========
Diluted earnings per
share.................. $ .28 $ .17 $ .86 $ .65 $ .47
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1999 and
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months Ended -----------------------------------------------------------------------
March 31, 1999 1998 1997 1996
----------------------- ----------------------- ----------------------- -----------------------
Compre- Compre- Compre- Compre-
hensive hensive hensive hensive
Total Income Total Income Total Income Total Income
----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock:
Balance at beginning
of year.............. $ 3,431,424 $ 3,217,184 $ 2,958,272 $ 2,850,672
Issuance of stock..... 20,400 214,240 258,912 107,600
----------- ----------- ----------- -----------
Balance at end of
year................. 3,451,824 3,431,424 3,217,184 2,958,272
----------- ----------- ----------- -----------
Surplus:
Balance at beginning
of year.............. 22,273,902 19,782,477 17,301,302 16,652,652
Issuance of common
stock................ 326,400 2,283,360 2,476,534 648,650
Other................. -- 208,065 4,641 --
----------- ----------- ----------- -----------
Balance at end of
year................. 22,600,302 22,273,902 19,782,477 17,301,302
----------- ----------- ----------- -----------
Retained Earnings
(Deficit):
Balance at beginning
of year.............. 4,912,359 2,165,310 237,373 (1,011,042)
Net income............ 1,026,583 $1,026,583 3,010,138 $3,010,138 2,145,295 $2,145,295 1,433,023 $1,433,023
---------- ---------- ---------- ----------
Dividends paid--
$0.03, $0.08, $0.07
and $0.07 per share
in 1999, 1998, 1997
and 1996,
respectively......... (85,786) (263,089) (217,358) (184,608)
----------- ----------- ----------- -----------
Balance at end of
year................. 5,853,156 4,912,359 2,165,310 237,373
----------- ----------- ----------- -----------
Accumulated Other
Comprehensive Income--
Unrealized Gains
(Losses) on Securities
Available for Sale:
Balance at beginning
of year.............. 149,471 29,117 (56,847) (47,750)
Other comprehensive
income--unrealized
gains (losses) on
securities available
for sale, net of tax
provision (benefit)
of $(132,674),
$76,523, $47,698 and
$(4,685) for the
three months ended
March 31, 1999, and
in 1998, 1997, and
1996, respectively... (207,516) (207,516) 120,354 120,354 85,964 85,964 (9,097) (9,097)
----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Comprehensive income.. $ 819,067 $3,130,492 $2,231,259 $1,423,926
========== ========== ========== ==========
Balance at end of
year................. (58,045) 149,471 29,117 (56,847)
----------- ----------- ----------- -----------
Deferred Compensation:
Balance at beginning
of year.............. (543,767) (506,333) (217,750) --
Awards granted........ (346,800) (187,000) (402,500) (277,500)
Amortization of
deferred
compensation......... 47,068 149,566 98,917 33,500
Other................. -- -- 15,000 26,250
----------- ----------- ----------- -----------
Balance at end of
year................. (843,498) (543,767) (506,333) (217,750)
----------- ----------- ----------- -----------
31,003,739 30,223,389 24,687,755 20,222,350
Loan to Executive
Officer:
Loan to
stockholder/chief
executive officer.... (949,741) (949,741) -- --
----------- ----------- ----------- -----------
Total stockholders'
equity at end of
year............... $30,053,998 $29,273,648 $24,687,755 $20,222,350
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 and
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended December 31,
March 31, March 31, -----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net income............. $ 1,026,583 $ 570,264 $ 3,010,138 $ 2,145,295 $ 1,433,023
------------ ------------ ------------- ------------ ------------
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 135,526 122,731 507,853 472,669 329,013
Amortization of
organization costs.. -- -- -- -- 23,295
Amortization of
deferred
compensation........ 47,068 31,938 149,566 98,917 33,500
Provision for loan
losses.............. 285,000 91,370 361,986 602,991 523,679
Gain on sales of
securities.......... (45,564) -- (39,894) -- --
Increase in deferred
loan fees........... -- -- 347,766 85,684 48,883
(Increase) in
deferred income
taxes............... -- -- (290,700) (440,387) (201,729)
(Increase) in accrued
interest receivable. (420,805) (167,272) (682,467) (145,916) (291,010)
Increase in accrued
interest payable.... 273,457 84,944 267,818 60,881 35,506
Decrease in other
assets.............. (28,012) (366,903) 70,251 77,449 105,579
Increase in other
liabilities......... 4,232,460 368,143 569,862 414,712 691
------------ ------------ ------------- ------------ ------------
Total adjustments.. 4,479,130 164,951 1,262,041 1,227,000 607,407
------------ ------------ ------------- ------------ ------------
Net cash provided
by operating
activities........ 5,505,713 735,215 4,272,179 3,372,295 2,040,430
------------ ------------ ------------- ------------ ------------
Cash Flows From
Investing Activities:
Proceeds from
maturities, pay
downs, and sales of
securities............ 14,917,259 32,628,772 85,390,763 11,255,315 25,658,276
Purchase of securities
available for sale.... (3,456,295) (15,400,000) (136,661,479) (31,888,325) (31,992,943)
Net loan principal
advanced.............. (25,801,143) (5,252,823) (63,820,101) (47,240,005) (45,352,131)
Bank premises and
equipment
expenditures.......... (75,075) (47,393) (191,235) (659,401) (901,638)
------------ ------------ ------------- ------------ ------------
Net cash provided
by (used in)
investing
activities........ (14,415,254) 11,928,556 (115,282,052) (68,532,416) (52,588,436)
------------ ------------ ------------- ------------ ------------
Cash Flows From
Financing Activities:
Net increase in total
deposits.............. 19,460,442 18,886,537 79,220,200 63,202,205 45,702,759
Proceeds from funds
borrowed.............. -- -- 20,000,000 -- 3,000,000
Principal reductions
of funds borrowed..... (10,000,000) -- -- (3,000,000) (700,000)
Issuance of common
stock................. -- 124,200 1,360,859 2,347,946 505,000
Dividends paid......... (85,786) (60,629) (263,089) (217,358) (184,608)
------------ ------------ ------------- ------------ ------------
Net cash provided
by financing
activities........ 9,374,656 18,950,108 100,317,970 62,332,793 48,323,151
------------ ------------ ------------- ------------ ------------
Net Increase (Decrease)
in Cash and Cash
Equivalents............ 465,115 31,613,879 (10,691,903) (2,827,328) (2,224,855)
Cash and Cash
Equivalents at
Beginning of Year...... 15,514,218 26,206,121 26,206,121 29,033,449 31,258,304
------------ ------------ ------------- ------------ ------------
Cash and Cash
Equivalents at End of
Year................... $ 15,979,333 $ 57,820,000 $ 15,514,218 $ 26,206,121 $ 29,033,449
============ ============ ============= ============ ============
Cash Paid During Year
For:
Interest............... $ 3,564,874 $ 3,011,013 $ 13,044,139 $ 10,004,288 $ 7,998,614
Income taxes........... 233,880 $ 88,676 1,826,826 1,562,726 977,432
============ ============ ============= ============ ============
Non-Cash Transactions:
Loan to executive
officer for purchase
of common stock....... $ -- $ -- $ 949,741 $ -- $ --
============ ============ ============= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Accounting Policies:
The consolidated financial statements of PrivateBancorp, Inc. (the
"Company") and Subsidiary have been prepared in conformity with generally
accepted accounting principles and reporting practices prescribed for the
banking industry. A description of the significant accounting policies follows:
a. Consolidation
The consolidated financial statements of the Company and Subsidiary include
the accounts of the Company and its wholly owned subsidiary, The PrivateBank
and Trust Company (the "Bank"). Significant intercompany accounts and
transactions have been eliminated in the preparation of these statements.
b. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one-day periods, but not longer than thirty days.
c. Securities
Securities for which management has the intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Securities available for sale are reported at fair
value, with unrealized gains and losses and applicable income taxes reported as
other comprehensive income in a separate component of stockholders' equity. At
December 31, 1998 and 1997, all securities held were classified as available
for sale.
Premium and discount on securities are included in interest income on
securities over the period from acquisition to maturity or earlier call date
using the straight-line method, the results of which are not materially
different from those obtained using the level-yield method. The specific
identification method is used to record gains and losses on security
transactions.
d. Loans
Loans are generally reported at the principal amount outstanding, net of
unearned income. Loans originated and intended for sale in the secondary market
are classified as held for sale and reported at the lower of cost or market
value.
Loan origination and commitment fees, offset by certain direct loan
origination costs, are being deferred and the net amount amortized as an
adjustment of the related loan's yield. The Company is generally amortizing
these amounts over the contractual life of the related loans.
Loans are placed on nonaccrual status when, in the opinion of management,
there are doubts as to the collectibility of interest or principal, or when
principal or interest is past due 90 days or more and the loan is not well
secured and in the process of collection. All loans classified as nonaccrual
are considered to be impaired. Any shortfall in the estimated value of an
impaired loan compared with the recorded investment of the loan is identified
as an allocated portion of the allowance for loan losses and is one of the
factors
F-7
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
considered by management in their overall assessment of the adequacy of the
allowance for loan losses. Interest previously accrued but not collected is
reversed and charged against interest income at the time the related loan is
placed on nonaccrual status. Interest payments received on impaired loans are
recorded as reductions of principal if principal payment is doubtful.
e. Allowance for Loan Losses
The allowance for loan losses is determined by management based on factors
such as past loan loss experience, known and inherent risks in the loan
portfolio, the estimated value of any underlying collateral, prevailing
economic conditions and other factors and estimates which are subject to change
over time. Management adjusts the allowance for loan losses by recording a
provision for loan losses in an amount sufficient to maintain the allowance at
a level commensurate with the risks in the loan portfolio. Loans are charged
off when deemed to be uncollectible by management.
f. Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
g. Organization Costs
Organization costs incurred by the Company in performing activities
necessary to organize the Bank were amortized on a straight-line basis over a
five-year period beginning February 6, 1991, when the Bank commenced
operations.
h. Income Taxes
The Company accounts for income taxes under an asset and liability approach
with the objective of recognizing the amount of taxes payable or refundable for
the current year and deferred tax assets and liabilities for the future tax
consequences that have been recognized in the Company's financial statements or
tax returns. The measurement of tax assets and liabilities is based on tax
rates in enacted tax laws. Deferred tax assets are reduced, if necessary, by
the amount of such benefits that are not expected to be realized based on
available evidence.
i. Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June, 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under SFAS No. 125, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered and derecognizes liabilities when
extinguished. In December, 1996, the FASB issued SFAS No. 127 "Deferral of
Effective Date of Certain Provisions of FASB Statement No. 125" which delayed
the effectiveness of selected provisions of SFAS No. 125 from January 1, 1997
to January 1, 1998. Management adopted SFAS No. 125 upon its effectiveness on
January 1, 1997 and January 1, 1998 as appropriate. The adoption of these
statements had no effect on the Company's reported consolidated financial
position and the results of operations.
F-8
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
j. Earnings per Share
The Company accounts for and reports earnings per share using a dual
presentation of basic and diluted earnings per share. Basic earnings per common
share are determined by dividing earnings by the weighted average number of
common shares. Dilutive stock options are included as share equivalents using
the treasury stock method in determining diluted earnings per share.
k. Comprehensive Income
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components. The statement requires that components of
comprehensive income, as defined, be reported in a financial statement that is
displayed with the same prominence as other financial statements. Management
adopted SFAS No. 130 in 1998 upon its effectiveness, using the statement of
changes in stockholders' equity approach. The adoption of this statement had no
effect on the Company's reported consolidated financial position and the
results of operations. The 1997 and 1996 consolidated financial statements have
been restated to conform to the SFAS No. 130 principles.
l. Derivatives
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and for Hedging Activities." It requires that all derivatives be
recognized as assets or liabilities on the balance sheet and be measured at
fair value. If certain conditions are met, a derivative may be specifically
designated as a hedging instrument. The statement is effective for fiscal
quarters beginning after June 15, 1999. As the Company and Bank do not own any
derivative instruments, this statement is expected to have no effect on the
Company's reported consolidated financial position and the results of
operations.
m. Use of Estimates in the Preparation of Financial Statements
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 reporting
period. Actual results could differ from these estimates.
n. Reclassifications
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.
o. Interim Financial Information
The accompanying financial statements as of March 31, 1999 and for the three
months ended March 31, 1999 and 1998 are unaudited and in the opinion of
management, reflect all adjustments that are necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the periods then ended. All such adjustments are of a normal and recurring
nature.
F-9
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
2. Operations:
The Company was incorporated under the laws of the State of Delaware on
November 7, 1989. The Bank commenced operations on February 6, 1991, after
having received the approval of various banking regulatory authorities.
The Bank, through its downtown Chicago main office as well as two suburban
branches, provides personal and commercial banking services primarily to
affluent individuals, professionals and their business interests in the Chicago
metropolitan area. In addition to loans and deposits, the Company's services
include trust, investment and insurance products.
3. Earnings Per Share and Stock Split:
The following table contains a reconciliation of the numerators and
denominators used in the computation of basic and diluted earnings per share
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
----------- -------------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1998
Basic Earnings Per Share--Income
available to common stockholders. $3,010,138 3,313,092 $.91
====
Effect of Dilutive Stock Options.. -- 201,436
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $3,010,138 3,514,528 $.86
========== ========= ====
Year Ended December 31, 1997
Basic Earnings Per Share--Income
available to common stockholders. $2,145,295 3,124,464 $.69
====
Effect of Dilutive Stock Options.. -- 161,408
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $2,145,295 3,285,872 $.65
========== ========= ====
Year Ended December 31, 1996
Basic Earnings Per Share--Income
available to common stockholders. $1,433,023 2,939,040 $.49
====
Effect of Dilutive Stock Options.. -- 113,984
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $1,433,023 3,053,024 $.47
========== ========= ====
</TABLE>
On June 25, 1998, the Company's stockholders approved an eight-for-one
common stock split to be distributed in the form of a stock dividend. As a
result of this action, 1,446,473 shares were issued to stockholders of record
on June 25, 1998. Additionally, stated value was changed from $20 to $2.50 per
share, leaving the Company's common stock account unchanged. All references to
number of shares, per share amounts and stock option data in the consolidated
financial statements have been adjusted to reflect the stock split on a
retroactive basis.
F-10
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
4. Securities:
The amortized cost and the estimated fair value of securities as of December
31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1998--
Available for Sale--
U.S. Treasuries......... $ 6,020,730 $ 73,333 $ -- $ 6,094,063
States and political
subdivisions........... 37,709,337 227,188 (132,097) 37,804,428
Collateralized mortgage
obligations............ 61,357,858 117,435 (61,016) 61,414,277
Corporate securities.... 10,242,935 19,565 -- 10,262,500
------------ -------- --------- ------------
Total debt securities... 115,330,860 437,521 (193,113) 115,575,268
Equity securities....... 1,315,471 -- -- 1,315,471
------------ -------- --------- ------------
$116,646,331 $437,521 $(193,113) $116,890,739
============ ======== ========= ============
December 31, 1997--
Available for Sale--
U.S. Treasury and U.S.
Government agencies.... $ 35,948,802 $ 22,365 $ (9,917) $ 35,961,250
Collateralized mortgage
obligations............ 10,501,933 4,256 (93,456) 10,412,733
Corporate securities.... 18,145,287 125,650 (1,368) 18,269,569
------------ -------- --------- ------------
Total debt securities... 64,596,022 152,271 (104,741) 64,643,552
Equity securities....... 739,700 -- -- 739,700
------------ -------- --------- ------------
$ 65,335,722 $152,271 $(104,741) $ 65,383,252
============ ======== ========= ============
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because obligors may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Due within one year............................ $ 6,196,706 $ 6,235,547
Due after one year through five years.......... 2,624,825 2,659,654
Due after five years through ten years......... 8,781,479 8,817,549
Due after ten years............................ 97,727,850 97,862,518
Equity securities.............................. 1,315,471 1,315,471
------------ ------------
$116,646,331 $116,890,739
============ ============
</TABLE>
During 1998, securities were sold for total proceeds of $13,886,279,
resulting in a net gain of $39,894. No securities were sold in 1997 or 1996.
The other comprehensive income--unrealized gain on securities available for
sale is presented on a net basis on the Consolidated Statements of Changes in
Stockholders' Equity. The following table discloses
F-11
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
changes in other comprehensive income for 1998 on a gross basis. As there were
no sales of securities in 1997 or 1996, the gross and net presentations for
these years are the same.
<TABLE>
<CAPTION>
1998
-----------------------------
Before tax Tax Net of Tax
amount Expense Amount
---------- ------- ----------
<S> <C> <C> <C>
Unrealized Gains on Securities Available
for Sale--
Unrealized holding gains................. $236,771 $92,032 $144,739
Less: reclassification adjustment for
gain included in net income............. 39,894 15,509 24,385
-------- ------- --------
Net unrealized gains....................... $196,877 $76,523 $120,354
======== ======= ========
</TABLE>
At December 31, 1998, securities carried at $35,319,869 were pledged to
secure public and trust deposits and for other purposes as required or
permitted by law.
Equity securities consist of Federal Home Loan Bank of Chicago capital stock
and Neighborhood Housing Services certificates. These securities do not have a
readily determinable fair value for purposes of SFAS No. 115 since their
ownership is restricted and they lack a market. Accordingly, such securities
are carried at an amount equal to cost.
In the opinion of management, there were no investments in securities at
December 31, 1998, which constituted an unusual credit risk for the Company.
5. Loans:
Amounts outstanding by selected loan categories at December 31, 1998 and
1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Real estate--
Residential................................... $ 47,746,331 $ 54,129,790
Commercial.................................... 94,392,491 55,429,205
Construction.................................. 22,407,610 10,140,104
Commercial...................................... 46,799,787 33,862,056
Personal........................................ 64,194,340 62,756,792
Held for sale................................... 6,424,337 2,176,600
------------ ------------
$281,964,896 $218,494,547
============ ============
</TABLE>
Loans held for sale are residential real estate loans intended to be sold in
the secondary market. Under the Bank's sales program, such loans are sold at
face value. No lower-of-cost-or-market adjustments were required at December
31, 1998 or 1997.
There were no loans on which the accrual of interest has been discontinued
(impaired loans) at December 31, 1998 and 1997, respectively, as well as at any
time during 1998. The average balance of impaired loans and the related amount
of interest income recognized while such loans were impaired amounted to $2,272
and $0 in 1997.
F-12
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
6. Allowance for Loan Losses:
The changes in the allowance for loan losses for the three years ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance..................... $3,050,000 $2,450,000 $1,955,000
Loans charged off..................... (1,986) (2,991) (28,679)
Provision for loan losses............. 361,986 602,991 523,679
---------- ---------- ----------
Ending balance........................ $3,410,000 $3,050,000 $2,450,000
========== ========== ==========
</TABLE>
There were no impaired loans at December 31, 1998 and 1997.
7. Bank Premises and Equipment:
Bank premises and equipment at December 31, 1998 and 1997, consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment.................. $2,408,164 $2,230,145
Leasehold improvements............................. 1,344,354 1,331,138
---------- ----------
3,752,518 3,561,283
Accumulated depreciation and amortization.......... 2,164,798 1,656,945
---------- ----------
$1,587,720 $1,904,338
========== ==========
</TABLE>
Included in occupancy expense in the consolidated statements of income is
depreciation and amortization expense of $507,853, $472,669 and $329,013 for
1998, 1997 and 1996, respectively.
The Bank leases its main banking facility and branch facilities under
noncancellable operating lease agreements. The minimum annual rental
commitments under these leases, at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999.......................... $ 338,527
2000.......................... 319,907
2001.......................... 330,456
2002.......................... 244,404
2003.......................... 254,952
2004 and thereafter........... 689,022
----------
$2,177,268
==========
</TABLE>
Total rent expense included in the consolidated statements of income was
$635,761, $601,461, and $494,757 for 1998, 1997, and 1996, respectively.
F-13
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
8. Income Taxes:
The components of total income tax provision in the consolidated statements
of income for the years ended December 31, 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Income tax provision--
Current--
Federal............................. $1,758,748 $1,609,697 $963,602
State............................... 371,246 73,037 --
---------- ---------- --------
2,129,994 1,682,734 963,602
---------- ---------- --------
Deferred--
Federal............................. (255,235) (298,018) (201,729)
State............................... (35,465) (142,369) --
---------- ---------- --------
(290,700) (440,387) (201,729)
---------- ---------- --------
Total............................. $1,839,294 $1,242,347 $761,873
========== ========== ========
</TABLE>
The tax effect of fair value adjustments on securities available for sale is
recorded directly to other comprehensive income in a separate component of
stockholders' equity. The net tax provision (benefit) recorded directly to
other comprehensive income amounted to $76,523, $47,698, and $(4,685) in 1998,
1997 and 1996, respectively.
A summary reconciliation of the differences between the total income tax
provision (benefit) and the amounts computed at the statutory federal tax rate
of 34% for the years ended December 31, 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Income tax provision at statutory
federal income tax rate................ $1,648,806 $1,151,798 $746,265
Increase (decrease) in taxes resulting
from:
Tax exempt income..................... (67,264) -- --
State income taxes.................... 221,615 6,525 --
Other................................. 36,137 84,024 15,608
---------- ---------- --------
Total............................... $1,839,294 $1,242,347 $761,873
========== ========== ========
</TABLE>
F-14
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
A net deferred tax asset is included in other assets in the consolidated
balance sheet as a result of temporary differences between the carrying amounts
of assets and liabilities in the financial statements and their related tax
bases. The components of the net deferred tax asset as of December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Gross deferred tax assets--
Allowance for loan losses....................... $1,182,193 $1,041,960
Leasehold improvements.......................... 231,316 159,524
Amortization of restricted stock................ 109,240 51,298
Other........................................... 51,829 36,434
---------- ----------
1,574,578 1,289,216
Valuation allowance............................... -- --
---------- ----------
Gross deferred tax assets......................... 1,574,578 1,289,216
Gross deferred tax liabilities.................... (215,233) (144,048)
---------- ----------
Net deferred tax asset............................ $1,359,345 $1,145,168
========== ==========
</TABLE>
9. Funds Borrowed:
As of December 31, 1998, funds borrowed consisted of a $20 million FHLB term
note, with an interest rate of 5.20%. The term note matured on January 7, 1999.
There were no funds borrowed as of December 31, 1997.
10. Employee Benefit and Incentive Plans:
a. Savings and Profit Sharing Plan
The Bank maintains The PrivateBank and Trust Company Savings and Profit
Sharing Plan (the "Plan") pursuant to Section 401(k) of the Internal Revenue
Code, whereby eligible employees may contribute a percentage of compensation,
but not in excess of the maximum amount allowed under the Code. The Bank can
make discretionary contributions to the Plan as determined and approved by the
Bank's Board of Directors. Total discretionary contributions to the Plan
amounted to $61,462, $47,001, and $43,130 in 1998, 1997 and 1996, respectively.
b. Stock Options
Pursuant to initial stockholder stock option agreements as amended, the
Company granted to each initial stockholder an option to purchase up to the
number of shares equal to that number of shares purchased by the investor in
the initial offering at an exercise price of $6.25 per share. All 80,800 shares
reserved for issuance to these initial stockholders were issued by the Company
in January and February, 1996, upon the exercise of these option agreements.
The Company has stock options outstanding under its Stock Incentive Plan, a
director stock option program and certain compensation replacement options.
As in effect as of December 31, 1998, the Stock Incentive Plan allows up to
15% of the then number of common shares issued and outstanding, plus an
additional 136,000 shares, to be issued under the Plan either pursuant to the
exercise of stock options granted thereunder or as restricted stock awards. The
option price may not be less than the fair market value on the date of grant.
All options have a term of 10 years. Options granted
F-15
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
in 1998 are first exercisable five years from the date of grant or up to two
years earlier if certain conditions for total stockholder return are met.
Options granted in 1997 and prior are first exercisable beginning at least two
years following the date of grant.
Since 1992 the Company has compensated non-employee directors with annual
option grants. The option price of the director options is fair market value
on the date of grant, and the exercise period is 10 years from the date of
grant.
In 1992, the Company granted compensation replacement options to certain
officers of the Company who agreed to reduced cash compensation. The option
price is the fair market value on the date of grant. The compensation
replacement options are exercisable during a 10-year period from the date of
grant.
The following table summarizes the status of the Company's stock option
agreements and stock option program as of December 31, 1998 and 1997, and
changes during the years then ended:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ 543,168 $ 7.57 523,264 $ 7.38
Granted............... 80,960 17.19 35,360 11.00
Exercised............. (81,920) 7.02 (15,456) 6.25
Forfeited............. -- --
------- ------ ------- ------
Outstanding at end of
year................... 542,208 $ 9.09 543,168 $ 7.57
======= ====== ======= ======
Options exercisable at
year-end............... 433,808 425,168
======= =======
Weighted average fair
value of options
granted during the
year................... $17.19 $11.00
</TABLE>
The range of exercise prices and weighted average remaining contractual
life for stock options outstanding as of December 31, 1998, was $6.25-$17.19
and 7 years, respectively.
The Company applies APB Opinion 25 in accounting for stock-based
compensation. Accordingly, no compensation expense has been recognized for its
stock option program. Had compensation expense for stock options been
determined based on the fair value at the grant dates for awards under the
stock option program consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income--
As reported........................... $3,010,138 $2,145,295 $1,433,023
Pro forma............................. 2,869,569 1,996,145 1,282,268
========== ========== ==========
Basic earnings per share--
As reported........................... $ .91 $ .69 $ .49
Pro forma............................. .87 .64 .44
Diluted earnings per share--
As reported........................... $ .86 $ .65 $ .47
Pro forma............................. .82 .61 .42
========== ========== ==========
</TABLE>
F-16
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
In determining the fair value of each option grant for purposes of the above
pro forma disclosures, the Company used an option pricing model with the
following assumptions for grants in 1998 and 1997, respectively: dividend yield
of 0.6% and 0.7% for 1998 and 1997 respectively; risk-free interest rate of
6.0% for both years; and expected lives for both years of 10 years for the
Stock Incentive Plan options, 10 years for the compensation replacement options
and 10 years for the various director options.
c. Restricted Stock
In 1998 and 1997, the Company issued 13,600 and 36,800 shares, respectively,
of restricted stock under the Stock Incentive Plan. These shares had a fair
value of $13.75 and $10.94 per share, respectively, as of the grant date.
During 1997, 1,600 restricted shares were forfeited. These shares carry voting
and dividend rights. Sale of the shares is restricted prior to vesting. Subject
to continued employment, vesting occurs five years from the date of grant.
Shares issued under the plan are recorded at their fair market value on the
date of grant with a corresponding charge to deferred compensation. The
deferred compensation, a component of stockholders' equity, is being amortized
as compensation expense on a straight-line basis over the vesting period.
Included in salaries and employee benefits in the consolidated statements of
income is compensation expense for restricted shares of $149,566, $98,917, and
$33,500 for 1998, 1997, and 1996 respectively.
11. Related-Party Transactions:
An analysis of loans made to directors and executive officers of the Company
and the Bank follows:
<TABLE>
<S> <C>
Balance, December 31, 1997................................... $11,308,339
Additions.................................................. 3,226,741
Collections................................................ (3,791,197)
-----------
Balance, December 31, 1998................................... $10,743,883
===========
</TABLE>
Directors and executive officers of the Company and Bank were clients of and
had transactions with the Bank in the ordinary course of business during the
period presented above and additional transactions may be expected in the
future. In management's opinion, all outstanding loans, commitments and deposit
relationships included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and did not involve more than a normal
risk of collectibility or other unfavorable features.
In addition to the loans reflected above, in June, 1998, the Company made a
$949,741 loan to the chief executive officer of the Company and the Bank, the
proceeds of which were put towards the purchase of $1 million of common stock
of the Company. The loan has a five year term but is payable sooner under
certain conditions. The loan bears interest at the rate of 5.69% per annum.
Provided that the officer remains employed by the Bank, the loan agreement
calls for forgiveness of 0% up to 100% of the interest based on how many years
the loan remains outstanding. The loan is reflected in the consolidated
financial statements as a reduction in stockholders' equity.
The Company is the general partner in a partnership for investment purposes.
Through a contractual arrangement, the Bank's trust department maintains the
partnership's records and earns an administrative fee from the partnership.
During 1998, the Bank began offering insurance products to its clients
through a strategic alliance with a Chicago based financial services firm which
is a stockholder of the Company. In addition, this financial
F-17
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
services firm serves as an insurance agency in coordinating certain insurance
coverage for the Company and Bank. During 1998, the Bank earned commission
revenue of $5,761 for referred business and paid $131,690 in fees to this
financial services firm for insurance and related services.
During 1998 and 1997, the Bank acquired selected furniture with a total cost
of $2,655 and $71,875, respectively, through related parties.
The Bank incurred professional fees in 1998, 1997 and 1996 for services
provided by one law firm, whose partner is a director of the Company and the
Bank.
12. Credit-Related Instruments:
The Company has, through its subsidiary Bank, credit-related instruments
with off-balance-sheet risk in the normal course of business to meet the
financing needs of its clients. These financial instruments include commitments
to extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated financial statements. Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties failed to
completely perform as contracted.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments, assuming that the amounts are fully advanced and that collateral
or other security is of no value. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments. At December 31, 1998 and 1997, the Bank had the following
categories of credit-related financial instruments (at contract amount):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commitments to extend credit..................... $97,487,444 $67,184,442
Standby letters of credit........................ 10,147,140 2,971,656
</TABLE>
Commitments to extend credit are agreements to lend to a client as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each client's
creditworthiness on a cash-by-case basis. The amount of collateral obtained, if
deemed necessary, upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a client to a third party. Those guarantees are
primarily issued to support commercial business activities of Bank clients. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to clients. The Bank holds
collateral supporting those commitments for which collateral is deemed
necessary.
13. Concentrations of Credit Risk:
Loan concentrations are defined as amounts loaned to a multiple number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. The Bank grants
F-18
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
loans to clients located primarily in the metropolitan Chicago area. There are
no other significant concentrations of loans and commitments to make loans
other than the categories of loans disclosed in Note 5.
14. Estimated Fair Value of Financial Instruments:
The following presents the carrying value and estimated fair value of the
various classes of financial instruments, all nontrading, held by the Company,
through its subsidiary Bank, at December 31, 1998 and 1997. This information is
presented solely for compliance with SFAS No. 107 and is subject to change over
time based on a variety of factors. Because no active market exists for a
significant portion of the financial instruments presented below and the
inherent imprecision involved in the estimation process, management does not
believe the information presented reflects the amounts that would be received
if the Company's assets and liabilities were sold nor does it represent the
fair value of the Company as an entity.
Where possible, the Company has utilized quoted market prices to estimate
fair value. Since quoted market prices were not available for a significant
portion of the financial instruments, the fair values were approximated using
discounted cash flow techniques. Fair value estimates are made at a specific
point in time, based on judgments regarding future expected loss experience,
current economic conditions, risk conditions, risk characteristics of various
financial instruments and other factors. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets--
Cash and cash
equivalents.......... $ 15,514,218 $ 15,514,218 $ 26,206,121 $ 26,206,121
Securities............ 116,890,739 116,890,739 65,383,252 65,383,252
Net loans............. 278,554,896 281,547,896 215,444,547 216,343,547
Accrued interest
receivable........... 2,264,195 2,264,195 1,581,728 1,581,728
Liabilities--
Deposits with no
stated maturity...... 236,711,317 236,711,317 195,941,957 195,941,957
Time deposits......... 128,282,346 128,506,346 89,831,506 89,905,506
------------ ------------ ------------ ------------
Total deposits...... 364,993,663 365,217,663 285,773,463 285,847,463
------------ ------------ ------------ ------------
Accrued interest
payable................ 720,874 720,874 453,056 453,056
Funds borrowed.......... 20,000,000 20,000,000 -- --
============ ============ ============ ============
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. These assumptions were based on
subjective estimates of market conditions and perceived risks of the financial
instruments at a certain point in time.
a. Cash and Cash Equivalents, Accrued Interest Receivable and Interest Payable
For these short-term instruments, the carrying value approximates fair value
because these instruments are short-term in nature and do not present
unanticipated credit concerns.
F-19
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
b. Securities
For securities held to maturity or available for sale, fair values are based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
instruments.
c. Net Loans
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the Company's and the industry's historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions.
Fair value for significant nonaccrual (impaired) loans is based on estimated
cash flows which are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgmentally determined using available
market information and specific borrower information.
d. Deposit Liabilities
The fair value of deposits with no stated maturity, such as non-interest-
bearing deposits, interest-bearing deposits, savings and money market deposit
accounts, is equal to the amount payable on demand as of year-end. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
e. Funds Borrowed
Rates currently available to the Company and Bank for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
f. Unrecognized Financial Instruments
The fair value of unrecognized financial instruments, including commitments
to extend credit, standby letters of credit and financial guarantees, is
insignificant and, therefore, not presented.
15. Regulatory Requirements:
The Bank is subject to federal and state laws, which restrict the payment of
dividends to the Company. Based on these restrictions, at January 1, 1999, the
Bank could have declared approximately $6,954,418 in dividends without
requesting approval of the applicable federal or state regulatory agency.
The Bank is required to maintain noninterest-bearing cash balances with the
Federal Reserve based on the types and amounts of deposits held. During 1998
and 1997, the average balances maintained to meet the requirement were $829,000
and $649,000, respectively.
The Company and Bank are subject to various regulatory capital requirements
as established by the applicable federal or state banking regulatory
authorities. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that
F-20
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items. The quantitative measures for capital adequacy
require the Company and Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk weighted assets and of Tier 1 capital to average
assets (leverage). The Company's and Bank's capital components,
classification, risk weightings and other factors are also subject to
qualitative judgments by regulators. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements. Management
believes that as of December 31, 1998, the Company and Bank meet all minimum
capital adequacy requirements to which they are subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action and management believes that no events or changes in
conditions have occurred subsequent to such notification to change the Bank's
category.
The following table presents selected capital information for the Company
(Consolidated) and Bank as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------------- -------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- ------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998--
Total risk-based capital--
Consolidated............ $34,978 11.53% $24,274 8.00%
Bank.................... 31,473 10.41 24,188 8.00 $30,235 10.00%
Tier 1 risk-based
capital--
Consolidated............ 31,568 10.40% 12,137 4.00%
Bank.................... 28,063 9.29 12,094 4.00 18,141 6.00%
Tier 1 (leverage)
capital--
Consolidated............ 31,568 7.88% 16,018 4.00%
Bank.................... 28,063 7.27 15,456 4.00 19,320 5.00%
As of December 31, 1997--
Total risk-based capital--
Consolidated............ $28,159 11.75% $19,165 8.00%
Bank.................... 25,837 10.79 19,164 8.00 23,955 10.00%
Tier 1 risk-based
capital--
Consolidated............ 25,164 10.50% 9,582 4.00%
Bank.................... 22,843 9.54 9,582 4.00 14,373 6.00%
Tier 1 (leverage)
capital--
Consolidated............ 25,164 8.70% 11,563 4.00%
Bank.................... 22,843 8.16 11,208 4.00 14,011 5.00%
</TABLE>
16. Operating Segments:
As noted in Note 2, the Bank provides personal and commercial banking
services to affluent individuals, professionals and their business interests
in the Chicago metropolitan area. Such services include loans, deposit
instruments, investments, and trust services. For purposes of making operating
decisions and assessing performance, management treats the Company and Bank as
one operating segment.
F-21
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
The financial information contained in the Company's consolidated financial
statements, such as net interest income, other income, net income and total
assets, is used by management as a key input in evaluating the performance of
the Company and Bank on an aggregate basis.
17. Contingent Liabilities
Because of the nature of its activities, the Company is from time to time
involved in legal actions that arise in the normal course of business. In the
judgment of management, after consultation of legal counsel, none of the
litigation to which the Company or its subsidiary is a party will have a
material effect, either individually or in the aggregate, on the consolidated
financial position or results of operations.
18. Privatebancorp, Inc. (Parent Company Only)--Condensed Financial Statements:
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Cash and due from banks--bank subsidiary............... $ 668,753 $ 1,766,193
Investment in bank subsidiary.......................... 28,269,290 22,871,969
Other assets........................................... 353,350 67,149
----------- -----------
Total assets....................................... $29,291,393 $24,705,311
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Other liabilities...................................... $ 17,745 $ 17,556
----------- -----------
Total liabilities...................................... 17,745 17,556
Stockholders' equity................................... 29,273,648 24,687,755
----------- -----------
Total liabilities and stockholders' equity......... $29,291,393 $24,705,311
=========== ===========
</TABLE>
F-22
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating income:
Interest income--other................... $ 31,523 $ -- $ --
Total.................................. 31,523 -- --
---------- ---------- ----------
Operating expense:
Amortization of deferred compensation.... 149,566 98,917 33,500
Amortization of organization costs....... -- -- 23,295
Other.................................... 225,853 67,974 23,788
---------- ---------- ----------
Total.................................. 375,419 166,891 80,583
---------- ---------- ----------
(Loss) before income taxes and equity
in undistributed net income of bank
subsidiary............................ (343,896) (166,891) (80,583)
Income tax (benefit)....................... (134,119) (56,743) (34,546)
---------- ---------- ----------
(Loss) before equity in undistributed
net income of bank subsidiary......... (209,777) (110,148) (46,037)
---------- ---------- ----------
Equity in undistributed net income of bank
subsidiary................................ 3,219,915 2,255,443 1,479,060
---------- ---------- ----------
Net income............................. $3,010,138 $2,145,295 $1,433,023
========== ========== ==========
</TABLE>
The Parent Company Only Statements of Changes in Stockholders' Equity are
the same as the Consolidated Statements of Changes in Stockholders' Equity.
F-23
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 3,010,138 $ 2,145,295 $ 1,433,023
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities--
Equity in net income of bank
subsidiary......................... (3,219,915) (2,255,443) (1,479,060)
Amortization of organization costs.. -- -- 23,295
Amortization of deferred
compensation....................... 149,566 98,917 33,500
(Increase) decrease in other assets. (135,187) (57,731) 2,474
Increase (decrease) in other
liabilities........................ 189 49,593 (27,398)
----------- ----------- -----------
Total adjustments................. (3,205,347) (2,164,664) (1,447,189)
----------- ----------- -----------
Net cash (used in) operating
activities....................... (195,209) (19,369) (14,166)
----------- ----------- -----------
Cash flows from investing activities:
Net (increase) in capital investments
in bank subsidiary................... (2,000,000) (2,000,000) --
----------- ----------- -----------
Net cash (used in) investing
activities........................... (2,000,000) (2,000,000) --
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock.............. 1,360,859 2,347,946 505,000
Dividends paid........................ (263,090) (217,358) (184,608)
----------- ----------- -----------
Net cash provided by financing
activities....................... 1,097,769 2,130,588 320,392
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (1,097,440) 111,219 306,226
Cash and cash equivalents at beginning
of year................................ 1,766,193 1,654,974 1,348,748
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 668,753 $ 1,766,193 $ 1,654,974
=========== =========== ===========
Other cash flow disclosures:
Income tax payment (receipt).......... $ 1,826,826 $ 1,562,726 $ 977,432
=========== =========== ===========
Non-cash transactions:
Loan to executive officer for purchase
of common stock...................... $ 949,741 $ -- $ --
=========== =========== ===========
</TABLE>
F-24
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
December 31, 1998 and 1997
19. Subsequent Event:
During March and April, 1999, the Company's Board of Directors and
stockholders approved an increase in the number of authorized shares to
12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
Board also approved a change in the per share stated value of the common stock
from $2.50 to $1.00 per share, and declared a two-for-one common stock split to
be effected in the form of a stock dividend. Such change in authorized shares
and change in stated value became effective prior to the effectiveness of the
registration statement covering the Company's initial public offering. The
stock split became effective on June 24, 1999 when the Company's Board of
Directors declared that the two-for-one common stock split be payable on June
28, 1999 to stockholders of record as of the close of business on June 25,
1999. All references to number of shares, per share amounts and stock option
data in the consolidated financial statements have been adjusted to reflect the
stock split on a retroactive basis.
F-25
<PAGE>
[Logo of PrivateBancorp, Inc.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Company in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
SEC registration fee............................................ $ 5,180
NASD filing fee................................................. 2,363
Nasdaq listing fee.............................................. 63,725
Printing expenses............................................... 120,000
Accounting fees and expenses.................................... 80,000
Legal fees and expenses......................................... 350,000
Blue Sky fees and expenses...................................... 2,500
Transfer agent and Registrar's fees............................. 5,000
Postage and other miscellaneous costs........................... 121,232
--------
Total....................................................... $750,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law grants each corporation
organized thereunder the powers to indemnify any individual made party or
threatened to be made party to any threatened, pending or completed action,
suit or proceeding because the individual is or was a director, officer,
employee or agent of the corporation, against actual and reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred with respect to an action, suit or proceeding if the individual acted
in good faith, and the individual reasonably believed: (a) that the
individual's conduct was in the corporation's best interests; (b) that the
individual's conduct was at least not opposed to the corporation's best
interests; and (c) in the case of any criminal proceeding, that the individual
had no reasonable cause to believe the individual's conduct was unlawful.
However, there will be limited or no indemnification for directors, officers,
employees or agents adjudged to be liable to the corporation where such
individuals are parties to any action by or in the right of the corporation.
Article Ninth of the Company's Restated Certificate of Incorporation
provides as follows:
Ninth: The Corporation shall indemnify, to the full extent that it shall
have power under applicable law to do so and in a manner permitted by such
law, any person made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Corporation against liabilities and expenses
reasonably incurred or paid by such person in connection with such action,
suit or proceeding. The Corporation may indemnify, to the full extent that
it shall have power under applicable law to do so and in a manner permitted
by such law, any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is
or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liabilities and expenses reasonably incurred or paid by such person
in connection with such action, suit or proceeding. The words "liabilities"
and "expenses" shall include, without limitation: liabilities, losses,
damages, judgments, fines, penalties, amounts paid in settlement, expenses,
attorneys' fees and costs. The indemnification provided by this Article
NINTH shall not be deemed exclusive of any other rights to which any person
indemnified may be
II-1
<PAGE>
entitled under any statute, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any
person referred to in the preceding paragraph against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article NINTH or otherwise.
For purposes of this Article NINTH, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation
if its separate existence had continued.
The provisions of this Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this Article and the relevant provisions of the
General Corporation Law of the State of Delaware or other applicable law,
if any, are in effect, and any repeal or modification of any such law or of
this Article shall not affect any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon any such state of facts.
For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner not opposed to the best interests of the
Corporation.
Article XI of the Amended and Restated By-laws of the Company provides as
follows:
Section 11.1 Third-Party Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, including all appeals
(other than an action by or in the right of the Corporation) by reason of
the fact that the person is or was a director, officer, employee, or agent
of the Corporation, or is or was serving at the request of the Corporation
as a director, trustee, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgment, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with the
action, suit, or proceeding; if the person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or on a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner that he or she reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
II-2
<PAGE>
Section 11.2 Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit, including all appeals, by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, actually and reasonably
incurred by the person in connection with the defense or settlement of the
action or suit, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation. However, no indemnification shall be made in respect of any
claim, issue, or matter as to which the person is adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the court of common pleas or
the court in which the action or suit was brought determines on application
that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for expenses that the court of common pleas or other court shall
deem proper.
Section 11.3 Rights After Successful Defense. To the extent that a
director, trustee, officer, employee, or agent has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred
to in Section 11.1 or 11.2, above, or in defense of any claim, issue, or
matter in that action, suit, or proceeding, he or she shall be indemnified
against expenses, including attorneys' fees, actually and reasonably
incurred by him or her in connection with the action, suit, or proceeding.
Section 11.4 Other Determination of Rights. Unless ordered by a court,
any indemnification made under Section 11.1 or 11.2, above, shall be made
by the Corporation only as authorized in the specific case on a
determination that indemnification of the director, trustee, officer,
employee, or agent is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in Section 11.1 or 11.2,
above. The determination shall be made (a) by a majority vote of a quorum
consisting of directors who were not and are not parties to or threatened
with the action, suit, or proceeding; (b) if the described quorum is not
obtainable or if a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; (c) by the
stockholders; or (d) by the court in which the action, suit, or proceeding
was brought.
Section 11.5 Advances of Expenses. Expenses of each person seeking
indemnification under Section 11.1 or 11.2, above, may be paid by the
Corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding, as authorized by the Board of Directors in
the specific case, on receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay the amount if it is
ultimately determined that he or she is not entitled to be indemnified by
the Corporation.
Section 11.6 Nonexclusiveness; Heirs. The indemnification provided by
this Article shall not be deemed exclusive of, and shall be in addition to,
any other rights to which those seeking indemnification may be entitled as
a matter of law or under the Certificate of Incorporation, these By-Laws,
any agreement, vote of stockholders, any insurance purchased by the
Corporation, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding that office,
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of that person.
The effect of the foregoing provisions of the Delaware General Corporation
Law, the Company's Restated Certificate of Incorporation and Amended and
Restated By-laws would be to permit such indemnification of officers and
directors by the Company for liabilities arising under the Securities Act of
1933.
We have entered into indemnification agreements with our directors and
executive officers to indemnify them against certain liabilities. Consistent
with the provisions of our Restated Certificate of Incorporation and Amended
and Restated By-laws, under the terms of the agreements, we will indemnify our
directors and executive officers to the fullest extent permitted under
applicable law against all expenses, liabilities and losses incurred in
connection with any legal proceeding brought against any of them by reason of
their status as
II-3
<PAGE>
directors, officers, employees, agents or fiduciaries of the company. The
expenses, liabilities and losses which we are obligated to pay may include
judgments, fines and amounts paid in settlement of such legal proceedings by
our directors and executive officers so long as they acted in good faith and in
a manner which they reasonably believed was in the best interests of the
company.
The Company has purchased $10 million of insurance policies which insure the
Company's directors and officers against liability which they may incur as a
result of actions taken in such capacities. In addition, the Company maintains
trust errors and omissions coverage up to a limit of $10 million.
Under its agreement with the Underwriters, the Company has agreed to
indemnify the Underwriters against certain civil liabilities under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities.
Since January 1, 1996, we have sold the following unregistered securities:
In April 1996, the Company issued an aggregate of 25,200 shares of
common stock in restricted stock grants to certain key employees pursuant
to the Stock Incentive Plan. Such shares are subject to forfeiture under
certain circumstances, and will fully vest on April 24, 2001.
In April 1997, the Company issued an aggregate of 36,800 shares of
common stock in restricted stock grants to certain key employees pursuant
to the Stock Incentive Plan. Such shares are subject to forfeiture under
certain circumstances, and will fully vest on April 24, 2002.
In May 1997, the Company sold an aggregate of 208,256 shares of common
stock in a private placement offering to accredited investors and received
net proceeds of $2,251,347 from the sale.
In May 1998, the Company issued 72,720 shares of the Company's common
stock in a sale to Mr. Mandell, the Company's Chairman of the Board,
President and Chief Executive Officer, for a total purchase price of
$999,900.
In June 1998, the stockholders of the Company approved an eight-for-one
stock split to be distributed in the form of a seven-for-one stock
dividend. As a result, 2,892,946 shares of common stock were issued to
stockholders of record on June 25, 1998, in reliance on the no-sale theory.
In June 1998, the Company issued an aggregate of 13,600 shares of common
stock in restricted stock grants to certain key employees pursuant to the
Stock Incentive Plan. Such shares are subject to forfeiture under certain
circumstances, and will fully vest on June 25, 2003.
In December 1998, the Company sold 26,000 shares of common stock to a
corporation and 20,000 shares of common stock to an individual. The Company
received aggregate consideration of $736,000 in connection with these
sales.
In March 1999, the Company issued an aggregate of 20,400 shares of
common stock in restricted stock grants to certain key employees pursuant
to the Stock Incentive Plan. Such shares are subject to forfeiture under
certain circumstances, and will fully vest on March 25, 2004.
From time to time, the Company has granted options to certain employees
and directors. Since January 1, 1996, the options to purchase an aggregate
of 280,520 shares of the Company's common stock have been granted pursuant
to the Company's Stock Plans.
Except as otherwise noted, each of these sales was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, Regulation D, or Rule 701 of the Securities Act, as
transactions by an issuer not involving a public offering, or transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof, and appropriate
legends were affixed to share certificates and instruments issued in such
transactions.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits filed as a part of this Registration Statement are as
follows:
<TABLE>
<C> <S> <C>
1.1 Form of Underwriting Agreement by and between
PrivateBancorp, Inc. and EVEREN Securities, Inc. and
Stifel, Nicolaus & Company, Incorporated.
3.1 Amended and Restated Certificate of Incorporation of
PrivateBancorp, Inc.*
3.2 [Intentionally left blank.]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Vedder, Price, Kaufman & Kammholz re: legality.
10.1 Lease Agreement for banking facility located at Ten North
Dearborn, Chicago, Illinois dated January 1, 1992, as
amended, by and between General American Life Insurance
Company as successor-in-interest to LaSalle National
Trust, N.A., as successor trustee to LaSalle National
Bank, not personally but as Trustee under Trust Agreement
dated November 6, 1985 and known as Trust No. 110519 and
The PrivateBank and Trust Company.
10.2 Lease Agreement for banking facility located at 1603 West
Sixteenth Street, Oak Brook, Illinois dated October ,
1996 by and between Columbia Lisle Limited Partnership and
The PrivateBank and Trust Company.
10.3 Lease Agreement for banking facility located at 517 Green
Bay Road, Wilmette, Illinois dated as of May 2, 1994 by
and between Gunnar H. Hedlund, Doris S. Hedlund, Robert P.
Hedlund and Gerald A. Hedlund, LaSalle National Trust,
N.A., as successor trustee to LaSalle National Bank, not
personally but solely as Trustee under Trust Agreement
dated December 28, 1972 and known as Trust No. 45197 and
The PrivateBank and Trust Company.
10.4 Stock Purchase Agreement dated as of May 28, 1998 by and
among PrivateBancorp, Inc., Delaware Charter Guarantee and
Trust Co., Trustee FBO Ralph B. Mandell, IRA and The Ralph
B. Mandell Revocable Trust UTA dated June 5, 1997.
10.5 Pledge Agreement dated as of May 28, 1998 by and between
the Ralph B. Mandell Revocable Trust UTA dated June 5,
1997 and PrivateBancorp, Inc. (included as Exhibit B to
Stock Purchase Agreement dated as of May 28, 1998 by and
among PrivateBancorp, Inc., Delaware Charter Guarantee and
Trust Co., Trustee FBO Ralph B. Mandell, IRA and The Ralph
B. Mandell Revocable Trust UTA dated June 5, 1997 filed as
Exhibit 10.4 herewith).
10.6 PrivateBancorp, Inc. Amended and Restated Stock Incentive
Plan, as to be amended.*
10.7 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. effective as of July 1, 1999.
10.8 Employment Agreement by and between Donald A. Roubitchek
and PrivateBancorp, Inc. effective as of July 1, 1999.
10.9 Outsourcing Agreement by and between The PrivateBank and
Trust Company and Marshall & Ilsley Corporation, acting
through its division M&I Data Services, dated as of April
9, 1999.
10.10 Form of Indemnification Agreement by and between
PrivateBancorp, Inc. and its directors and executive
officers.
10.11 Agreement and Plan of Reorganization by and between
PrivateBancorp, Inc. and Towne Square Financial
Corporation dated as of June 24, 1999.*
21.1 Subsidiary of the Registrant.
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in
Exhibit 5.1).
24.1 Powers of Attorney (set forth on signature page to
Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of National Decision Systems.*
</TABLE>
- --------
*Filed herewith.
II-5
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to Item 14 of this Registration Statement, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
State of Illinois, on June 28, 1999.
PrivateBancorp, Inc.
/s/ Ralph B. Mandell
By: _________________________________
Ralph B. Mandell,
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ralph B. Mandell Chairman, President, Chief June 28, 1999
____________________________________ Executive Officer and
Ralph B. Mandell Director
/s/ Caren L. Reed* Vice Chairman and Director June 28, 1999
____________________________________
Caren L. Reed
/s/ Donald A. Roubitchek Chief Financial Officer and June 28, 1999
____________________________________ Director
Donald A. Roubitchek
/s/ Jeanene V. Meisser Controller June 28, 1999
____________________________________
Jeanene V. Meisser
/s/ Donald L. Beal* Director June 28, 1999
____________________________________
Donald L. Beal
/s/ Naomi T. Borwell* Director June 28, 1999
____________________________________
Naomi T. Borwell
/s/ William A. Castellano* Director June 28, 1999
____________________________________
William A. Castellano
/s/ Robert F. Coleman* Director June 28, 1999
____________________________________
Robert F. Coleman
/s/ W. James Farrell* Director June 28, 1999
____________________________________
W. James Farrell
/s/ John E. Gorman* Director June 28, 1999
____________________________________
John E. Gorman
/s/ Alvin J. Gottlieb* Director June 28, 1999
____________________________________
Alvin J. Gottlieb
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ James M. Guyette* Director June 28, 1999
____________________________________
James M. Guyette
/s/ Philip M. Kayman* Director June 28, 1999
____________________________________
Philip M. Kayman
/s/ William R. Langley* Director June 28, 1999
____________________________________
William R. Langley
/s/ Thomas F. Meagher* Director June 28, 1999
____________________________________
Thomas F. Meagher
/s/ Michael B. Susman* Director June 28, 1999
____________________________________
Michael B. Susman
</TABLE>
- --------
*Signed pursuant to power of attorney.
/s/ Ralph B. Mandell
By: ___________________________
Ralph B. Mandell
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S> <C>
1.1 Form of Underwriting Agreement by and between PrivateBancorp,
Inc. and EVEREN Securities, Inc. and Stifel, Nicolaus &
Company, Incorporated.
3.1 Amended and Restated Certificate of Incorporation of
PrivateBancorp, Inc.*
3.2 [Intentionally left blank.]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Vedder, Price, Kaufman & Kammholz re: legality.
10.1 Lease Agreement for banking facility located at Ten North
Dearborn, Chicago, Illinois dated January 1, 1992, as amended,
by and between General American Life Insurance Company as
successor-in-interest to LaSalle National Trust, N.A., as
successor trustee to LaSalle National Bank, not personally but
as Trustee under Trust Agreement dated November 6, 1985 and
known as Trust No. 110519 and The PrivateBank and Trust
Company.
10.2 Lease Agreement for banking facility located at 1603 West
Sixteenth Street, Oak Brook, Illinois dated October , 1996
by and between Columbia Lisle Limited Partnership and The
PrivateBank and Trust Company.
10.3 Lease Agreement for banking facility located at 517 Green Bay
Road, Wilmette, Illinois dated as of May 2, 1994 by and
between Gunnar H. Hedlund, Doris S. Hedlund, Robert P. Hedlund
and Gerald A. Hedlund, LaSalle National Trust, N.A., as
successor trustee to LaSalle National Bank, not personally but
solely as Trustee under Trust Agreement dated December 28,
1972 and known as Trust No. 45197 and The PrivateBank and
Trust Company.
10.4 Stock Purchase Agreement dated as of May 28, 1998 by and among
PrivateBancorp, Inc., Delaware Charter Guarantee and Trust
Co., Trustee FBO Ralph B. Mandell, IRA and The Ralph B.
Mandell Revocable Trust UTA dated June 5, 1997.
10.5 Pledge Agreement dated as of May 28, 1998 by and between the
Ralph B. Mandell Revocable Trust UTA dated June 5, 1997 and
PrivateBancorp, Inc. (included as Exhibit B to Stock Purchase
Agreement dated as of May 28, 1998 by and among
PrivateBancorp, Inc., Delaware Charter Guarantee and Trust
Co., Trustee FBO Ralph B. Mandell, IRA and The Ralph B.
Mandell Revocable Trust UTA dated June 5, 1997 filed as
Exhibit 10.4 herewith).
10.6 PrivateBancorp, Inc. Amended and Restated Stock Incentive
Plan, as to be amended.*
10.7 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. effective as of July 1, 1999.
10.8 Employment Agreement by and between Donald A. Roubitchek and
PrivateBancorp, Inc. effective as of July 1, 1999.
10.9 Outsourcing Agreement by and between The PrivateBank and Trust
Company and Marshall & Ilsley Corporation, acting through its
division M&I Data Services, dated as of April 9, 1999.
10.10 Form of Indemnification Agreement by and between
PrivateBancorp, Inc. and its directors and executive officers.
10.11 Agreement and Plan of Reorganization by and between
PrivateBancorp, Inc. and Towne Square Financial Corporation
dated as of June 24, 1999.*
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S> <C>
21.1 Subsidiary of the Registrant.
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in
Exhibit 5.1).
24.1 Powers of Attorney (set forth on signature page to the
Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of National Decision Systems.*
</TABLE>
- --------
* Filed herewith.
II-10
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PRIVATEBANCORP, INC.
--------------------
PRIVATEBANCORP, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY as follows:
1. The name of the Corporation is PrivateBancorp, Inc. The Corporation was
originally incorporated under the name PrivateBancorp, Inc., and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on November 7, 1989.
2. This Amended and Restated Certificate of Incorporation, which was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, restates and integrates and further
amends the provisions of the Certificate of Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and amended to read in its entirety
as follows:
FIRST: The name of the Corporation is PrivateBancorp, Inc.
<PAGE>
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The nature of business to be conducted or promoted and the purpose
of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is thirteen million (13,000,000), divided into two
classes as follows: one million (1,000,000) of which shall be Preferred Stock,
without par value, and twelve million (12,000,000) of which shall be Common
Stock, without par value.
The designations, powers, preferences and rights, and the qualifications,
limitations or restrictions of the above classes of stock are as follows:
PREFERRED STOCK
1. The Board of Directors is expressly authorized at any time, and from
time to time, to issue shares of Preferred Stock in one or more series, and for
such consideration as the Board of Directors may determine, with such voting
powers, full or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issuance thereof, and as are not
stated in this Certificate of Incorporation, or any amendment thereto. All
shares of any one series shall be of equal rank and identical in all respects.
2. No dividend shall be paid or declared on any particular series of
Preferred Stock unless dividends shall be paid or declared pro rata on all
shares of Preferred Stock at the time outstanding in each other series which
ranks equally as to dividends with such particular series.
3. Unless and except to the extent otherwise required by law or provided in
the resolution or resolutions of the Board of Directors creating any series of
Preferred Stock, the holders of the Preferred Stock shall have no voting power
with respect to any matter whatsoever. Subject to the protective conditions or
restrictions of any outstanding series of Preferred Stock, any amendment to this
Certificate of Incorporation which shall increase or decrease the authorized
capital stock of any class or classes may be adopted by the affirmative vote of
the holders of a majority of the outstanding shares of voting stock of the
Corporation.
4. Shares of Preferred Stock redeemed, converted, exchanged, purchased,
retired or surrendered to the Corporation, or which have been issued and
reacquired in any manner, shall, upon compliance with any applicable provisions
of the Delaware General Corporation Law, have the status of authorized and
unissued shares of Preferred Stock and may be reissued by the Board of Directors
as part of the series of which they were originally a part or may be
reclassified into and reissued as
2
<PAGE>
part of a new series or as part of any other series, all subject to the
protective conditions or restrictions of any outstanding series of Preferred
Stock.
COMMON STOCK
1. Subject to preferential dividend rights, if any, applicable to shares of
the Preferred Stock and subject to applicable requirements, if any, with respect
to the setting aside of sums for purchase, retirement or sinking funds for the
Preferred Stock, the holders of the Common Stock shall be entitled to receive to
the extent permitted by law, such dividends as may be declared from time to time
by the Board of Directors.
2. In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the Corporation, after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock, holders of the Common Stock shall be entitled to
receive all the remaining assets of the Corporation of whatever kind available
for distribution to stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
3. Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of the Common Stock shall have one vote in respect of
each share of stock held by him or her of record on the books of the corporation
on all matters voted upon by the stockholders.
FIFTH: The names and mailing address of the incorporators are as follows:
Mr. William R. Langley and
Mr. Ralph B. Mandell
One First National Plaza
Suite 2648
Chicago, Illinois 60603
SIXTH: The number of directors of the Corporation shall be fixed from time
to time by the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws so provide. Commencing with the annual meeting
of stockholders held in 1998, the directors shall be divided into three (3)
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1999 annual meeting of stockholders, the term of
office of the second class to expire at the 2000 annual meeting of stockholders
and the third class expiring at the 2001 annual meeting of stockholders. At each
annual meeting of stockholders following such initial classification, directors
elected by the stockholders to succeed those directors whose term expires shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
3
<PAGE>
SEVENTH: The name and mailing address of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualified are as follows:
William R. Langley
Ralph B. Mandell
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-laws of the Corporation.
NINTH: The Corporation shall indemnify, to the full extent that it shall
have power under applicable law to do so and in a manner permitted by such law,
any person made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Corporation against liabilities and expenses reasonably incurred or paid by
such person in connection with such action, suit or proceeding. The Corporation
may indemnify, to the full extent that it shall have power under applicable law
to do so and in a manner permitted by such law, any person made or threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigate, by reason of
the fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against liabilities and expenses reasonably incurred or paid by such
person in connection with such action, suit or proceeding. The words
"liabilities" and "expenses" shall include, without limitation: liabilities,
losses, damages, judgments, fines, penalties, amounts paid in settlement,
expenses, attorneys' fees and costs. The indemnification provided by this
Article NINTH shall not be deemed exclusive of any other rights to which any
person indemnified may be entitled under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any person
referred to in the preceding paragraph against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article NINTH or otherwise.
For purposes of this Article NINTH, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
4
<PAGE>
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
The provisions of this Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this Article and the relevant provisions of the
General Corporation Law of the State of Delaware or other applicable law, if
any, are in effect, and any repeal or modification of any such law or of this
Article shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner not
opposed to the best interests of the Corporation.
TENTH: Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or the By-laws of the Corporation to the contrary
and notwithstanding that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least two-thirds (2/3) of the voting power
of the outstanding shares of all classes of stock of the Corporation, voting
together as a single class, shall be required to amend or repeal, or adopt any
provision inconsistent with, Articles SIXTH, TENTH and THIRTEENTH of this
Amended and Restated Certificate of Incorporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or a class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all
5
<PAGE>
the stockholders or class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.
TWELFTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
THIRTEENTH: Except as may be otherwise required by law or this Amended and
Restated Certificate of Incorporation, each holder of the Common Stock shall
have one vote in respect of each share of stock held by him or her of record on
the books of the corporation on all matters voted upon by the stockholders. No
action required to be taken at any annual or special meeting of the stockholders
of the Corporation may be taken without an annual or special meeting of the
stockholders, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
IN WITNESS WHEREOF, PRIVATEBANCORP, INC. has caused this Amended and
Restated Certificate of Incorporation to be signed by Ralph B. Mandell, its
Chief Executive Officer, Chairman and President, and attested to by Donald A.
Roubitchek, its Secretary, this 24th day of June, 1999.
PRIVATEBANCORP, INC.
By: /s/ Ralph B. Mandell
----------------------------------------------------
Ralph B. Mandell
Its Chairman, President and Chief Executive Officer
Attest: /s/ Donald A. Roubitchek
---------------------------------
Donald A. Roubitchek
Its Secretary
6
<PAGE>
EXHIBIT 10.6
PRIVATEBANCORP, INC.
--------------------
AMENDED AND RESTATED STOCK INCENTIVE PLAN
-----------------------------------------
1. Purpose. The purpose of the Amended and Restated PrivateBancorp, Inc.
Stock Incentive Plan (the "Amended and Restated Plan") is to provide long-term
incentive in the form of stock ownership to those executives and key employees
of PrivateBancorp, Inc. (the "Company") or one of its subsidiaries, including
The PrivateBank and Trust Company (the "Bank"), who, in the opinion of the
Committee, are largely responsible for the continued growth and financial
success of the Company or the Bank.
2. Effective Date. This Amended and Restated Plan shall be effective as
of June 25, 1998, amending the PrivateBancorp, Inc. Stock Incentive Plan
effective as of February 27, 1992 (the "Plan"), subject to ratification by the
stockholders of the Company. Awards may be granted hereunder on or after the
effective date but shall in no event be exercisable or payable to Participant
(as defined below) prior to such stockholder approval; and, if such approval is
not obtained within 12 months after the effective date, such awards shall be of
no force or effect.
3. Administration. The Amended and Restated Plan shall be administered by
the Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee shall have full and final authority in its
discretion to conclusively construe and interpret the provisions of the Amended
and Restated Plan and to decide all questions of fact arising in its
application; to determine the individuals to whom awards shall be granted under
the Amended and Restated Plan; to determine the amount, size and terms of such
award; to determine the time when awards will be granted; and to make all other
determinations necessary or advisable for the administration of this Amended and
Restated Plan.
4. Shares Subject to Amended and Restated Plan. The aggregate number of
shares of common stock, without par value, of the Company ("Stock") for which
awards may be granted pursuant to this Amended and Restated Plan shall not at
any time exceed 15% of the then number of shares of Stock issued and
outstanding, which number shall be adjusted under the provisions of Paragraph
15. Effective June 25, 1998 and upon the approval of the stockholders of the
Company, the aggregate number of shares of Stock issuable under this Amended and
Restated Plan, and not withstanding any other provision hereof at any time
contained herein to the contrary, shall also include an additional 8,500 shares
of Stock. The additional 8,500 shares of Stock and the shares of Stock
authorized but not yet granted under this Plan as of June 25, 1998 (including
any shares of Stock authorized pursuant to those shares of Stock sold to Mr.
Ralph B. Mandell on May 28, 1998) shall be known as "Special Shares." The
Special Shares may be issued to executive officers and key employees holding
office of, or employed by, the Company or one of its subsidiaries only pursuant
to (a) premium-priced incentive stock options, as described more fully below;
(b) restricted stock,
<PAGE>
also as described below; or (c) some combination thereof. At such time that (a)
all Special Shares are granted pursuant to options and restricted stock awards
under the Plan, and (b) 15% of all shares of Common Stock then issued and
outstanding exceeds (i) 15% of all shares of Common Stock issued and outstanding
on June 25, 1998 (including those shares purchased by Mr. Mandell as of May 28,
1998), plus (ii) 8,500 shares of Common Stock, the Committee may thereafter set
all terms (including price and vesting schedule) of any option or restricted
stock award subject to its discretion, as permitted under the Amended and
Restricted Plan. Such number of authorized but unissued shares of Stock shall be
reserved for issuance hereunder. Except as otherwise provided herein, any shares
of Stock subject to an award which for any reason expires or is terminated
unexercised as to such shares shall again be available for issuance under the
Amended and Restated Plan.
5. Participants. Persons eligible to participate (the "Participants")
shall be limited to those executives and key employees of the Company or one of
its subsidiaries, including the Bank, who, in the opinion of the Committee, are
in positions in which their decisions, actions, and counsel have significant
impact upon the growth and financial success of the Company.
6. Awards Under the Amended and Restated Plan. Awards under the Amended
and Restated Plan shall be in the form of stock options ("Options"), as more
fully described in Paragraph 7 and Paragraph 8, or restricted stock ("Restricted
Stock"), as more fully described in Paragraph 9.
7. Options. Each Option shall be evidenced by a Stock Option Agreement
(an "Agreement") in such form as the Committee shall approve from time to time,
which Agreement shall, among such other provisions approved by the Committee,
incorporate therein by reference all of the terms and provisions of the Amended
and Restated Plan and contain in substance the following terms and conditions:
(a) Option Price. The Agreement shall state the purchase price per
share of Stock deliverable upon the exercise of an Option, which price shall not
be less than the Fair Value of the Stock on the day the Option is granted. "Fair
Value" for purposes of this Amended and Restated Plan shall mean the value of
such Stock as determined by the Committee, based upon (i) an appraisal or
similar advice of a financial advisor of recognized industry standing, (ii) if
the Stock is listed on a national stock exchange or traded on the Nasdaq
National Market, the price of the Stock as quoted by The Wall Street Journal for
a given date, or (iii) a decision of the full Board of Directors of the Company
based upon evidence deemed reasonably conclusive by the Board. Effective June
25, 1998, with respect to Special Shares, the Committee shall offer only
premium-priced incentive stock options to its executive officers and key
employees holding an office of, or employed by, the Company as of June 25, 1998.
The "premium-priced incentive stock options" shall be incentive stock options
with an exercise price of 125% of the Fair Value of the Stock on the day the
Option is granted.
(b) Exercise of Option. The Agreement shall state the period or
periods of time, as may be determined by the Committee, within which the Option
may be exercised by the Participant, in whole or in part, provided that the
Option may not be exercised later than ten years after the date
<PAGE>
of the grant of the Option. The Committee shall have the power to permit in its
discretion an acceleration of the previously determined exercise terms under
such circumstances and upon such terms and conditions as it deems appropriate.
Effective June 25, 1998, with respect to Special Shares, the Committee shall
offer only premium-priced incentive stock options which have a five-year "cliff"
vesting period with a performance acceleration provision to its executive
officers and key employees holding an office of, or employed by, the Company or
one of its subsidiaries as of June 25, 1998. The "five-year 'cliff' vesting
period with a performance acceleration provision" shall mean that an Option
shall vest in its entirety on the fifth anniversary of the date of its grant;
however, the vesting of the Option may be accelerated to the third or fourth
anniversary of the date of its grant if the Company's cumulative annual growth
rate of the fair market value of the Stock (which value shall include the value
of any cash or property dividend paid on the Stock) equals at least fifteen
percent (15%) as of such anniversary date(s), as measured by appraisal or other
evidence deemed reasonably conclusive by the Board of Directors.
(c) Payment for Shares. The Agreement shall state that Stock
purchased pursuant to the Option shall be paid for in full at the time of
exercise in cash; provided, however, that the Committee may permit a Participant
in lieu of part or all of the cash payment, to make payment in shares of Stock
already owned by him and held for at least six months, valued at Fair Value on
the date of exercise, as partial or full payment of the Option price.
(d) Rights upon Termination of Employment. Except as may be expressly
provided in the Agreement, Options shall terminate upon the termination of the
Participant's employment with the Company and all affiliates.
(e) Repurchase. Shares of Stock purchased under the Amended and
Restated Plan shall be subject to repurchase by the Company on such terms and
conditions as may be set forth in the Agreement.
8. Incentive Stock Options. Notwithstanding anything in the Amended and
Restated Plan to the contrary, to the extent required from time to time by the
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), the
following additional provisions shall apply to the grant of Options which are
intended to qualify as incentive stock options (as such term is defined in
Section 422A of the Code) ("Incentive Stock Options"):
(a) Option Price. The Agreement shall state that the purchase price
per share of Stock deliverable upon the exercise of an Incentive Stock Option
shall not be less than the Fair Value of the Stock on the date the Option is
granted (110% of such Fair Value in the case of an Incentive Stock Option
granted to a 10% stockholder of the Company within the meaning of Section
422A(c)(6) of the Code).
(b) Limitations. The aggregate Fair Value (determined as of the date
the Incentive Stock Option is granted) of the shares of Stock with respect to
which Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year (under all plans of the Company) shall not
exceed $100,000 or such other amount as may be subsequently specified
<PAGE>
by the Code; provided that, to the extent that such limitation is exceeded, any
excess Options (as determined under the Code) shall be deemed not to be
Incentive Stock Options.
(c) Expiration. All Incentive Stock Options granted after the
effective date hereof must be granted within ten years from the earlier of the
date on which this Amended and Restated Plan was adopted by the Board of
Directors or the date this Amended and Restated Plan was approved by the
stockholders of the Company. Unless exercised, terminated or canceled sooner,
all Incentive Stock Options shall expire no later than ten years after the date
of grant.
(d) Section 422A. Any Incentive Stock Option authorized under the
Amended and Restated Plan shall contain such other provisions as the Committee
shall deem advisable, but shall in all events be consistent with and contain or
be deemed to contain all provisions required in order to qualify the Options as
Incentive Stock Options.
9. Restricted Stock. The Committee, at any time and from time to time,
may award shares of Restricted Stock under the Amended and Restated Plan to such
Participants in such amounts as it shall determine. Each award of Restricted
Stock shall be in writing in such form as the Committee shall approve from time
to time, which writing shall, among other provisions approved by the Committee,
incorporate therein by reference all of the terms and provisions of the Amended
and Restated Plan and contain in substance the following terms and conditions:
(a) Transferability. Shares of Restricted Stock may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated for such
period of time ("Period of Restriction") as shall be determined by the Committee
and shall be specified in the Restricted Stock award, or upon earlier
satisfaction of other conditions as specified by the Committee in its sole
discretion and set forth in the Restricted Stock award.
(b) Other Restrictions. The Committee shall impose such other
restrictions on any shares of Restricted Stock granted pursuant to the Amended
and Restated Plan as it may deem advisable including, without limitation,
restrictions under applicable Federal or state securities laws, and may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions. Effective June 25, 1998, with respect to Special Shares, the
Committee shall grant only restricted stock awards with five-year "cliff"
vesting periods to its executive officers and key employees holding an office
of, or employed by, the Company or one of its subsidiaries as of June 25, 1998.
The "five-year 'cliff' vesting period" means that a Restricted Stock award shall
completely vest on the fifth anniversary of the date of the award.
(c) Voting Rights. Participants holding shares of Restricted Stock
may exercise full voting rights with respect to those shares during the Period
of Restriction.
(d) Dividends and Other Distributions. During the Period of
Restriction, Participants holding shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those shares while they are so held. If any such dividends or
distributions are paid in shares of Stock, the shares shall be subject to the
same
<PAGE>
restrictions on transferability as the shares of Restricted Stock with respect
to which they were paid.
(e) Termination of Employment. The award shall set forth the effects
of termination of employment during the Period of Restriction upon the
Restricted Stock and shall provide for the forfeiture and return of such Stock
to the Company in such circumstances as the Committee shall determine to be
appropriate.
10. Rights of a Stockholder. No Participant shall have any rights as a
stockholder with respect to any shares of Stock unless and until legended
certificates for such shares of Stock are issued.
11. Rights to Terminate Employment. Nothing in the Amended and Restated
Plan or in any Agreement entered into pursuant to the Amended and Restated Plan
shall confer upon any Participant the right to continue in the employment of the
Company or any subsidiary of the Company, including the Bank, or affect any
right which the Company or such subsidiary may have to terminate the employment
of such Participant.
12. Withholding of Taxes. Whenever the Company proposes or is required to
issue or transfer shares of Stock under the Amended and Restated Plan, the
Company shall have the right to require the recipient to remit in cash (or with
the consent of the Committee, shares of Stock previously owned by the
Participant or issuable in connection with the award) to the Company an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares.
13. Non-Assignability. Any award granted under the Amended and Restated
Plan shall not be assignable or transferable by the Participant, except as may
otherwise be expressly provided in the Agreement.
14. Non-Uniform Determinations. The Committee's determinations under the
Amended and Restated Plan (including without limitation determinations of the
persons to receive awards, the form, amount and timing of such awards, the terms
and provisions of such awards and the agreements evidencing same, and the
establishment of values and performance targets) need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Amended and Restated Plan, whether or not such persons are
similarly situated.
15. Adjustments. In the event of any change in the outstanding shares of
Stock of the Company by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Committee shall adjust the number of shares of Stock
which may be issued under the Amended and Restated Plan and shall provide for an
equitable adjustment of any outstanding Option or shares issuable pursuant to an
outstanding award under this Amended and Restated Plan.
16. Amendment; Termination. The Board of Directors of the Company may
amend or terminate the Amended and Restated Plan at any time, except that such
termination or amendment
<PAGE>
of the Amended and Restated Plan shall not, without the consent of a
Participant, adversely affect a Participant's rights under any Option or other
award previously granted. Any amendment which increases the number of shares of
Stock for which awards may be awarded or which changes the class of persons
eligible to receive awards shall be subject to approval of the stockholders
within 12 months prior to or after the effective date of such amendment.
17. Effect on Other Plans. Participation in this Amended and Restated Plan
shall not affect an employee's eligibility to participate in any other benefit
or incentive plan of the Company or any other subsidiary of the Company,
including the Bank, and any award granted pursuant to this Amended and Restated
Plan shall not be used in determining the benefits provided under any other plan
of the Company or an Affiliate unless specifically provided.
18. Duration of the Amended and Restated Plan. The Amended and Restated
Plan shall remain in effect until all Options granted under the Amended and
Restated Plan have been satisfied by the issuance of shares or the payment of
cash, but no Option shall be granted more than ten years after the effective
date of the Amended and Restated Plan.
19. Indemnification. Each person who is or shall have been a member of the
Board of Directors or the Committee shall be indemnified and held harmless by
the Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which or resulting from any claim,
action, suit or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Amended and
Restated Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
20. Governing Law. The corporate law of the State of Delaware shall govern
all issues concerning the relative rights of the Company and the Participants
with respect to Options or Restricted Stock awarded under the Amended and
Restated Plan and all Agreements hereunder. All other questions concerning the
construction, validity and interpretation of this Amended and Restated Plan and
any agreements hereunder will be governed by the internal law, and not the law
of conflicts, of the State of Illinois.
<PAGE>
FORM OF
FIRST AMENDMENT
TO
PRIVATEBANCORP, INC. AMENDED AND RESTATED STOCK INCENTIVE PLAN
WHEREAS, PrivateBancorp Inc. (the "Company") maintains the PrivateBancorp
Amended and Restated Stock Incentive Plan (the "Plan");
WHEREAS, it is now deemed desirable and in the best interest of Plan
participants to further amend the Plan, such amendments provided for herein to
be effective upon consummation of the Company's initial public offering;
NOW, THEREFORE, pursuant to the power reserved to the Board of Directors of
the Company by paragraph 16 of the Plan, the Plan be and it hereby is amended,
effective as of such date, as follows:
1. By substituting the following for paragraph 4 of the Plan:
"4. Shares Subject to Amended and Restated Plan. The aggregate number
of shares of common stock, without par value, of the Company ("Stock")
for which awards may be granted pursuant to this Amended and Restated
Plan shall not at any time exceed 673,023 shares of Stock, which
number shall be adjusted under the provisions of Paragraph 15; the
aggregate number of shares of Stock for which Incentive Stock Options
(as defined in paragraph 8) may be granted pursuant to this Plan shall
not exceed 673,023 shares of Stock, which number shall be adjusted
under the provisions of paragraph 15."
2. By adding the following to the end of paragraph 6 of the Plan:
"The maximum aggregate number of shares that may be subject to awards
granted under the Plan to any one individual in any given calendar
year shall not exceed 100,000 shares, which number shall be adjusted
under the provisions of paragraph 15."
3. By substituting the following for subparagraph 8(a) of the Plan:
"(a) Option Price. The Agreement shall state that the purchase price
per share of Stock issuable upon the exercise of an Incentive Stock
Option shall not be less than the Fair Market Value of the Stock
(without regard to restrictions on the stock other than restrictions
that will never lapse) on the date the Option is granted (110% of such
Fair Market Value in the case of an Incentive Stock Option granted to
a 10% stockholder of the Company within the meaning of Section
422A(c)(6) of the Code)."
4. By re-numbering subparagraph 8(d) as paragraph 8(e) and adding the
following as subparagraph 8(d) of the Plan:
"(d) Exercise of Option. In the case of an Incentive Stock Option
granted to a 10% stockholder of the Company within the meaning of
422A(c)(6) of the Code, the Agreement shall state the Incentive Stock
Option is subject to a five-year 'cliff' vesting period."
<PAGE>
5. By adding the following to the end of the renumbered subparagraph 8(e)
of the Plan:
"If an optionee's employment with the Company terminates for any
reason, and such optionee holds Incentive Stock Options under an
Agreement that expressly provides that such options terminate upon a
date later than the date of termination of the Participant's
employment, such Incentive Stock Options must be exercised no later
than the earlier of (i) the date three months after the date of
termination of employment, or (ii) the original ending date of the
exercise period."
6. By substituting the following for paragraph 13 of the Plan:
"13. Non-Assignability. Any stock option or restricted stock award
granted under the Amended and Restated Plan shall not be assignable or
transferrable by the Participant, except by will or the laws of
descent or distribution. During the life of the Participant, stock
options are exercisable only by the Participant."
<PAGE>
EXHIBIT 10.11
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PRIVATEBANCORP, INC.
AND
TOWNE SQUARE FINANCIAL CORPORATION
DATED AS OF JUNE 24, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
I. THE MERGER................................................... 1
1.1 Effects of the Merger.................................. 1
1.2 Effect of Merger on Capital Stock...................... 2
1.3 Consummation of the Merger; Effective Time............. 3
1.4 Exchange of TSFC Common Stock.......................... 3
1.5 Dissenting Shares...................................... 4
II. REPRESENTATIONS AND WARRANTIES OF PRIVATE.................... 5
2.1 Organization........................................... 5
2.2 Authorization.......................................... 5
2.3 Conflicts.............................................. 5
2.4 Capitalization......................................... 6
2.5 Private Registration Statement; Financial Statements
of Private............................................ 6
2.6 Private Subsidiary..................................... 7
2.7 Private Reports........................................ 7
2.8 Compliance With Laws................................... 8
2.9 Litigation............................................. 8
2.10 Taxation............................................... 8
2.11 Advice of Changes...................................... 8
2.12 Activities in Kane County.............................. 9
2.13 Fox Valley Advisory Board.............................. 9
2.14 Tax Consequences of Merger............................. 9
III. REPRESENTATIONS AND WARRANTIES OF TSFC....................... 9
3.1 Organization........................................... 9
3.2 Authorization.......................................... 9
3.3 Conflicts.............................................. 10
3.4 Capitalization and Stockholders........................ 10
3.5 TSFC Financial Information............................. 10
3.6 Compliance With Laws................................... 11
3.7 Disclosure............................................. 11
3.8 Litigation............................................. 11
3.9 Licenses............................................... 11
3.10 Taxes.................................................. 11
3.11 Disclosure Schedule of TSFC............................ 11
3.12 Operations Since June 1, 1999.......................... 12
3.13 Corporate Records...................................... 12
3.14 Tax Matters............................................ 12
3.15 Advice of Changes...................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
IV. COVENANTS..................................................... 12
4.1 Conduct of Business by TSFC Until the Effective Time.... 12
4.2 Conduct of Business by Private Until the Effective Time. 13
4.3 Execution of the Advisory Board and Support Agreement... 14
4.4 Execution of the Stock Restriction Agreement............ 14
4.5 Capital Stock........................................... 14
4.6 Execution of Lease...................................... 14
4.7 Execution of Employment and Non-Compete and Support
Agreement.............................................. 14
V. ADDITIONAL AGREEMENTS......................................... 14
5.1 Inspection of Records; Confidentiality.................. 14
5.2 Board Representation.................................... 15
5.3 Brokers................................................. 15
5.4 Cooperation............................................. 15
5.5 Regulatory Applications................................. 15
5.6 Notice.................................................. 16
5.7 Press Releases.......................................... 16
5.8 Delivery of Supplements to Disclosure Schedules......... 16
5.9 Tax Opinion............................................. 17
5.10 Tax Treatment........................................... 17
5.11 Tax Indemnification..................................... 17
VI. CONDITIONS.................................................... 18
6.1 Conditions to the Obligations of Private................ 18
6.2 Conditions to the Obligations of TSFC................... 19
6.3 Conditions to the Obligations of the Parties............ 20
VII. TERMINATION; AMENDMENT; WAIVER................................ 20
7.1 Termination............................................. 20
7.2 Expenses................................................ 21
7.3 Survival of Agreements.................................. 21
7.4 Amendment............................................... 21
7.5 Waiver.................................................. 21
VIII. GENERAL PROVISIONS............................................ 22
8.1 Survival................................................ 22
8.2 Notice.................................................. 22
8.3 Specific Enforceability................................. 23
8.4 Applicable Law.......................................... 23
8.5 Headings, Etc........................................... 23
8.6 Severability............................................ 23
8.7 Entire Agreement; Binding Effect; Non-Assignment;
Counterparts........................................... 23
</TABLE>
ii
<PAGE>
EXHIBITS............................................................ 26
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Certificate of Merger
Exhibit B - Disclosure Schedule
Exhibit C - Advisory Board and Support Agreement
Exhibit D - Stock Restriction Agreement
Exhibit E - Thomas N. Castronovo Employment and Non-Compete
and Support Agreement
Exhibit F - Lease
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") is made and entered
into as of the 24th day of June, 1999, by and among PrivateBancorp, Inc., a
Delaware corporation ("Private"), and Towne Square Financial Corporation, a
Delaware corporation ("TSFC").
W I T N E S S E T H :
WHEREAS, Private is a registered bank holding company under the Bank
Holding Company Act of 1956 ("BHCA");
WHEREAS, TSFC has been organized for the purpose of establishing a "de
novo" Illinois chartered bank to be located in St. Charles, Illinois;
WHEREAS, the Boards of Directors of Private and TSFC deem it advisable that
TSFC be merged with and into Private ("Merger") in accordance with the Delaware
General Corporation Law ("DGCL") and this Agreement; and
WHEREAS, Private and TSFC intend the Merger to qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended ("Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties hereto agree as follows:
I.
THE MERGER
1.1 Effects of the Merger.
(a) Surviving Corporation. Subject to the terms and conditions of
this Agreement, the separate existence of TSFC shall cease and shall be merged
with and into, and under the Certificate of Incorporation of, Private at the
Effective Time (as defined below) in accordance with the DGCL, with Private
being the continuing and surviving corporation (sometimes referred to
hereinafter as the "Surviving Corporation"). At and after the Effective Time,
the Merger shall have the further effects as set forth in Section 259 of the
DGCL.
(b) Certificate of Incorporation. The Certificate of Incorporation of
Private shall be the Certificate of Incorporation of the Surviving Corporation
until amended in accordance with the provisions thereof and the DGCL.
(c) By-laws. The By-laws of Private in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation until
altered, amended or repealed as
<PAGE>
provided therein, or in accordance with the Certificate of Incorporation of the
Surviving Corporation and the DGCL.
(d) Directors and Officers. The directors of the Surviving
Corporation shall be the persons who were directors of Private immediately prior
to the Effective Time. TSFC will be entitled to designate one (1) individual to
serve as a director of the Surviving Corporation, with such individual to be
mutually agreeable to Private and TSFC ("TSFC Director"). The above-mentioned
TSFC Director shall serve as a Class III director of the Surviving Corporation,
with his term expiring in April, 2001. Upon the expiration of the TSFC
Director's initial term, Private agrees to nominate an individual mutually
agreeable to Private and TSFC for one (1) additional term. The officers of the
Surviving Corporation shall be the persons who were officers of Private
immediately prior to the Effective Time.
1.2 Effect of Merger on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Private, TSFC or the holders of
Private Common Stock (defined below) or TSFC Common Stock (defined below), the
following shall occur:
(a) Private Common Stock. Each share of the common stock, no par
value of Private ("Private Common Stock") issued and outstanding immediately
prior to the Effective Time shall remain outstanding and shall be unchanged
after the Merger.
(b) TSFC Common Stock. Each share of the common stock, par value
$0.01 per share, of TSFC ("TSFC Common Stock") issued and outstanding
immediately prior to the Effective Time shall be canceled, and other than
Dissenting Shares (as defined in Section 1.5 below) or Fractional Shares (as
defined in Section 1.4(e) below), and shall be converted into the right to
receive a number of shares, or fractional part thereof, (the "Exchange Ratio")
of Private Common Stock based on the factors set forth hereafter. The Exchange
Ratio has been established to provide that Private Common Stock will be
exchanged in an amount such that the stockholders of TSFC, in the aggregate,
shall receive $1,650,000 of Private Common Stock (the "Merger Consideration").
The fair market value of the Private Common Stock for purposes of the Exchange
Ratio shall be determined pursuant to the Private Initial Public Offering Price
(as defined below). Should the initial public offering of Private Common Stock
("Private Initial Public Offering") be projected to be delayed beyond July 31,
1999, or terminated, for any reason, the fair market value of Private Common
Stock for purposes of this Section 1.2(b), shall be seventeen dollars ($17.00)
per share. For example, using the above-mentioned seventeen dollars ($17.00) per
share price, the Merger Consideration would be 97,058.82352 shares of Private
Common Stock, and the Exchange Ratio would be 16.17647058 shares, and thereby
each holder of 1,000 shares of TSFC Common Stock would be entitled to receive
16,176.47058 shares of Private Common Stock. Pursuant to Section 1.4(e), any
fractional share to be issued to any single holder of TSFC Common Stock shall be
rounded to the nearest whole share.
2
<PAGE>
As used herein, "Private Initial Public Offering Stock Price" means
the price of one share of Private Common Stock as it is first offered for sale
by the underwriters on the date of the Private Initial Public Offering.
(c) Stock Held by TSFC. All shares of TSFC Common Stock that are
owned by TSFC as treasury stock other than shares as to which appraisal rights
have been asserted and duly perfected in accordance with Section 262 of the
DGCL, shall be canceled and shall constitute authorized but unissued Private
Common Stock and no stock of Private or other consideration shall be delivered
in exchange therefor.
1.3 Consummation of the Merger; Effective Time. The delivery of the
documents, certificates and opinions called for by this Agreement shall take
place at such location and such time as shall be fixed by mutual agreement of
Private and TSFC as promptly as practicable, but not later than three (3) days,
following the latest of: (i) approval of the transactions required to effect the
transactions contemplated by this Agreement by all the Applicable Governmental
Authorities (defined below), other than any regulatory approval relating to the
opening of the Office (defined below), and the approval, consent or other action
of such other governmental authorities having jurisdiction over the transactions
governed by this Agreement as may be required (provided that any such approval,
consent or other action shall have been granted without the imposition of any
condition which Private reasonably and in good faith deems to be materially
burdensome to Private); and (ii) the expiration of any waiting period imposed by
law. Upon satisfaction or waiver of all conditions precedent to the consummation
of the transactions contemplated by this Agreement, the parties hereto shall
cause the Merger to become effective on the date of the closing (the "Closing
Date") by executing, acknowledging and filing on that date, pursuant to Section
251 of the DGCL, a Certificate of Merger substantially in the form of Exhibit A
attached hereto and made a part hereof (the "Certificate of Merger"). The date
and time on which the Merger becomes effective shall be referred to herein as
the "Effective Time."
1.4 Exchange of TSFC Common Stock.
(a) Surrender of Certificates. As soon as practicable after the
Effective Time, Private shall deliver to each holder of record of a certificate
or certificates which as of the Effective Time represented outstanding shares of
TSFC Common Stock (each, a "Certificate") instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to Private, the holder of such
Certificate shall be entitled to receive, in exchange therefor, Private Common
Stock representing the number of shares of Private Common Stock into which the
shares of TSFC Common Stock, theretofore represented by the Certificate so
surrendered, shall have been converted pursuant to the provisions of Section
1.2, and the Certificate so surrendered shall be canceled.
(b) Escheat. Notwithstanding anything in this Agreement to the
contrary, neither Private nor any party hereto shall be liable to a former
holder of TSFC Common Stock for any cash delivered to a public official pursuant
to applicable escheat or abandoned property laws.
3
<PAGE>
(c) Failure to Exchange TSFC Common Stock. No dividends or other
distributions declared after the Effective Time with respect to Private Common
Stock payable to the holders of record thereof after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to Private
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any holder until the holder of record shall surrender
such Certificate.
(d) Full Payment. The Merger Consideration paid pursuant to this
Article I, including all shares of Private Common Stock issued upon the
surrender for exchange of TSFC Common Stock in accordance with the terms hereof,
shall be delivered and paid in full satisfaction of all rights pertaining to
such shares of TSFC Common Stock. The shares of Private Common Stock for which
the shares of TSFC Common Stock shall be exchanged shall thereupon be validly
issued and outstanding, fully paid and non-assessable, and shall not be liable
to any further call, nor shall the holder thereof be liable for any further
payments with respect thereto.
(e) Fractional Shares. No certificates or scrip representing
fractional shares of Private Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Private shall relate to
any fractional share, and such fractional share interests ("Fractional Shares")
will not entitle the owner thereof to vote or assert any rights of a stockholder
of Private. Any and all Fractional Shares created as a result of the Exchange
Ratio calculated pursuant to Section 1.2(b) that are due and owing to any single
holder of TSFC Common Stock, shall be rounded to the nearest whole share.
1.5 Dissenting Shares. Any holder of TSFC Common Stock otherwise entitled
to receive part of the Merger Consideration for each of his or her shares shall
be entitled to demand payment of the fair cash value of such shares as specified
in Section 262 of the DGCL if the holder follows the procedures specified
therein. These shares shall hereafter be specified as "Dissenting Shares." Any
Dissenting Shares shall not, after the Effective Time, be entitled to vote for
any purpose or receive any dividends or other distributions and shall not be
converted into part of the Merger Consideration as provided in Section 1.2(b)
hereof, which Merger Consideration shall be reduced by the amount represented by
the shares of TSFC Common Stock held by such holder through the application of
the Exchange Ratio; provided, however, that shares of TSFC Common Stock held by
a dissenting stockholder who subsequently withdraws a demand for payment, fails
to comply fully with the requirements of the DGCL, or otherwise fails to
establish the right of such stockholder to be paid the fair cash value of such
stockholder's shares under the DGCL shall be deemed to be converted into part of
the Merger Consideration pursuant to the terms and conditions specified herein.
TSFC shall give Private prompt notice of any written demands for appraisal for
any shares of TSFC Common Stock, attempted withdrawals of any such demands, and
any other instruments served pursuant to the DGCL and received by TSFC relating
to stockholders' rights of appraisal.
c4
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II.
REPRESENTATIONS AND WARRANTIES OF PRIVATE
Private represents and warrants to TSFC that:
2.1 Organization.
(a) Private is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority, corporate and otherwise, to own, operate and lease its
assets, properties and businesses and to carry on its businesses substantially
as they have been and are now being conducted. Private is duly qualified to do
business and is in good standing in each jurisdiction where the character of the
properties owned or leased by it or the nature of the business transacted by it
requires that it be so qualified, except where the failure to so qualify would
not have a material adverse effect on Private and the Private Subsidiary
(defined below), taken as a whole, or its ability to consummate the transactions
contemplated herein or in the Certificate of Merger. Private has all requisite
corporate power and authority to enter into this Agreement, and the Certificate
of Merger and, upon the approval of all requisite state and federal regulatory
agencies to consummate the transactions contemplated hereby and thereby. Private
is duly registered as a bank holding company under the BHCA.
(b) PrivateBank & Trust Company, a wholly-owned subsidiary of
Private, ("Private Subsidiary") is an Illinois chartered bank duly organized and
in existence under the laws of the State of Illinois, the deposits of which are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the Bank
Insurance Fund ("BIF") to the full extent permitted under applicable laws.
(c) Private and the Private Subsidiary hold all licenses,
certificates, permits, franchises and rights from all appropriate federal, state
or other public authorities necessary for the conduct of its and their
respective business, except where the failure to so hold would not have a
material adverse effect on Private and the Private Subsidiary, taken as a whole.
2.2 Authorization. The execution, delivery and performance of this
Agreement, and the Certificate of Merger, and the consummation of the
transactions contemplated hereby and thereby have been duly and unanimously
approved and authorized by Private's Board of Directors, and all necessary
corporate action on the part of Private has been taken. This Agreement has been
duly executed and delivered by Private and, subject to the approval of all
requisite state and federal regulatory agencies, will constitute the valid and
binding obligations of Private, except to the extent that enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles and doctrines. Neither the Certificate
of Incorporation nor the By-laws of Private will need to be amended to
effectuate the transactions contemplated by this Agreement.
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2.3 Conflicts. The execution and delivery of this Agreement and the
Certificate of Merger do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with or result in any
violation of the Certificate of Incorporation or By-laws of Private or similar
documents of the Private Subsidiary. The execution and delivery of this
Agreement, and Certificate of Merger do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with or result
in any violation, breach or termination of, or default or loss of a material
benefit under, or permit the acceleration of, any obligation or result in the
creation of any material lien, charge or encumbrance on any of the property or
assets under any provision of any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Private or the
Private Subsidiary or their respective properties, other than any such
conflicts, violations or defaults which (i) individually or in the aggregate do
not have a material adverse effect on Private, or (ii) will be cured or waived
prior to the Effective Time. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal or state governmental
authority is required by or with respect to Private in connection with the
execution and delivery of this Agreement, the Certificate of Merger, or the
consummation by Private of the transactions contemplated hereby or thereby, the
absence of which would have a material adverse effect upon Private, except for:
the filings by Private, or the Private Subsidiary, of any application or notice
with the, Illinois Commissioner of Banks and Real Estate ("Illinois
Commissioner"), FDIC and any other regulatory authorities having jurisdiction
over the transactions contemplated hereby (collectively, the "Applicable
Governmental Authorities") the parties specifically agree that the failure to
obtain such approval or consent shall not be a condition to the consummation of
the Merger; the filing by Private of the registration statement relating to the
Private Common Stock to be issued pursuant to this Agreement with the Securities
and Exchange Commission (the "SEC") and various blue sky authorities; the filing
of the Certificate of Merger with respect to the Merger with the Secretaries of
State of the State of Illinois and the State of Delaware; and any filings,
approvals or no-action letters with or from state securities authorities.
Private shall provide the TSFC stockholders, in a timely manner, with any and
all public information portions of filings described in this Section 2.3.
2.4 Capitalization. The current and pro-forma capitalization of Private
has been fully disclosed in Private's IPO Registration Statement (as defined
below). All of the issued and outstanding shares of Private Common Stock have
been, and all of the shares of Private to be issued in the Merger will be, at
the Effective Time, duly and validly authorized and issued, and are, or upon
issuance in the Merger will be, as the case may be, fully paid and non-
assessable. None of the outstanding shares of Private Common Stock has been
issued in violation of any preemptive rights and none of the outstanding shares
of Private Common Stock is or will be entitled to any preemptive rights in
respect of the Merger or any of the other transactions contemplated by this
Agreement. Private will, at the Effective Time, have a number of authorized but
unissued shares of Private Common Stock sufficient to pay the Merger
Consideration in accordance with Section 1.2(b) above.
2.5 Private Registration Statement; Financial Statements of Private.
Private has heretofore delivered to TSFC its S-1 Registration Statement ("IPO
Registration Statement") which has been prepared in preparation of the Private
Initial Public Offering, as filed with the Securities and
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Exchange Commission under the Securities Exchange Act of 1933, as amended. The
IPO Registration Statement is (y) true and correct in all material respects, and
(z) fairly represents all material information concerning Private as of the date
of filing.
The IPO Registration Statement contains: (a) the consolidated balance
sheets of Private and the Subsidiary as of December 31, for the fiscal years
1997 and 1998, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the fiscal years 1996 through 1998,
inclusive, accompanied by the audit report of Arthur Andersen LLP, independent
public accountants with respect to Private, and (b) the unaudited consolidated
balance sheet of Private and the Private Subsidiary as of March 31, 1999 and
March 31, 1998 and the related unaudited consolidated statements of income, cash
flows and changes in stockholders' equity for the three-month periods then ended
as set forth in the IPO Registration Statement. The December 31, 1998
consolidated balance sheet of Private (including the related notes, where
applicable) fairly presents the consolidated financial position of Private and
the Private Subsidiary as of the date thereof, and the other financial
statements referred to in this Section (including the related notes, where
applicable) fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount) the results of the
consolidated operations and changes in stockholders' equity and consolidated
financial position of Private and the Private Subsidiary for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been prepared in
all material respects in accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such statements or in the
notes thereto or, in the case of unaudited statements, as permitted by SEC
regulation. The books and record of Private and the Private Subsidiary have
been, and are being, maintained in all material respects in accordance with GAAP
and any other applicable legal and accounting requirements and reflect only
actual transactions.
2.6 Private Subsidiary. Private owns directly or indirectly all of the
issued and outstanding shares of capital stock of the Private Subsidiary. No
capital stock of the Private Subsidiary is or may become required to be issued
(other than to Private) by reason of any options, warrants, scrip, rights to
subscribe to, calls, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the capital
stock of the Private Subsidiary. There are no contracts, commitments,
understandings or arrangements relating to the rights of Private to vote or to
dispose of shares of the capital stock of the Private Subsidiary. All of the
shares of capital stock of the Private Subsidiary held by Private are fully paid
and non-assessable.
2.7 Private Reports. Since January 1, 1997, each of Private and the
Private Subsidiary has timely filed all reports and statements, together with
any amendment required to be made with respect thereto, that was required to be
filed with (i) the Applicable Governmental Authorities and (ii) any applicable
state banking, insurance, securities, or other regulatory authorities (except
filings which are not material). As of their respective dates (and without
giving effect to any amendments or modifications filed after the date of this
Agreement with respect to reports and documents filed
7
<PAGE>
before the date of this Agreement), each of such reports and documents,
including the financial statements, exhibits, and schedules thereto, complied in
all material respects with all of the statutes, rules, and regulations enforced
or promulgated by the authority with which they were filed and did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Except for normal
examinations conducted by the Internal Revenue Service, Department of Labor,
state, and local taxing authorities or the Applicable Governmental Authorities
in the regular course of the business of Private or the Private Subsidiary, no
federal, state or local governmental agency, commission or other entity has
initiated any proceeding or, to the best knowledge of Private, investigation
into the business or operations of Private or the Private Subsidiary within the
past three (3) years. There is no unresolved violation, criticism or exception
by the Applicable Governmental Authorities or other agency, commission or entity
with respect to any report or statement referred to herein that has had or is
expected to have a material adverse effect on the financial condition, earnings
or business of Private and the Private Subsidiary, taken as a whole.
2.8 Compliance With Laws. Private and the Private Subsidiary are each in
compliance with all applicable federal and state laws and regulations that
regulate or are concerned in any way with the business of a commercial bank,
including, without limitation, the BHCA and the Federal Deposit Insurance Act
("FDI Act"), and Private and the Private Subsidiary are in compliance with all
other applicable laws and regulations, except in each case where the failure to
comply would not have a material adverse effect on the financial condition,
earnings or business of Private and the Private Subsidiary, taken as a whole.
2.9 Litigation. There is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best of
the knowledge of Private, threatened against or affecting Private or the Private
Subsidiary, or any of their respective officers, directors, employees or agents,
in their capacities as such, which, if adversely determined, would have a
material adverse effect on Private or which would materially affect the ability
of Private to consummate the transactions contemplated herein or which is
seeking to enjoin consummation of the transactions provided for herein or to
obtain other relief in connection with this Agreement or the transactions
contemplated hereby or thereby, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Private or the Private
Subsidiary or any of their respective officers, directors, employees or agents,
in their capacities as such, having, or which could reasonably be foreseen to
have in the future, any such effect.
2.10 Taxation. To the best of the knowledge of Private, neither it nor the
Private Subsidiary has engaged in any act that would preclude or adversely
affect the Merger from qualifying as a tax-free reorganization under Section
368(a)(1)(A) of the Code.
2.11 Advice of Changes. Between the date hereof and the Effective Time,
Private shall promptly advise TSFC in writing of any fact or occurrence (other
than as contemplated herein) which,
8
<PAGE>
if existing or known as of the date hereof, would have been required to be set
forth or disclosed pursuant to this Agreement or of any fact which, if existing
or known as of the date hereof, would have made any of the representations
contained herein materially untrue.
2.12 Activities in Kane County. Prior to the closing of the Merger,
Private and/or Private Subsidiary shall not pursue any other expansion into Kane
County, other than the St. Charles office of Private Subsidiary in conjunction
with the TSFC stockholders as contemplated by this Agreement (the "Office"),
including, but not limited to, any branching activities or potential business
combinations.
2.13 Fox Valley Advisory Board. In the event Private receives regulatory
approval to establish the Office, Private, and Private Subsidiary, agree, upon
the opening of the Office, the TSFC stockholders, plus two additional
individuals mutually agreeable to Private and TSFC, will form the Fox Valley
Advisory Board of the Private Subsidiary. The members of the Fox Valley Advisory
Board will be compensated $200 per meeting attended. It is anticipated the Fox
Valley Advisory will meet monthly for at least the first full year following the
opening of the Office.
2.14 Tax Consequences of Merger. For U.S. federal income tax purposes, the
Merger will qualify as a tax-free reorganization under Section 368(a)(1)(A) of
the Code and accordingly, no gain or loss will be recognized by TSFC or the
holders of TSFC Common Stock upon the receipt of the Merger Consideration.
III.
REPRESENTATIONS AND WARRANTIES OF TSFC
TSFC represents and warrants to Private that:
3.1 Organization. TSFC is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite power and authority, corporate and otherwise, to own, operate and
lease its assets, properties and businesses and to carry on its businesses
substantially as they have been and are now being conducted. TSFC is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the properties owned or leased by it or the nature of the business
transacted by it requires that it be so qualified, except where the failure to
so qualify would not have a material adverse effect on TSFC or its ability to
consummate the transactions contemplated herein, and in the Certificate of
Merger. TSFC has all requisite corporate power and authority to enter into this
Agreement, and the Certificate of Merger and, upon the approval of all requisite
state and federal regulatory agencies and in the case of this Agreement, the
majority of the shares of stock of TSFC as hereinafter provided, to consummate
the transactions contemplated hereby and thereby.
9
<PAGE>
3.2 Authorization. The execution, delivery and performance of this
Agreement, and the Certificate of Merger, and the consummation of the
transactions contemplated hereby and thereby have been duly and unanimously
approved and authorized by TSFC's Board of Directors, and all necessary
corporate action on the part of TSFC has been taken, subject to the approval of
this Agreement by the stockholders of TSFC. This Agreement has been, and the
Certificate of Merger will be, duly executed and delivered by TSFC and, subject
to the approval of all requisite state and federal regulatory agencies, and, in
the case of this Agreement, the approval by the stockholders of TSFC, and
constitutes the valid and binding obligation of TSFC (except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or
doctrines). Neither the Certificate of Incorporation nor the by-laws of TSFC
will need to be amended to effectuate the transactions contemplated by this
Agreement.
3.3 Conflicts. The execution and delivery of this Agreement and the
Certificate of Merger do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with or result in any
violation of the Certificate of Incorporation or By-laws of TSFC. The execution
and delivery of this Agreement and the Certificate of Merger do not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with or result in any violation, breach or termination of, or default
or loss of a material benefit under, or permit the acceleration of, any
obligation or result in the creation of any material lien, charge or encumbrance
on any property or assets under any provision of any mortgage, indenture, lease,
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to TSFC or their respective properties other than any such conflicts, violations
or defaults which (i) individually or in the aggregate do not have a material
adverse effect on TSFC, or (ii) will be cured or waived prior to the Effective
Time. No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal or state governmental authority is
required by or with respect to TSFC in connection with the execution and
delivery of this Agreement or the consummation by TSFC of the transactions
contemplated hereby or thereby, the absence of which would have a material
adverse effect upon TSFC except for: the filings by Private of applications or
notices with the Applicable Government Authorities; the filing by Private of the
Registration Statement with the SEC relating to the Stockholder vote on this
Agreement on Form S-4 (the "S-4 Registration Statement") and the effectiveness
thereof; the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware.
3.4 Capitalization and Stockholders. As of the date hereof, the authorized
capital stock of TSFC consists of the following:
<TABLE>
<CAPTION>
Class of Par
Stock Value Authorized Issued Outstanding Treasury
- -------- ----- ---------- ------ ----------- --------
<S> <C> <C> <C> <C> <C>
Common $0.01 1,000,000 6,000 6,000 -0-
</TABLE>
10
<PAGE>
All of the issued and outstanding shares of TSFC Common Stock have been duly and
validly authorized and issued, and are fully paid and non-assessable. None of
the outstanding shares of TSFC Common Stock are subject to any preemptive rights
of the current or past stockholders of TSFC. All of the issued and outstanding
shares of TSFC Common Stock will be entitled to vote to approve the Agreement.
3.5 TSFC Financial Information. TSFC has heretofore delivered to Private
any existing, forecasted or other financial statements, business plans, real
estate appraisals, marketing studies and similar information relating to its
proposed plan of operation for the period ended June 1, 1999 (the "TSFC
Financial Information"). The TSFC Financial Information has been prepared in
good faith.
3.6 Compliance With Laws. The business of TSFC is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, and
any statutes or ordinances relating to the properties occupied or used by TSFC,
except for possible violations which either singly or in the aggregate do not
and, insofar as reasonably can be foreseen in the future, will not have a
material adverse effect on TSFC.
3.7 Disclosure. None of the information relating to TSFC, and provided by
TSFC to Private in writing, which is contained in the S-4 Registration
Statement, will, at the time it becomes effective and at the Effective Time
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading.
3.8 Litigation. There is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best of
the knowledge of TSFC, threatened against or affecting TSFC, or any of their
respective officers, directors, employees or agents, in their capacities as
such, which is seeking damages against TSFC, or any of their respective
officers, directors, employees or agents, in their capacities as such, in excess
of $1,000, or which would materially affect the ability of TSFC to consummate
the transactions contemplated herein or which is seeking to enjoin consummation
of the transactions provided for herein (including the opening of the Office) or
to obtain other relief in connection with this Agreement or the transactions
contemplated hereby or thereby, and judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against TSFC or any of their respective officers,
directors, employees or agents, in their capacities as such, having, or which
could reasonably be foreseen to have in the future any such effect.
3.9 Licenses. TSFC has not been required to obtain any licenses,
certificates, permits, service marks, trade names, copyrights or rights thereto,
adequate authorizations, approvals, consents, licenses, clearances and orders or
registrations with any appropriate federal, state or other authorities that are
material to the conduct of its business as now conducted.
3.10 Taxes. TSFC has filed any and all tax returns required to be filed
(all such returns being correct and complete in all material respects) and has
paid, or has accrued on its books and set
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up an adequate reserve for the payment of, all taxes required to be paid in
respect of the periods covered by such returns. TSFC is not delinquent in the
payment of any tax, assessment or governmental charge. No deficiencies for any
taxes have been proposed, asserted or assessed against TSFC that have not been
resolved or settled and no requests for waivers of the time to assess any such
tax are pending or have been agreed to. TSFC is not a party to any action or
proceeding by any governmental authority for the assessment or the collection of
taxes.
3.11 Disclosure Schedule of TSFC. Exhibit B hereto contains, and shall be
supplemented by TSFC as required by Section 5.8 hereof, so as to contain at the
Closing Date the following information and copies of the following documents,
certified by an officer of TSFC to be true and correct copies of such documents
on the dates of such certificates:
(a) A list and description of each material contract or agreement
involving goods, services or occupancy and which (i) has a term of more than six
months; (ii) cannot be terminated on thirty days, (or less) written notice
without penalty; and (iii) involves an annual expenditure by TSFC in excess of
$1,000.
(b) A list and description of each material commitment made by TSFC
to or with any director, officer or employee of TSFC extending for a period of
more than three months from the date hereof or providing for earlier termination
only upon the payment of a penalty or equivalent thereto.
(c) Complete and correct copies of the Certificate of Incorporation,
By-laws and specimen certificates of each type of security issued by TSFC.
3.12 Operations Since June 1, 1999. Between June 1, 1999, and the date
hereof, TSFC has not actively pursued the formation of a de novo Illinois
chartered bank to be located in St. Charles, Illinois.
3.13 Corporate Records. The corporate record books, transfer books and
stock ledgers of TSFC are complete and accurate in all material respects and
reflect all meetings, consents and other material actions of the organizers,
incorporators, stockholders, Boards of Directors and committees of the Boards of
Directors of TSFC, and all transactions in its capital stock.
3.14 Tax Matters. To the best knowledge of TSFC it has not engaged in any
act that would preclude or adversely affect the Merger from qualifying as a tax-
free reorganization under Section 368(a)(1)(A) of the Code.
3.15 Advice of Changes. Between the date hereof and the Effective Time,
TSFC shall promptly advise Private in writing of any fact which, if existing or
known as of the date hereof, would have been required to be set forth or
disclosed in or pursuant to this Agreement or of any fact which, if existing or
known as of the date hereof, would have made any of the representations
contained herein untrue.
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IV.
COVENANTS
4.1 Conduct of Business by TSFC Until the Effective Time. During the
period commencing on the date hereof and continuing until the Effective Time or
the termination of the Agreement pursuant to Section 7.1, TSFC agrees (except as
expressly contemplated by this Agreement or to the extent that Private shall
otherwise consent in writing which consent shall not be unreasonably withheld)
that:
(a) TSFC will cease any and all actions by TSFC, its stockholders,
directors or officers to organize or obtain a charter for an Illinois chartered
"de novo" bank and instead will focus all such actions toward the establishment
of an Office of Subsidiary in the same business purview with the same intended
plan of operation as the now abandoned de novo bank business plan.
(b) TSFC will use their best efforts to comply promptly with all
requirements which federal or state law may impose on it with respect to the
Merger and will promptly cooperate with and furnish information to Private in
connection with any such requirements imposed upon it in connection with the
Merger.
(c) TSFC will use its best efforts to obtain (and to cooperate with
Private in obtaining) any consent, authorization or approval of, or any
exemption by, any governmental authority or agency, or other third party,
required to be obtained or made by them in connection with the Merger or the
taking of any action contemplated hereby. TSFC will not knowingly or willfully
take any action that would adversely affect the ability of such party to perform
its obligations under this Agreement.
(d) TSFC will not declare or pay any dividends on or make other
distributions with respect of capital stock.
(e) TSFC will not amend its respective Certificates of Incorporation
or by-laws, except as contemplated by this Agreement.
(f) TSFC will not incur any debts, liabilities or charges from the
date hereof.
4.2 Conduct of Business by Private Until the Effective Time. During the
period commencing on the date hereof and continuing until the Effective Time,
Private agrees (except as expressly contemplated by this Agreement or to the
extent that TSFC shall otherwise consent in writing which consent shall not be
unreasonably withheld) that:
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(a) Except as contemplated by this Agreement, Private and the Private
Subsidiary will carry on their respective businesses in, and only in, the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, maintain their respective books in accordance with generally accepted
accounting principles, and conduct their respective businesses and operations
only in accordance with safe and sound banking and business practices.
(b) Private will, and will cause the Private Subsidiary to, use their
best efforts to comply promptly with all requirements which federal or state law
may impose on any of them with respect to the Merger and will promptly cooperate
with and furnish information to TSFC in connection with any such requirements
imposed upon any of them in connection with the Merger.
(c) Private will, and will cause the Private Subsidiary to, use their
best efforts to obtain (and to cooperate with TSFC in obtaining) any consent,
authorization or approval of, or any exemption by, any governmental authority or
agency, or other third party, required to be obtained or made by any of them in
connection with the Merger or the taking of any action contemplated hereby.
4.3 Execution of the Advisory Board and Support Agreement. On the Closing
Date and as a condition of the Merger, Private and each stockholder of TSFC
shall enter into an advisory board and support agreement substantially in the
form attached hereto as Exhibit C (the "Advisory Board Agreement").
4.4 Execution of the Stock Restriction Agreement. On the Closing Date and
as a condition of the Merger, Private and each stockholder of TSFC shall enter
into a stock restriction agreement substantially in the form attached here as
Exhibit D (the "Stock Restriction Agreement").
4.5 Capital Stock. Except for or as otherwise permitted in or contemplated
by this Agreement, without the prior written consent of Private, from the date
of this Agreement to the earlier of the Effective Time or the termination of
this Agreement, TSFC shall not, and shall not enter into any agreement to,
issue, sell or otherwise permit to become outstanding any additional shares of
TSFC Common Stock, preferred stock, or any other capital stock of TSFC, or any
stock appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock, or any security convertible into any such stock. No
additional shares of TSFC Common Stock shall become subject to new grants of
employee stock options, stock appreciation rights or similar stock based
employee compensation rights.
4.6 Execution of Lease. On the Closing Date and as a condition of the
Merger, Private Subsidiary and Towne Square Realty, L.L.C., shall enter into a
lease for the property located at 24 South Second Street, St. Charles, Illinois
60174 substantially in the form attached hereto as Exhibit F (the "Lease
Agreement").
4.7 Execution of Employment and Non-Compete and Support Agreement. On the
Closing Date and as a condition of the Merger, Thomas N. Castronovo and Private
Subsidiary shall
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<PAGE>
enter into Employment Agreement and a Non-Compete and Support Agreement
substantially in the form attached hereto as Exhibit E.
V.
ADDITIONAL AGREEMENTS
5.1 Inspection of Records; Confidentiality.
(a) TSFC shall afford to Private and Private's accountants, counsel
and other representatives, full access during normal business hours during the
period prior to the Effective Time to all of its properties, employees, books,
contracts, commitments and records, including all attorneys' responses to
auditors' requests for information, and accountants' work papers, developed by
TSFC or their accountants or attorneys, and will permit TSFC's representatives
to discuss such information directly with Private's officers, directors,
employees, attorneys and accountants. No investigation by Private shall affect
the representations and warranties of TSFC herein and each such representation
and warranty shall survive any such investigation.
(b) In the event that this Agreement is terminated, each party shall
return all nonpublic documents furnished to it hereunder, shall destroy all
documents or portions thereof that contain nonpublic information furnished by
the other party pursuant hereto and, in any event, shall hold all nonpublic
information received pursuant hereto in the same degree of confidence with which
it maintains its own like information unless or until such information is or
becomes a matter of public knowledge or is or becomes known to the party
receiving the information through persons other than the party providing such
information.
5.2 Board Representation. TSFC will be entitled to designate one (1)
individual to serve on the Board of Directors of Private, with the selected
individual being mutually agreeable to Private and TSFC. The TSFC Director shall
serve as a Class III director of the Surviving Corporation, with his term
expiring in April, 2001. Upon the expiration of the TSFC Director's initial
term, Private agrees to nominate an individual mutually agreeable to Private and
TSFC for one (1) additional term.
5.3 Brokers. Each of Private and TSFC represents that no agent, broker,
investment banker or other firm or person or officer or director of either is or
will be entitled to any broker's or finder's fee or any other commission, bonus
or similar fee in connection with any of the transactions contemplated by this
Agreement.
5.4 Cooperation. Each of Private and TSFC covenants that, unless this
Agreement is terminated as provided herein, it will use its best efforts to
bring about the transactions contemplated by this Agreement as soon as
practicable, and that it will not willfully or intentionally breach this
Agreement. Subject to the terms and conditions herein provided, each of Private
and TSFC agrees to use all reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and
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make effective the transactions contemplated by this Agreement. In case at any
time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and/or directors of Private or TSFC, as the
case may be, shall take all such necessary action. Each party shall use its
reasonable best efforts to preserve for itself and each other party each
available legal privilege with respect to confidentiality of their negotiations
and related communications including the attorney-client privilege.
5.5 Regulatory Applications. Private shall, as soon as practicable, file
applications or notices with the Applicable Regulatory Authorities to open the
Office, and shall use its best efforts to respond as promptly as practicable to
all inquiries received concerning said applications; provided, however, that
Private shall have no obligation to accept non-standard conditions or
restrictions with respect to the aforesaid approvals of governmental authorities
with respect to opening the Office if it shall reasonably determine that such
conditions or restrictions would have a material adverse effect on Private or
the Surviving Corporation or would be materially burdensome to Private and the
Private Subsidiary, or the Surviving Corporation. In the event the Merger is
challenged or opposed by any administrative or legal proceeding, whether by the
United States Department of Justice or otherwise, the determination of whether
and to what extent to seek appeal or review, administrative or otherwise, or
other appropriate remedies shall be made by Private after consultation with
TSFC. Private shall deliver a draft of the non-confidential portions of all
regulatory applications to TSFC prior to filing them and copies of the non-
confidential portions of all responses from or written communications from
regulatory authorities relating to the Merger or this Agreement (to the extent
permitted by law), and Private shall deliver a final copy of the non-
confidential portions of all regulatory applications to TSFC promptly after they
are filed with the appropriate regulatory authority.
5.6 Notice. At all times prior to the Effective Time, each party shall
give prompt notice to the other of the occurrence or its knowledge of any event
or condition that would cause any of its representations or warranties set forth
in this Agreement not to be true and correct in all material respects as of the
date of this Agreement or as of the Effective Time or any of its obligations set
forth in this Agreement required to be performed at or prior to the Effective
Time not to be performed in all material respects at or prior to the Effective
Time, including without limitation, any event, condition, change or occurrence
which individually, or in the aggregate with any other events, conditions or
changes that have occurred after the date hereof, has or which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a material adverse effect on it. After receipt of any such notice
disclosing a material breach, the non-disclosing party may, within two business
days thereof, notify the disclosing party of its intent to terminate this
Agreement pursuant to Section 7.1(c); provided, however, that the disclosing
party shall have the right to cure such breach within 10 days thereof but no
later than the Effective Time. In the event the non-disclosing party fails to
notify the disclosing party of its intent to terminate within two business days
after receipt of any notice hereunder, the non-disclosing party shall be deemed
to have waived its right of termination as to any such breach arising out of or
with respect to the events, conditions, change or occurrence described in such
notice; provided, however, that any particular breach that is deemed to have
been waived by the non-disclosing party may thereafter be considered by the non-
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disclosing party in determining the aggregate contribution of all events,
conditions, changes and occurrences described by the disclosing party pursuant
to this Section 5.7 toward the occurrence of a material breach by the closing
party.
5.7 Press Releases. Private and TSFC shall coordinate all publicity
relating to the transactions contemplated by this Agreement and, except as
otherwise required by law, or with respect to employee meetings, neither party
shall issue any press release, publicity statement or other public notice
relating to this Agreement or any of the transactions contemplated hereby
without obtaining the prior consent of the other, which consent shall not be
unreasonably withheld. TSFC shall obtain the prior consent of Private to the
content of any communication to its stockholders.
5.8 Delivery of Supplements to Disclosure Schedules. Five (5) business
days prior to the Effective Time, TSFC will supplement or amend Exhibit B with
respect to any matter hereafter arising which, if existing or occurring at or
prior to the date of this Agreement, would have been required to be set forth or
described in such exhibit or which is necessary to correct any information in
Exhibit B or in any representation and warranty made by the disclosing party
which has been rendered inaccurate thereby.
5.9 Tax Opinion. Private and TSFC agree to use their reasonable efforts
to obtain a written opinion ("Tax Opinion") of Vedder, Price, Kaufman &
Kammholz, or such other counsel or nationally recognized accounting firm as
mutually agreed between the parties, addressed to Private, TSFC, and the TSFC
stockholders, dated the Closing Date, subject to the customary representations
and assumptions referred to therein, and substantially to the effect that (a)
the Merger will constitute a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Code and Private and TSFC will each be a party to
such reorganization; (b) the exchange in the Merger of Private Common Stock for
TSFC Common Stock representing the Merger consideration will not give rise to
the recognition of any income, gain or loss to Private, TSFC, or the
stockholders of TSFC with respect to such exchange except, with respect to the
stockholders of TSFC, to the extent of cash received for fractional shares; (c)
the adjusted tax basis of the Private Common Stock received by TSFC stockholders
in the Merger will equal the adjusted tax basis of the TSFC Common Stock
exchanged therefor decreased by the amount of money received in the exchange and
increased by the amount of gain recognized in the exchange; (d) the holding
period of the Private Common Stock received in the Merger will include the
period during which the shares of TSFC Common Stock surrendered in exchange
therefor were held, provided such shares of TSFC Common Stock were held as a
capital asset at the Effective Time; (e) the adjusted tax basis of the assets of
TSFC in the hands of Private will be the same as the adjusted tax basis of such
assets in the hands of TSFC immediately prior to the exchange; and (f) the
holding period of the assets of TSFC transferred to Private will include the
period during which such assets were held by TSFC prior to the exchange. The
costs associated with the Tax Opinion shall be paid by Private.
5.10 Tax Treatment. Neither TSFC nor Private or the Private Subsidiary,
nor any of their affiliates, shall voluntarily take any action which would cause
the Merger to fail to qualify as a tax-free reorganization under Section
368(a)(1)(A) of the Code. In addition, Private and TSFC agree
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to take any and all necessary or advisable steps to restructure or modify the
terms of the transaction contemplated hereby, if such steps are necessary or
advisable to qualify the transaction contemplated hereby as a tax-free
reorganization under Section 368(a)(1)(A) of the Code; provided, however,
nothing contained in this Section 5.10 shall be deemed to require either party
to take any steps which will change the Merger Consideration provided for in
Section 1.2 above.
5.11 Tax Indemnification. If, as a result of a Final Determination (as
defined below), the representation contained in Section 2.14 is incorrect, then
Private shall indemnify and hold harmless each TSFC stockholder on an After-Tax
Basis (as defined below) for any additional U.S. federal and state income taxes,
including interest and penalties associated therewith, that are incurred by such
TSFC stockholder in connection with the receipt of the Merger Consideration.
Each TSFC stockholder shall promptly notify Private in writing upon the receipt
of any notification of a tax audit or proposed assessment with respect to the
income tax consequences of the receipt of the Merger Consideration. To the
extent allowable under applicable law, Private shall, through its independent
tax counsel and at Private's expense, contest any proposed adjustment with
respect to the Merger Consideration and shall control the conduct of such
contest. In the event Private is unable to contest such proposed adjustment,
such TSFC stockholder shall contest such proposed adjustment and shall cooperate
with Private as to the conduct of such contest and keep Private informed as to
the progress of such contest. In no event shall any TSFC stockholder settle any
proposed adjustment without the written consent of Private. Any amounts payable
by Private to any TSFC stockholder under this Section 5.11 shall be paid within
thirty (30) days of a Final Determination. For purposes of this Section 5.11, a
"Final Determination" shall mean (i) a decision, judgment or other order by any
court of competent jurisdiction, which decision, judgment or other order has
become final after all allowable appeals by either party to the action have been
exhausted or the time for filing such appeal has expired, (ii) a closing
agreement or other settlement agreement entered into in connection with an
administrative or judicial proceeding and with the written consent of Private or
(iii) the expiration of the time for instituting an assessment with respect to
the receipt of the Merger Consideration, and "After-Tax Basis" shall mean, with
respect to any payment to be made under this Section 5.11, an amount which,
after deduction of all Taxes required to be paid by the recipient with respect
to the receipt of such amount (net of any deductions or credits realized by the
recipient arising from the making of a payment of such Taxes to a governmental
authority), is equal to the payment required to be made under this Section 5.11.
VI.
CONDITIONS
6.1 Conditions to the Obligations of Private. Notwithstanding any other
provision of this Agreement, the obligations of Private to consummate the Merger
are subject to the following conditions precedent:
(a) All of the representations and warranties made by TSFC in this
Agreement and in any documents or certificates provided by TSFC shall have been
true and correct in all material
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respects as of the date of this Agreement and as of the Effective Time as though
made on and as of the Effective Time.
(b) TSFC shall have performed in all material respects all
obligations and shall have complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time.
(c) Except as specifically contemplated herein, there shall not have
been any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any federal or state
government or governmental agency or instrumentality or court, which would
prohibit Private's ownership or operation of all or a material portion of TSFC's
business or assets, or to conduct the activities set forth in the TSFC business
plan, whether immediately at the Effective Time or as of some future date,
whether specified or to be specified, or would compel Private to dispose of or
hold separate all or a material portion of TSFC's business or assets, or not to
conduct the activities set forth in the TSFC business plan, whether immediately
at the Effective Time or as of some future date, whether specified or to be
specified as a result of this Agreement, or which would render Private or TSFC
unable to consummate the transactions contemplated by this Agreement.
(d) As of the Closing Date, there shall have been no material adverse
change in the operations, financial condition or business prospects of TSFC from
that which was represented and warranted on the date of this Agreement pursuant
to this Agreement, it being understood that any updates provided pursuant to
Section 5.8 hereof do not constitute a waiver or other consent to any Adverse
Change in TSFC.
(e) Private shall have received a certificate signed by the President
and Chief Executive Officer of TSFC, dated as of the Effective Time, certifying
that based upon his knowledge, the conditions set forth in Sections 6.1(a) and
6.1(b) hereto have been satisfied.
(f) The Employment Agreement and the Non-Compete and Support
Agreement with Thomas N. Castronovo shall be in full force and effect.
(g) Each of the Stock Restriction Agreement, the Advisory Board and
Support Agreements and the Lease Agreement shall also be in full force and
effect.
6.2 Conditions to the Obligations of TSFC. Notwithstanding any other
provision of this Agreement, the obligations of TSFC to consummate the Merger
are subject to the following conditions precedent:
(a) All of the representations and warranties made by Private in this
Agreement and in any documents or certificates provided by Private shall have
been true and correct in all material respects as of the date of this Agreement
and as of the Effective Time as though made on and as of the Effective Time.
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(b) Private shall have performed in all material respects all
obligations and shall have complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time.
(c) TSFC shall have received a certificate signed by the Chief
Executive Officer of Private, dated as of the Effective Time, that based upon
such Chief Executive Officer's best knowledge, the conditions set forth in
Sections 6.2(a) and (b) have been satisfied.
(d) Towne Square Realty L.L.C. and Private Subsidiary shall have
entered into, and executed, a lease for the property located at 24 South Second
Street, St. Charles, Illinois 60174 substantially in the form attached hereto as
Exhibit F.
(e) TSFC, and the TSFC stockholders, shall have received the Tax
Opinion described in Section 5.9.
(f) Private shall not have refused to enter into the Employment
Agreement and Non-Compete and Support Agreement with Thomas N. Castronovo.
(g) Private shall not have refused to enter into the Stock
Restriction Agreement, Advisory Board and Support Agreements and the Lease
Agreement.
6.3 Conditions to the Obligations of the Parties. Notwithstanding any
other provision of this Agreement, the obligations of Private on the one hand,
and TSFC on the other hand, to consummate the Merger are subject to the
following conditions precedent:
(a) No preliminary or permanent injunction or other order by any
federal or state court which prevents the consummation of the Merger shall have
been issued and shall remain in effect.
(b) This Agreement and the Merger shall have been duly approved by
the requisite vote of the stockholders of TSFC at a meeting duly called and held
for such purpose, or such stockholders shall have executed an unanimous written
consent in lieu thereof.
(c) Private shall have received the necessary approvals (other than
approval relating to the opening of the Office from the Applicable Regulatory
Authorities) of the Applicable Governmental Authorities to acquire TSFC and to
consummate the transactions contemplated hereby and all required waiting periods
relating thereto shall have expired.
(d) The S-4 Registration Statement shall have been declared effective
under the Securities Act and no stop orders shall be in effect and no
proceedings for such purpose shall be pending or threatened by the SEC, or any
other necessary securities law compliance shall have been achieved.
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(e) Assuming the Private Initial Public Offering has been, or will
be, accomplished as herein provided, the shares of Private Common Stock which
are to be issued to the stockholders of TSFC upon consummation of the Merger
shall have been authorized for listing on The Nasdaq Stock Market, subject to
official notice of issuance.
VII.
TERMINATION; AMENDMENT; WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) By mutual written consent of the Board of Directors of Private
and the Board of Directors of TSFC;
(b) At any time prior to the Effective Time, by Private or TSFC if
there shall have been a final judicial or regulatory determination (as to which
all periods for appeal shall have expired and no appeal shall be pending) that
any material provision of this Agreement is illegal, invalid or unenforceable
(unless the enforcement thereof is waived by the affected party) or denying any
regulatory application, the approval of which is a condition precedent to either
party's obligations hereunder;
(c) By Private or TSFC in the event of the material breach by the
other party of any representation, warranty, covenant or agreement contained
herein or in any schedule or document delivered pursuant hereto, which breach
would result in the failure to satisfy the closing conditions set forth in
Section 6.1 hereof, in the case of Private, or Section 6.2 hereof, the case of
TSFC, except in each case, for any such breach which has been disclosed pursuant
to Section 5.8 and waived by the non-disclosing party or cured by the disclosing
party prior to the Effective Time; or
(d) By either party on or after November 1, 1999, in the event the
Merger has not been consummated by such date (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein).
7.2 Expenses. Except as provided elsewhere herein, Private and TSFC shall
each bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel. In the event one of the parties hereto files suit to
enforce this Section or a suit seeking to recover costs and expenses or damages
for breach of this Agreement, the costs, fees, charges and expenses (including
attorneys' fees and expenses) of the prevailing party in such litigation (and
any related litigation) shall be borne by the losing party.
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7.3 Survival of Agreements. In the event of termination of this Agreement
by either Private or TSFC as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect except that (i) the agreements
contained in Sections 5.1, 5.4, 5.5, 7.2 and 7.3 hereof shall survive the
termination hereof.
7.4 Amendment. This Agreement may be amended by the parties hereto by
action taken by their respective Boards of Directors at any time before or after
approval hereof by the stockholders of TSFC but, after such approval, no
amendment shall be made which changes the form of consideration or adversely
affects or decreases the value of the consideration to be received by the
stockholders of TSFC without the further approval of such stockholders or which
in any other way adversely affects the rights of stockholders of either TSFC or
Private without the further approval of the stockholders so affected. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. Private and TSFC may, without approval of their
respective Boards of Directors, make such technical changes to this Agreement,
not inconsistent with the purposes hereof and thereof, as may be required to
effect or facilitate any governmental approval or acceptance of the Merger or of
this Agreement or to effect or facilitate any filing or recording required for
the consummation of any of the transactions contemplated hereby.
7.5 Waiver. Any term, provision or condition of this Agreement (other than
requirements for stockholders' approval and required approvals of the Applicable
Government Authorities) may be waived in writing at any time by the party which
is, or the stockholders of which are, entitled to the benefits hereof. Each and
every right granted to any party hereunder, or under any other document
delivered in connection herewith or therewith, and each and every right allowed
it by law or equity, shall be cumulative and may be exercised from time to time.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by any party of a condition or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement. No investigation, review or audit
by Private of TSFC or TSFC of Private prior to or after the date hereof shall
estop or prevent either party from exercising any right hereunder or be deemed
to be a waiver of any such right.
VIII.
GENERAL PROVISIONS
8.1 Survival. All representations, warranties, covenants and agreements of
the parties in this Agreement or in any instrument delivered by the parties
pursuant to this Agreement (other than the agreements, covenants and obligations
set forth herein which are contemplated to be performed after the Effective
Time) shall not survive the Effective Time.
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8.2 Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by facsimile
transmission or by registered or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice) and shall be deemed to be delivered on the date so delivered:
<TABLE>
<CAPTION>
<S> <C>
(a) if to Private: Ralph B. Mandell
Chairman, President and
Chief Executive Officer
PrivateBancorp, Inc.
Ten North Dearborn
Chicago, Illinois 60602
Telephone Number: (312) 683-7106
Facsimile Number: (312) 683-1493
copy to: Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60603
Attention: Daniel O'Rourke, Esq.
Telephone Number: (312) 609-7500
Facsimile Number: (312) 609-5005
(b) if to TSFC: Thomas N. Castronovo
President & CEO
Towne Square Financial Corporation
1536 Fargo Boulevard
Geneva, Illinois 60134
Telephone Number: (630) 208-1997
Facsimile Number: (630) 262-2516
copy to: John J. Hoscheit
Hoscheit & McGuirk, P.C.
1001 East Main Street
Suite B
St. Charles, Illinois 60174
Telephone Number: (630) 513-8700
Facsimile Number: (630) 513-8799
</TABLE>
8.3 Specific Enforceability. The parties recognize and hereby acknowledge
that it is impossible to measure in money the damages that would result to a
party by reason of the failure of either of the parties to perform any of the
obligations imposed on it by this Agreement and that in any event damages would
be an inadequate remedy in this instance. Accordingly, if any party should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the party against which such action or proceeding is brought hereby
waives the claim or defense that the party
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instituting such action or proceeding has an adequate remedy at law and hereby
agrees not to assert in any such action or proceeding the claim or defense that
such a remedy at law exists and shall waive or not assert any requirement to
post bond in connection with seeking specific performance.
8.4 Applicable Law. This Agreement shall be construed and interpreted in
all respects, including validity, interpretation and effect, by the laws of the
State of Illinois with respect to matters of corporate laws and, with respect to
all other matters, by according the laws of the State of Illinois, except to the
extent that the federal laws of the United States apply.
8.5 Headings, Etc. The article headings and section headings contained in
this Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.6 Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a final and unappealable order of a court
of competent jurisdiction to be invalid, void, or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated unless the effect would be to cause this
Agreement to not achieve its essential purposes.
8.7 Entire Agreement; Binding Effect; Non-Assignment; Counterparts. Except
as otherwise expressly provided herein, this Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement between
the parties hereto and supersedes all other prior agreements and undertakings,
both written and oral, between the parties, with respect to the subject matter
hereof; and (b) is not intended to confer upon any other person any rights or
remedies hereunder except as specifically provided herein. This Agreement shall
be binding upon and inure to the benefit of the parties named herein and their
respective successors. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other parties hereto. This Agreement may be executed in
two or more counterparts which together shall constitute a single agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
PrivateBancorp, Inc.
By: /s/ Donald A. Roubitchek
--------------------------
Its: Chief Financial Officer
-------------------------
Towne Square Financial Corporation
By: /s/ Thomas N. Castronovo
--------------------------
Its: President & Chief Executive Officer
-----------------------------------
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Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 29, 1999 (and to all references to our Firm) included in or
made a part of this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
June 25, 1999
<PAGE>
EXHIBIT 99.1
[LETTER HEAD OF NATIONAL DECISIONS SYSTEMS]
CONSENT OF NATIONAL DECISION SYSTEMS, INC.
To: The Board of Directors of PrivateBancorp, Inc.
We hereby consent to the reference to us and to the use of certain forecasted
and projected demographic data provided by us for the years 1990, 1998 and 2003
in the Prospectus constituting a portion of this Registration Statement.
By giving this consent, we do not concede that we are experts for purposes of
Section 7(a) of the Securities Act of 1933, as amended.
Sincerely,
/s/ National Decision Systems
National Decision Systems, Inc.
dated as of June 25, 1999
