<PAGE>
As filed with the Securities and Exchange Commission on December 22, 2000.
Registration No. 333-
Registration No. 333- -01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PRIVATEBANCORP, INC. PRIVATEBANCORP CAPITAL TRUST I
(Exact name of Co-Registrants as specified in charters)
<TABLE>
<S> <C> <C> <C>
Delaware 36-3681151 Delaware Applied for
(State or Other Jurisdiction of (I.R.S. Employer (State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.) Incorporation or Organization) Identification Number)
</TABLE>
6022
(Primary Standard Industrial Classification Code Number)
Ten North Dearborn Street, Chicago, Illinois 60602
(312) 683-7100
(Address, including zip code, and telephone
number, including area code, of
Co-Registrants' principal executive
offices)
Gary L. Svec
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 for Co-Registrants)
Copies To:
Jennifer R. Evans, Esq. Thomas C. Erb, Esq.
Jennifer D. King, Esq. Tom W. Zook, Esq.
Vedder, Price, Kaufman & Kammholz Lewis, Rice & Fingersh, L.C.
222 North LaSalle Street 500 N. Broadway, Suite 2000
Chicago, Illinois 60601 St. Louis, Missouri 63102
(312) 609-7500 (314) 444-7600
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 statement 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 statement 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. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Aggregate Offering Aggregate Amount of
Securities to be Registered Registered/(1)/ Price per Share Offering Price Registration Fee/(2)/
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
___ % Cumulative Trust Preferred
Securities of PrivateBancorp Capital
Trust I............................... 2,000,000 $10.00 $20,000,000 $5,000
___ % Junior Subordinated Debentures
due 2030 of PrivateBancorp, Inc./(3)(4)/
Guarantee of Preferred Securities/(3)(5)/...
====================================================================================================================================
</TABLE>
(1) Includes 200,000 of preferred securities which may be sold by
PrivateBancorp Capital Trust I to cover over-allotments.
(2) The registration fee is calculated in accordance with Rule 457(i) and (n).
(3) This Registration Statement is deemed to cover the __% Junior Subordinated
Debentures due 2030 of PrivateBancorp, Inc., the rights of holders of ___%
Junior Subordinated Debentures of PrivateBancorp, Inc. under the Indenture,
and the rights of holders of the Preferred Securities under the Trust
Agreement, the Guarantee and the Expense Agreement entered into by
PrivateBancorp, Inc.
(4) The ___% Junior Subordinated Debentures due 2030 will be purchased by
PrivateBancorp Capital Trust I with the proceeds of the sale of the
Preferred Securities. Such securities may later be distributed for no
additional consideration to the holders of the Preferred Securities of
PrivateBancorp Capital Trust I upon its dissolution and the distribution of
its assets.
(5) No separate consideration will be received for this Guarantee.
The Registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrants
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.
<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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 22, 2000.
PROSPECTUS
1,800,000 Preferred Securities
PRIVATEBANCORP CAPITAL TRUST I
% Cumulative Trust Preferred Securities
(Liquidation Amount $10 Per Preferred Security)
Fully, irrevocably and unconditionally guaranteed
on a subordinated basis, as described in this prospectus, by
PRIVATEBANCORP, INC. [LOGO]
____________________
PrivateBancorp Capital Trust I is offering 1,800,000 preferred
securities at $10 per security. The preferred securities represent an indirect
interest in our __% subordinated debentures. The debentures have the same
payment terms as the preferred securities and will be purchased by the trust
using the proceeds from its offering of the preferred securities.
The preferred securities are expected to be approved for inclusion in
the Nasdaq National Market under the symbol "PVTBP." Trading is expected to
commence on or prior to delivery of the preferred securities.
____________________
Investing in the preferred securities involves risks. See "Risk Factors"
beginning on page 9.
____________________
The preferred securities are not savings accounts, deposits or
obligations of any bank and are not insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation or any other governmental agency.
Per Preferred
Security Total
------------- -----------
Public offering price........................ $10.00 $18,000,000
Proceeds to the trust........................ $10.00 $18,000,000
This is a firm commitment underwriting. We will pay underwriting
commissions of $ per preferred security, or a total of $ , to the underwriters
for arranging the investment in our junior subordinated debentures. The
underwriters have been granted a 30-day option to purchase up to an additional
200,000 preferred securities to cover over-allotments, if any.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
--------------------------------------------------------------------------------
Stifel, Nicolaus & Company Legg Mason Wood Walker
Incorporated Incorporated
, 2000
<PAGE>
PrivateBancorp, Inc.
--------------------------------------------------------------------------------
[Map of greater Chicago, Illinois and St. Louis,
Missouri metropolitan areas depicting locations of
Company's banking facilities and main bank office.]
and
[graphic of services offered]
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. Because this is a summary, it may not contain all the information
that may be important to you. Therefore, you should read the entire prospectus,
including the financial statements and related notes, before making a decision
to invest in the preferred securities. Unless we indicate otherwise, the
information in this prospectus assumes that the underwriters will not exercise
their option to purchase additional preferred securities to cover
over-allotments.
PrivateBancorp
PrivateBancorp, Inc. is a bank holding company formed in 1989 and
headquartered in Chicago, Illinois. We have two banking subsidiaries -- The
PrivateBank and Trust Company, which we also refer to in this prospectus as The
PrivateBank (Chicago), and The PrivateBank, which we also refer to as The
PrivateBank (St. Louis). Our banks focus on providing highly personalized
financial services primarily to affluent individuals, professionals,
entrepreneurs and their business interests. 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 our
clients, utilizing a team of managing directors to serve our clients' individual
and corporate banking needs, and tailoring products and services to meet their
needs. Managing directors are strategically located at all of our banking
locations. Currently, we have six offices in the Chicago metropolitan area.
These offices are strategically located in downtown Chicago; in the affluent
North Shore communities of Wilmette, Winnetka and Lake Forest; in Oak Brook,
centrally located in the fast growing, west suburban DuPage County; and in St.
Charles in the far western Fox Valley area. We currently operate from one
location in the St. Louis, Missouri market where we opened a federal savings
bank, The PrivateBank (St. Louis), in June 2000.
Since year-end 1995, we have grown our asset base at a compound annual
rate of 33.1% to $763.8 million at September 30, 2000. During the same period,
loans have grown at a compound annual rate of 38.1% to $584.9 million, deposits
at a compound annual rate of 30.7% to $633.0 million and trust assets under
administration at a compound annual rate of 32.6% to $785.7 million.
<PAGE>
[GRAPHIC OMITTED]
The PrivateBank Approach
We are a client-driven organization. We emphasize personalized client
relationships and custom-tailored financial services, complemented by the
convenience of technology. We target the affluent segment of the market because
we believe there is significant unmet demand for personalized services within
this segment, offering us significant growth potential. The key aspects of our
private banking approach are:
. Personal Relationships. Clients are matched with a dedicated team
of individuals, headed by a managing director who becomes the
client's central point of contact with us. Through these dedicated
teams, we are able to build strong, ongoing, personal
relationships with our clients.
. Affluent Target Clients. 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 individuals,
professionals, entrepreneurs and their business interests.
. Customized Financial Services. We provide our clients with a wide
variety of financial services beyond traditional banking products
and work with them 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
do not have a lengthy chain of command. Our clients generally 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
2
<PAGE>
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
offer our clients a broad array of high-quality services,
including investment management, insurance and securities
brokerage.
Strategy for Growth
Our growth strategy entails four key components:
. Developing Our Existing Relationships. We expect an important part
of our future growth to come from 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 are working to
expand the market presence of our existing offices, particularly
our newer offices. We believe there is a growing need for private
banking services in these markets which is still unmet, and we
hope to capitalize on the experience and reputations of our
managing directors to meet this need.
. Expanding into New Product Lines. We intend to explore the
addition of financial services that we do not currently offer in
an effort to diversify and increase our fee income, strengthen our
client relationships and broaden our product lines. To reach this
goal, we intend to consider acquisitions, joint ventures or
strategic alliances with other financial service companies that
emphasize quality service and the value of relationships.
. Expanding into New Markets. We believe that the demand for our
private banking services is not unique to Chicago or St. Louis. As
we identify other markets that present similar opportunities for
growth and development, we will consider selective geographic
expansion through acquisitions of existing institutions or by
establishing new banking offices.
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-based 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 35 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 16 managing directors,
including Mr. Mandell, and nine associate managing directors. Our managing
directors are senior financial professionals with an average of 24 years of
banking and financial experience. Together with our board of directors, they
currently own more than 23% of our shares of common stock outstanding.
Of our other 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. He has spent more than 20 years managing diverse real estate
transactions and the full range of mortgage financing. Hugh H. McLean, a
managing director since 1996, has over 20 years of experience. He serves as head
of our credit marketing group and manages our Oak Brook office. Richard C.
Jensen has been a managing director since November 1999, and became chairman and
chief executive officer of The PrivateBank (St. Louis) in June 2000. He has over
32 years experience in the banking industry.
3
<PAGE>
PrivateBancorp Capital Trust I
PrivateBancorp Capital Trust I is a newly created Delaware business
trust. We created PrivateBancorp Capital Trust I to offer the preferred
securities and to purchase the debentures. The trust has a term of 31 years, but
may be dissolved earlier as provided in the trust agreement. Upon issuance of
the preferred securities offered by this prospectus, the purchasers in this
offering will own all of the issued and outstanding preferred securities of the
trust. In exchange for our capital contribution to the trust, we will own all of
the common securities of the trust.
Our principal executive offices as well as those of the trust are
located at Ten North Dearborn Street, Chicago, IL 60602. The main telephone
number for both PrivateBancorp and the trust is (312) 683-7100.
The Offering
The issuer......................... PrivateBancorp Capital Trust I
Securities being offered........... 1,800,000 preferred securities, which
represent preferred undivided interests in
the assets of the trust. Those assets will
consist solely of the debentures and
payments received on the debentures.
The trust will sell the preferred
securities to the public for cash. The
trust will use that cash to buy the
debentures from us.
Offering price..................... $10 per preferred security.
When distributions will be paid to
you........................... If you purchase the preferred securities,
you are entitled to receive cumulative
cash distributions at a % annual rate.
Distributions will accumulate from the
date the trust issues the preferred
securities and are to be paid quarterly on
March 31, June 30, September 30 and
December 31 of each year, beginning March
31, 2001. As long as the preferred
securities are represented by a global
security, the record date for
distributions on the preferred securities
will be the business day prior to the
distribution date. We may defer the
payment of cash distributions, as
described below .
When the preferred securities must
be redeemed................... The debentures will mature and the
preferred securities must be redeemed on
December 31, 2030. We have the option,
however, to shorten the maturity date to a
date not earlier than December 31, 2005.
We will not shorten the maturity date
unless we have received the prior approval
of the Board of Governors of the Federal
Reserve System, if required.
Redemption of the preferred
securities before December 31,
2030 is possible.............. The trust must redeem the preferred
securities when the debentures are paid at
maturity or upon any earlier redemption of
the debentures. We may redeem all or part
of the debentures at any time on or after
December 31, 2005. In addition, we may
redeem, at any time, all of the debentures
if:
. there is a change in existing laws
or regulations, or new official
administrative or judicial
interpretation or application of
these laws and regulations, that
causes the interest we pay on the
debentures to no longer be
deductible by us for federal tax
purposes; or the trust becomes
subject to federal income tax; or
the trust becomes or will become
subject to other taxes or
governmental charges;
4
<PAGE>
. there is a change in existing laws
or regulations that requires the
trust to register as an investment
company; or
. there is a change in the capital
adequacy guidelines of the Federal
Reserve that results in the
preferred securities not being
counted as Tier 1 capital.
We may also redeem debentures at any time,
and from time to time, in an amount equal to
the liquidation amount of any preferred
securities we purchase, plus a proportionate
amount of common securities, but only in
exchange for a like amount of the preferred
securities and common securities then owned
by us.
Redemption of the debentures prior to
maturity will be subject to the prior
approval of the Federal Reserve, if approval
is then required. If your preferred
securities are redeemed by the trust, you
will receive the liquidation amount of $10
per preferred security, plus any accrued and
unpaid distributions to the date of
redemption.
We have the option to extend the
interest payment period..... The trust will rely solely on payments made
by us under the debentures to pay
distributions on the preferred securities. As
long as we are not in default under the
indenture relating to the debentures, we may,
at one or more times, defer interest payments
on the debentures for up to 20 consecutive
quarters, but not beyond December 31, 2030.
If we defer interest payments on the
debentures:
. the trust will also defer
distributions on the preferred
securities;
. the distributions you are entitled
to will accumulate; and
. these accumulated distributions
will earn interest at an annual
rate of %, compounded quarterly,
until paid.
At the end of any deferral period, we will
pay to the trust all accrued and unpaid
interest under the debentures. The trust will
then pay all accumulated and unpaid
distributions to you.
You will still be taxed if
distributions on the
preferred securities are
deferred.................... If a deferral of payment occurs, you will
still be required to recognize the deferred
amounts as income for federal income tax
purposes in advance of receiving these
amounts, even if you are a cash-basis
taxpayer.
Our full and unconditional
guarantee
of payment.................. Our obligations described in this prospectus,
in the aggregate, constitute a full,
irrevocable and unconditional guarantee by us
on a subordinated basis, of the obligations
of the trust under the preferred securities.
Under the guarantee agreement, we guarantee
the trust will use its assets to pay the
distributions on the preferred securities and
the liquidation amount upon liquidation of
the trust. However, the guarantee does not
apply when the trust does not have sufficient
funds to make the payments. If we do not make
payments on the debentures, the trust will
not have sufficient funds to make payments on
the preferred securities. In this event, your
remedy is to institute a legal proceeding
directly against us for enforcement of
payments under the debentures.
5
<PAGE>
We may distribute the debentures
directly to you.................. We may, at any time, dissolve the trust
and distribute the debentures to you,
subject to the prior approval of the
Federal Reserve, if required. If we
distribute the debentures, we will use
our best efforts to list them on a
national securities exchange or
comparable automated quotation system.
How the securities will rank in right
of payment....................... Our obligations under the preferred
securities, debentures and guarantee are
unsecured and will rank as follows with
regard to right of payment:
. the preferred securities will
rank equally with the common
securities of the trust. The
trust will pay distributions on
the preferred securities and the
common securities pro rata.
However, if we default with
respect to the debentures, then
no distributions on the common
securities of the trust or our
common stock will be paid until
all accumulated and unpaid
distributions on the preferred
securities have been paid;
. our obligations under the
debentures and the guarantee are
unsecured and generally will rank
junior in priority to our
existing and future senior and
subordinated indebtedness; and
. because we are a holding company,
the debentures and the guarantee
will effectively be subordinated
to all depositors' claims, as
well as existing and future
liabilities of our subsidiaries.
Voting rights of the preferred
securities....................... Except in limited circumstances, holders
of the preferred securities will have no
voting rights.
Proposed Nasdaq National Market
symbol........................... PVTBP.
You will not receive
certificates..................... The preferred securities will be
represented by a global security that
will be deposited with and registered in
the name of The Depository Trust
Company, New York, NY, or its nominee.
This means that you will not receive a
certificate for the preferred
securities, and your beneficial
ownership interests will be recorded
through the DTC book-entry system.
How the proceeds of this offering
will be used..................... The trust will invest all of the
proceeds from the sale of the preferred
securities in the debentures. We
estimate that the net proceeds to us
from the sale of the debentures to the
trust, after deducting underwriting
expenses and commissions, will be
approximately $16.9 million. We expect
to use the net proceeds from the sale of
the debentures to repay indebtedness
currently outstanding under our
revolving credit line. The remaining net
proceeds will be used to make additional
capital contributions to our existing
banking subsidiaries to support future
growth and for general corporate
purposes.
Before purchasing the preferred securities being offered, you should
carefully consider the "Risk Factors" beginning on page 9.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes certain consolidated financial
information of PrivateBancorp. The selected balance sheet and statement of
income data, insofar as they relate to the years in the five-year period ended
December 31, 1999, are derived from our December 31, 1999 consolidated financial
statements which have been audited by Arthur Andersen LLP. The following
information should be read in conjunction with our audited consolidated
financial statements and the notes thereto, included elsewhere in this
prospectus. The selected financial data for the nine months ended September 30,
2000 and 1999, 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 on page 22.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------- -----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ---------
(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................. $ 35,182 $ 18,860 $ 26,597 $ 19,619 $ 16,729 $ 12,152 $ 10,053
Federal funds sold and interest-bearing
deposits........................... 822 215 330 2,181 875 1,392 1,149
Securities............................ 4,741 4,053 5,141 3,492 2,519 2,396 1,700
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total interest income.............. 40,745 23,128 32,068 25,292 20,123 15,940 12,902
---------- ---------- ---------- ---------- ---------- ---------- ---------
Interest expense:
Interest-bearing demand deposits...... 640 426 604 487 377 305 276
Savings and money market deposit
accounts........................... 9,938 5,520 7,671 6,651 5,880 4,613 3,484
Other time deposits................... 10,373 5,332 7,399 6,155 3,821 2,973 2,620
Funds borrowed........................ 2,560 674 931 19 3 143 50
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total interest expense............. 23,510 11,952 16,605 13,312 10,081 8,034 6,430
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net interest income.................... 17,235 11,176 15,463 11,980 10,042 7,906 6,472
Provision for loan losses.............. 1,356 771 1,208 362 603 524 930
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net interest income after provision
for loan losses................. 15,879 10,405 14,255 11,618 9,439 7,382 5,542
---------- ---------- ---------- ---------- ---------- ---------- ---------
Non-interest income:
Banking and trust services............ 2,079 1,412 1,947 1,281 1,210 911 674
Securities gains and other income..... 139 58 57 40 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total non-interest income.......... 2,218 1,470 2,004 1,321 1,210 911 674
---------- ---------- ---------- ---------- ---------- ---------- ---------
Non-interest expense:
Salaries and employee benefits........ 5,906 3,403 5,156 4,077 3,902 3,411 2,749
Severance charge...................... 562 -- -- -- -- -- --
Occupancy expense, net................ 2,180 1,126 1,563 1,379 1,274 990 946
Data processing....................... 571 382 478 508 396 334 282
Marketing............................. 845 429 692 567 500 424 296
Amortization of goodwill.............. 525 -- -- -- -- 23 280
Professional fees..................... 1,651 891 1,295 561 448 326 284
Insurance............................. 222 132 214 134 115 82 238
Towne Square Financial Corp.
acquisition........................ -- 1,300 1,300 -- -- -- --
Other expense......................... 1,254 1,208 1,389 864 627 508 434
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total non-interest expense......... 13,716 8,871 12,087 8,090 7,262 6,098 5,509
---------- ---------- ---------- ---------- ---------- ---------- ---------
Income before income taxes............. 4,381 3,004 4,172 4,849 3,387 2,195 707
Income tax provision.................. 1,466 1,066 1,257 1,839 1,242 762 (403)
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income......................... $ 2,915 $ 1,938 $ 2,915 $ 3,010 $ 2,145 $ 1,433 $ 1,110
========== ========== ========== ========== ========== ========== =========
Per Share Data:
Basic earnings........................ $ 0.63 $ 0.51 $ 0.73 $ 0.91 $ 0.69 $ 0.49 $ 0.39
Diluted earnings...................... 0.61 0.48 0.69 0.86 0.65 0.47 0.38
Dividends............................. 0.075 0.075 0.10 0.08 0.07 0.07 0.03
Book value (at end of period)......... 11.04 10.11 10.26 8.53 7.67 6.84 6.47
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------- ------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data (at end of
period):
Total securities/(1)/...................... $132,814 $ 77,269 $ 71,134 $116,891 $ 65,383 $ 44,617 $ 38,296
Total gross loans.......................... 584,919 352,236 397,277 281,965 218,495 171,343 126,069
Total assets............................... 763,815 449,838 518,697 416,308 311,872 246,734 196,917
Total deposits............................. 633,007 386,157 453,092 364,994 285,773 222,571 176,868
Funds borrowed............................. 71,258 15,000 15,000 20,000 -- 3,000 700
Total stockholders' equity................. 51,066 46,351 47,080 29,274 24,688 20,222 18,445
Trust assets under administration.......... $785,738 $669,000 $729,904 $611,650 $469,646 $328,662 $212,456
Selected Financial Ratios and Other Data:/(1)(2)/
Performance Ratios:
Net interest margin/(3)/................... 3.64% 3.71% 3.79% 3.64% 4.01% 3.73% 3.95%
Net interest spread/(4)/................... 3.04 3.14 3.15 2.98 3.31 3.03 3.16
Non-interest income to average assets...... 0.44 0.45 0.45 0.37 0.45 0.42 0.40
Non-interest expense to average
assets(9)............................... 2.70 2.73 2.71 2.29 2.71 2.79 3.31
Net overhead ratio/(5)(9)/................. 2.26 2.28 2.26 1.91 2.26 2.38 2.90
Efficiency ratio/(6)(9)/................... 68.20 67.00 65.76 60.82 64.53 69.17 77.09
Return on average assets/(7)(9)/........... 0.57 0.60 0.65 0.85 0.80 0.66 0.67
Return on average equity/(8)(9)/........... 7.91 7.30 7.66 11.27 9.49 7.38 6.22
Dividend payout ratio...................... 11.87 14.81 13.78 8.74 10.13 12.88 8.03
Asset Quality Ratios:
Non-performing loans to total loans........ 0.10% 0.20% 0.21% 0.36% 0.24% 0.65% 1.90%
Allowance for possible loan losses to:
Total loans............................. 1.02 1.16 1.14 1.21 1.40 1.43 1.55
Non-performing loans.................... 1,058 579 548 336 578 220 82
Net charge-offs to average total loans..... 0.23 0.11 0.03 -- -- 0.02 --
Non-performing assets to total assets...... 0.07 0.16 0.16 0.24 0.17 0.45 1.22
Balance Sheet Ratios:
Loans to deposits.......................... 92.40% 91.22% 87.7% 77.3% 76.5% 77.0% 71.3%
Average interest-earning assets to
average interest-bearing liabilities.... 111.5 115.6 116.3 116.4 117.7 118.6 120.7
Capital Ratios:
Total equity to total assets............... 6.69% 10.30% 9.08% 7.03% 7.92% 8.20% 9.37%
Tier 1 risk-based capital ratio............ 6.72 14.09 12.84 10.40 10.50 10.96 13.31
Total risk-based capital ratio............. 8.51 15.22 13.96 11.53 11.75 12.21 14.56
Leverage ratio............................. 5.54 11.19 10.77 7.88 8.70 8.71 9.76
Ratio of Earnings to Fixed Charges:/(10)/
Including deposit interest................. 1.19x 1.25x 1.25x 1.36x 1.34x 1.27x 1.11x
Excluding deposit interest................. 2.71 5.46 5.48 256.21 1,130.00 16.35 15.14
</TABLE>
----------------
(1) For all periods, the entire securities portfolio was classified "Available
for Sale."
(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) Earnings divided by average total assets.
(8) Earnings divided by average common equity.
(9) 2000 performance ratios presented in the table above include a third
quarter one-time severance charge and 1999 performance ratios include
special charges related to the Towne Square Financial Corporation
acquisition and St. Louis start-up costs incurred in the third and fourth
quarter, respectively, in the following amounts (in thousands):
Pre-Tax After-Tax
------- ---------
Severance charges...................... $ 562 $ 377
Towne Square Corporation acquisition... 1,433 1,382
St. Louis start-up costs............... 324 214
2000 and 1999 performance ratios excluding the special charges described
above are as follows:
Nine Months Ended Year Ended
September 30, December 31,
------------------ --------------
2000 1999 1999
-------- -------- --------------
Non-interest expense to average assets. 2.59% 2.33% 2.32%
Net overhead ratio..................... 2.15 1.88 1.87
Efficiency ratio....................... 65.40 57.18 57.52
Return on average assets............... 0.65 1.02 1.01
Return on average equity............... 8.93 12.50 11.86
(10) In computing the ratio of earnings to fixed charges: (a) earnings have been
based on income from continuing operations before income taxes and fixed
charges, and (b) fixed charges consist of interest and amortization of debt
discount and expense including amounts capitalized and the estimated
interest portion of rents.
8
<PAGE>
RISK FACTORS
Investing in preferred securities involves a number of risks. We urge
you to read all of the information contained in this prospectus. In addition, we
urge you to consider carefully the following factors in evaluating an investment
in the trust before you purchase the preferred securities.
Because the trust will rely on the payments it receives on the
debentures to fund all payments on the preferred securities, and because the
trust may distribute the debentures in exchange for the preferred securities,
purchasers of the preferred securities are making an investment decision that
relates to the debentures being issued by PrivateBancorp as well as the
preferred securities. Purchasers should carefully review the information in this
prospectus about the preferred securities, the debentures and the guarantee.
Risks Related to an Investment in PrivateBancorp
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
markets with other commercial banks, thrifts, credit unions and brokerage houses
operating in the greater Chicago and St. Louis areas. Many of our competitors
offer products and 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. As we have grown, we have become
increasingly dependent on outside funding sources, including brokered deposits,
where we face nationwide competition. 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, federally
insured, state-chartered banks and national banks and federal savings banks. As
a result, these nonbank competitors have certain advantages over us in accessing
funding and in providing various services.
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
16 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, and two other managing
directors. 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.
Since our business is concentrated in the Chicago and St. Louis metropolitan
areas, a downturn in the Chicago or St. Louis economies may adversely affect our
business.
Currently, our lending and deposit gathering activities are
concentrated primarily in the greater Chicago and, to a lesser extent, St. Louis
metropolitan areas. Our success depends on the general economic condition of
Chicago and St. Louis and their 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.
9
<PAGE>
SUBSTANTIALLY ALL OF OUR FEE INCOME IS DERIVED FROM OUR TRUST AND ASSET
MANAGEMENT AND WE RELY HEAVILY ON THE SERVICES OF OUTSIDE INVESTMENT MANAGERS TO
PROVIDE THESE SERVICES.
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 or that our clients will continue to utilize
the services of these investment managers through us, rather than directly from
the investment management firms themselves. 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.
WE MAY NOT BE ABLE TO IMPLEMENT ASPECTS OF OUR GROWTH STRATEGIES.
Our growth strategy contemplates the future expansion of our business
and operations, possibly through the addition of new product lines and the
acquisition or establishment of new offices. Implementing these aspects 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, 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. Our recent expansion activities significantly
impacted our earnings during 2000, and it is possible that the costs associated
with future expansion or acquisitions may have similar adverse effects. In
addition, we cannot be sure that we will be able to identify suitable
opportunities for further growth and 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.
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. 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.
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, under the gap analysis changes in interest rates would
have 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, 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 September 30, 2000,
our gap position was 0.67, slightly below our policy limit, reflecting
borrowers' general preference for fixed-rate loans or loans adjusting over
longer time intervals, and depositors general preference for shorter term
certificates of deposits. During the fourth quarter of 2000, we entered into a
total of $55.0 million of longer-term borrowings with the Federal Home Loan
Bank. This has adjusted our gap position to within our policy limits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Investment Securities" on page 37.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT MONETARY POLICY.
As a bank holding company, our business 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.
10
<PAGE>
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 or that our
allowance will be adequate. Excess loan losses could have a material adverse
effect on our financial condition and results of operations.
WE CONTINUALLY ENCOUNTER TECHNOLOGICAL CHANGE, AND WE MAY HAVE FEWER RESOURCES
THAN MANY OF OUR COMPETITORS TO CONTINUE TO INVEST IN TECHNOLOGICAL
IMPROVEMENTS.
The financial services industry is undergoing rapid technological
changes, with frequent introductions of new technology-driven products and
services. In addition to better serving customers, the effective use of
technology increases efficiency and enables financial institutions to reduce
costs. Our future success will depend, in part, upon our ability to address the
needs of our clients by using technology to provide products and services that
will satisfy client demands for convenience, as well as to create additional
efficiencies in our operations. Many of our competitors have substantially
greater resources to invest in technological improvements. We may not be able to
effectively implement new technology-driven products and services or be
successful in marketing these products and services to our clients.
As a service to our clients, we currently 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.
11
<PAGE>
RISKS RELATED TO AN INVESTMENT IN THE PREFERRED SECURITIES
If we do not make interest payments under the debentures, the trust will be
unable to pay distributions and liquidation amounts. The guarantee will not
apply because the guarantee covers payments only if the trust has funds
available.
The trust will depend solely on our payments on the debentures to pay
amounts due to you on the preferred securities. If we default on our obligation
to pay the principal or interest on the debentures, the trust will not have
sufficient funds to pay distributions or the liquidation amount on the preferred
securities. In that case, you will not be able to rely on the guarantee for
payment of these amounts because the guarantee only applies if the trust has
sufficient funds to make distributions on or to pay the liquidation amount of
the preferred securities. Instead, you or the property trustee will have to
institute a direct action against us to enforce the property trustee's rights
under the indenture relating to the debentures.
OUR ABILITY TO MAKE INTEREST PAYMENTS ON THE DEBENTURES TO THE TRUST MAY BE
RESTRICTED.
We are a holding company and substantially all of our assets are held
by our subsidiaries. Our ability to make payments on the debentures when due
will depend primarily on available cash resources at the bank holding company
and dividends from our subsidiaries. Dividend payments or extensions of credit
from our banking subsidiaries are subject to regulatory limitations, generally
based on capital levels and current and retained earnings, imposed by the
various regulatory agencies with authority over such subsidiaries. The ability
of each banking subsidiary to pay dividends is also subject to its
profitability, financial condition, capital expenditures and other cash flow
requirements. We cannot assure you that our subsidiaries will be able to pay
dividends in the future. To date, neither of our banking subsidiaries has paid
any dividends to us because our strategy has been to retain earnings and excess
capital at the bank level to support growth in our operations.
We could also be precluded from making interest payments on the
debentures by our regulators if in the future they were to perceive deficiencies
in liquidity or regulatory capital levels at our holding company. If this were
to occur, we may be required to obtain the consent of our regulators prior to
paying dividends on our common stock or interest on the debentures. If consent
became required and our regulators were to withhold their consent, we would
likely exercise our right to defer interest payments on the debentures, and the
trust would not have funds available to make distributions on the preferred
securities during such period.
12
<PAGE>
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN MOST OF OUR OTHER INDEBTEDNESS
AND OUR HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US
TO THOSE OF OUR SUBSIDIARIES' CREDITORS.
Our obligations under the debentures and the guarantee are unsecured
and will rank junior in priority of payment to our existing and future senior
and subordinated indebtedness, which totaled $22.3 million outstanding principal
amount at September 30, 2000. Except in certain circumstances, our ability to
issue additional trust preferred securities or similar securities is limited.
See "Description of the Debentures--Miscellaneous" on page 99.
Because we are a holding company, the creditors of our subsidiaries,
including depositors, also will have priority over you in any distribution of
our subsidiaries' assets in liquidation, reorganization or otherwise.
Accordingly, the debentures and the guarantee will be effectively subordinated
to all existing and future liabilities of our subsidiaries, and you should look
only to our assets for payments on the preferred securities and the debentures.
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR SUBSTANTIAL
PERIODS.
We may, at one or more times, defer interest payments on the debentures
for up to 20 consecutive quarters. If we defer interest payments on the
debentures, the trust will defer distributions on the preferred securities
during any deferral period. During a deferral period, you will be required to
recognize as income for federal income tax purposes the amount approximately
equal to the interest that accrues on your proportionate share of the debentures
held by the trust in the tax year in which that interest accrues, even though
you will not receive these amounts until a later date.
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the preferred securities before the end of
any deferral period. During a deferral period, accrued but unpaid distributions
will increase your tax basis in the preferred securities. If you sell the
preferred securities during a deferral period, your increased tax basis will
decrease the amount of any capital gain or increase the amount of any capital
loss that you may have otherwise realized on the sale. A capital loss, except in
certain limited circumstances, cannot be applied to offset ordinary income. As a
result, deferral of distributions could result in ordinary income, and a related
tax liability for the holder, and a capital loss that may only be used to offset
a capital gain.
We do not currently intend to exercise our right to defer interest
payments on the debentures. However, if we exercise our right in the future, the
market price of the preferred securities would likely be adversely affected. The
preferred securities may trade at a price that does not fully reflect the value
of accrued but unpaid interest on the debentures. If you sell the preferred
securities during a deferral period, you may not receive the same return on
investment as someone who continues to hold the preferred securities. Due to our
right to defer interest payments, the market price of the preferred securities
may be more volatile than the market prices of other securities without the
deferral feature.
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT.
The indenture governing the debentures and the trust agreement
governing the trust do not require us to maintain any financial ratios or
specified levels of net worth, revenues, income, cash flow or liquidity, and
therefore do not protect holders of the debentures or the preferred securities
in the event we experience significant adverse changes in our financial
condition or results of operations. The indenture prevents us and any subsidiary
from incurring, in connection with the issuance of any trust preferred
securities or any similar securities, indebtedness that is senior in right of
payment to the debentures. Additionally, the indenture limits our ability and
the ability of any subsidiary to incur, related to the issuance of any trust
preferred securities or any similar securities, indebtedness that is equal in
right of payment to the debentures. Except as described above, neither the
indenture nor the trust agreement limits our ability or the ability of any of
our subsidiaries to incur other additional indebtedness that is senior in right
of payment to the debentures. Therefore, you should not consider the provisions
of these governing instruments as a significant factor in evaluating whether we
will be able to comply with our obligations under the debentures or the
guarantee.
We may redeem the debentures before December 31, 2030.
Under the following circumstances, we may redeem the debentures before
their stated maturity:
. We may redeem the debentures, in whole or in part, at any time on
or after December 31, 2005.
13
<PAGE>
. We may redeem the debentures in whole, but not in part, within 180
days after certain occurrences at any time during the life of the
trust. These occurrences may include adverse tax, investment
company or bank regulatory developments.
You should assume that an early redemption may be attractive to us if
we are able to obtain capital at a lower cost than we must pay on the debentures
or if it is otherwise in our interest to redeem the debentures. If the
debentures are redeemed, the trust must redeem preferred securities having an
aggregate liquidation amount equal to the aggregate principal amount of
debentures redeemed, and you may be required to reinvest your principal at a
time when you may not be able to earn a return that is as high as you were
earning on the preferred securities.
WE CAN DISTRIBUTE THE DEBENTURES TO YOU, WHICH MAY HAVE ADVERSE TAX CONSEQUENCES
FOR YOU AND WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF THE PREFERRED
SECURITIES.
The trust may be dissolved at any time before maturity of the
debentures on December 31, 2030. As a result, and subject to the terms of the
trust agreement, the trustees may distribute the debentures to you.
We cannot predict the market prices for the debentures that may be
distributed in exchange for preferred securities upon liquidation of the trust.
The preferred securities, or the debentures that you may receive if the trust is
liquidated, may trade at a discount to the price that you paid to purchase the
preferred securities. Because you may receive debentures, your investment
decision with regard to the preferred securities will also be an investment
decision with regard to the debentures. You should carefully review all of the
information contained in this prospectus regarding the debentures.
Under current interpretations of United States federal income tax laws
supporting classification of the trust as a grantor trust for tax purposes, a
distribution of the debentures to you upon the dissolution of the trust would
not be a taxable event to you. Nevertheless, if the trust is classified for
United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved, the distribution of the debentures
would be a taxable event to you. In addition, if there is a change in law, a
distribution of debentures upon the dissolution of the trust could be a taxable
event to you.
THERE IS NO CURRENT PUBLIC MARKET FOR THE PREFERRED SECURITIES AND THEIR MARKET
PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
There is currently no public market for the preferred securities. The
preferred securities are expected to be approved for inclusion in the Nasdaq
National Market, and trading is expected to commence on or prior to delivery of
the preferred securities. However, there is no guarantee that an active or
liquid trading market will develop for the preferred securities or that the
quotation of the preferred securities will continue in the Nasdaq National
Market. If an active trading market does not develop, the market price and
liquidity of the preferred securities will be adversely affected. Even if an
active public market does develop, there is no guarantee that the market price
for the preferred securities will equal or exceed the price you pay for the
preferred securities.
Future trading prices of the preferred securities may be subject to
significant fluctuations in response to prevailing interest rates, our future
operating results and financial condition, the market for similar securities and
general economic and market conditions. The initial public offering price of the
preferred securities has been set at the liquidation amount of the preferred
securities and may be greater than the market price following the offering.
The market price for the preferred securities, or the debentures that
you may receive in a distribution, is also likely to decline during any period
that we are deferring interest payments on the debentures.
14
<PAGE>
YOU MUST RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS AN
EVENT OF DEFAULT UNDER THE INDENTURE.
You may not be able to directly enforce your rights against us if an
event of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of default
under the trust agreement. In that case, you must rely on the enforcement by the
property trustee of its rights as holder of the debentures against us. The
holders of a majority in liquidation amount of the preferred securities will
have the right to direct the property trustee to enforce its rights. If the
property trustee does not enforce its rights following an event of default and a
request by the record holders to do so, any record holder may, to the extent
permitted by applicable law, take action directly against us to enforce the
property trustee's rights. If an event of default occurs under the trust
agreement that is attributable to our failure to pay interest or principal on
the debentures, or if we default under the guarantee, you may proceed directly
against us. You will not be able to exercise directly any other remedies
available to the holders of the debentures unless the property trustee fails to
do so.
AS A HOLDER OF PREFERRED SECURITIES YOU HAVE LIMITED VOTING RIGHTS.
Holders of preferred securities have limited voting rights. Your voting
rights pertain primarily to amendments to the trust agreement. In general, only
we can replace or remove any of the trustees. However, if an event of default
under the trust agreement occurs and is continuing, the holders of at least a
majority in aggregate liquidation amount of the preferred securities may replace
the property trustee and the Delaware trustee.
15
<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. We
intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and we are including this statement for purposes
of these safe harbor provisions. 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; and
. estimates of our risks and future costs and benefits.
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 and St.
Louis metropolitan areas, 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;
. difficulties in identifying attractive acquisition opportunities
and strategic partners that will complement our private banking
approach;
. the possible dilutive effect of potential acquisitions or
expansions;
. competitive factors in the banking industry, such as the trend
towards consolidation in our market; and
. changes in banking legislation or the regulatory requirements of
federal and state agencies applicable to bank holding companies
and banks like ours.
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," on page 9, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 22 and "Business" on page 49.
16
<PAGE>
USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the
preferred securities in the debentures. We anticipate that the net proceeds from
the sale of the debentures will be approximately $16.9 million after deduction
of offering expenses estimated to be $350,000 and underwriting commissions.
We expect to use all of the net proceeds to repay most of the
indebtedness currently outstanding under our revolving credit facility with an
unaffiliated bank. The credit facility provides for maximum borrowings of $18.0
million. The interest rate on borrowings under the revolving line is based on,
at our option, either the lender's prime rate or a LIBOR-based rate. The
interest rate on the revolving line was initially 7.20%, but reset to 7.98% on
July 3, 2000. The revolving line of credit is secured by the common stock of The
PrivateBank (Chicago) and of The PrivateBank (St. Louis) owned by
PrivateBancorp. Of the $17.5 million currently outstanding under the credit
facility, we borrowed $7.5 million in February 2000 to fund part of the purchase
price of our acquisition of Johnson Bank Illinois. We also borrowed $8.0 million
during the second quarter of 2000 to capitalize The PrivateBank (St. Louis) and
$2.0 million during the third and fourth quarters of 2000 for general working
capital purposes.
Following repayment of amounts outstanding out of the proceeds of this
offering, we plan to keep the credit line available for future borrowings. In
the future, we may use the amounts remaining available under the line of credit
to support continued growth of our existing banking subsidiaries, to repurchase
shares of our common stock and to finance further expansion and potential
acquisitions.
17
<PAGE>
CAPITALIZATION
The following table sets forth our indebtedness and capitalization at
September 30, 2000, on a historical basis and as adjusted for the offering
(assuming no exercise of the underwriters' over-allotment option) and the
application of the estimated net proceeds from the corresponding sale of the
debentures as if such sale had been consummated on September 30, 2000. This data
should be read in conjunction with the consolidated financial statements and
notes thereto included in this prospectus.
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------
Actual As Adjusted
------------ -------------
(dollars in thousands)
<S> <C> <C>
Short-term Indebtedness:
Short-term borrowings (including securities sold under agreement to repurchase
and federal funds purchased)...................................................... $ 53,250 $ 53,250
======== ========
Long-Term Indebtedness:
Notes payable under revolving credit line with commercial bank and subordinated
note payable/(1)/................................................................. $ 22,250 $ 5,320
Long-term debt-- trust preferred securities........................................ -- 18,000
-------- --------
Total long-term indebtedness...................................................... 22,250 23,320
-------- --------
Stockholders' Equity:
Preferred stock, 1,000,000 shares authorized; no shares issued and outstanding..... -- --
Common stock, without par value, $1 stated value; 12,000,000 shares authorized;
4,623,532 shares issued and outstanding........................................... 4,624 4,624
Surplus............................................................................ 40,107 40,107
Retained earnings.................................................................. 9,994 9,994
Accumulated other comprehensive income............................................. (1,830) (1,830)
Deferred compensation.............................................................. (879) (879)
Loan to officer.................................................................... (950) (950)
-------- --------
Total stockholders' equity........................................................ 51,066 51,066
-------- --------
Total capitalization/(2)/...................................................... $ 73,316 $ 74,386
======== ========
Capital Ratios/(3)/:
Total equity to total assets....................................................... 6.69% 6.69%
Leverage ratio/(4)(5)/............................................................. 5.54 7.92
Tier 1 risk-based capital ratio/(5)/............................................... 6.72 9.59
Total risk-based capital ratio/(5)/................................................ 8.51 11.45
</TABLE>
__________________
(1) The net proceeds of this offering, estimated to be $16.93 million, will
be applied to reduce the amounts outstanding under the revolving credit
facility.
(2) Includes stockholders' equity and long-term indebtedness.
(3) The capital ratios, as adjusted, are computed including the estimated net
proceeds from the sale of the preferred securities, in a manner
consistent with Federal Reserve regulations.
(4) The leverage ratio is core capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess
of regulatory maximum limits.
(5) The preferred securities have been structured to qualify as Tier 1
capital. However, in calculating the amount of Tier 1 qualifying capital,
the preferred securities, together with any other trust preferred
securities or cumulative preferred stock of PrivateBancorp that may be
outstanding in the future, can only be included up to the amount
constituting 25% of total Tier 1 core capital elements (including the
preferred securities). As adjusted for this offering, our Tier 1 capital
as of September 30, 2000, would have been approximately $58.7 million, of
which $17.6 million would have been attributable to the preferred
securities offered by this prospectus.
18
<PAGE>
ACCOUNTING AND REGULATORY TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in our
consolidated financial statements. The preferred securities will be presented as
a separate line item in our consolidated balance sheet under the caption
"Long-term debt--trust preferred securities," or other similar caption. In
addition, appropriate disclosures about the preferred securities, the guarantee
and the debentures will be included in the notes to our consolidated financial
statements. For financial reporting purposes, we will record distributions
payable on the preferred securities in our consolidated statements of income.
Our future reports filed under the Securities Exchange Act of 1934 will
include a footnote to the audited consolidated financial statements stating
that:
. the trust is wholly owned;
. the sole assets of the trust are the debentures, specifying the
debentures' outstanding principal amount, interest rate and
maturity date; and
. our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under the
preferred securities.
Under accounting rules of the SEC, we are not required to include
separate financial statements of the trust in this prospectus because we will
own all of the trust's voting securities, the trust has no independent
operations and we guarantee the payments on the preferred securities to the
extent described in this prospectus.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and
other data of PrivateBancorp. The balance sheet and statement of income data,
insofar as they relate to the years in the five-year period ended December 31,
1999, are derived from our December 31, 1999 consolidated financial statements
which have been audited by Arthur Andersen LLP. The following information should
be read in conjunction with our audited consolidated financial statements and
the notes thereto, included elsewhere in this prospectus. The selected financial
data for the nine months ended September 30, 2000 and 1999, 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 on page 22.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(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....................... $ 35,182 $ 18,860 $ 26,597 $ 19,619 $ 16,729 $ 12,152 $ 10,053
Federal funds sold and interest-bearing
deposits................................. 822 215 330 2,181 875 1,392 1,149
Securities.................................. 4,741 4,053 5,141 3,492 2,519 2,396 1,700
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest income.................... 40,745 23,128 32,068 25,292 20,123 15,940 12,902
---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest expense:
Interest-bearing demand deposits............ 640 426 604 487 377 305 276
Savings and money market deposit
accounts................................. 9,938 5,520 7,671 6,651 5,880 4,613 3,484
Other time deposits......................... 10,373 5,332 7,399 6,155 3,821 2,973 2,620
Funds borrowed.............................. 2,560 674 931 19 3 143 50
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest expense................... 23,510 11,952 16,605 13,312 10,081 8,034 6,430
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income......................... 17,235 11,176 15,463 11,980 10,042 7,906 6,472
Provision for loan losses................... 1,356 771 1,208 362 603 524 930
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses........................ 15,879 10,405 14,255 11,618 9,439 7,382 5,542
---------- ---------- ---------- ---------- ---------- ---------- ----------
Non-interest income:
Banking and trust services.................. 2,079 1,412 1,947 1,281 1,210 911 674
Securities gains and other income........... 139 58 57 40 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest income................ 2,218 1,470 2,004 1,321 1,210 911 674
---------- ---------- ---------- ---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits.............. 5,906 3,403 5,156 4,077 3,902 3,411 2,749
Severance charge............................ 562 -- -- -- -- -- --
Occupancy expense, net...................... 2,180 1,126 1,563 1,379 1,274 990 946
Data processing............................. 571 382 478 508 396 334 282
Marketing................................... 845 429 692 567 500 424 296
Amortization of goodwill.................... 525 -- -- -- -- 23 280
Professional fees........................... 1,651 891 1,295 561 448 326 284
Insurance................................... 222 132 214 134 115 82 238
Towne Square Financial Corp.
acquisition.............................. -- 1,300 1,300 -- -- -- --
Other expense............................... 1,254 1,208 1,389 864 627 508 434
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest expense............... 13,716 8,871 12,087 8,090 7,262 6,098 5,509
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes............... 4,381 3,004 4,172 4,849 3,387 2,195 707
Income tax provision........................ 1,466 1,066 1,257 1,839 1,242 762 (403)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................... $ 2,915 $ 1,938 $ 2,915 $ 3,010 $ 2,145 $ 1,433 $ 1,110
========== ========== ========== ========== ========== ========== ==========
Per Share Data:
Basic earnings.............................. $ 0.63 $ 0.51 $ 0.73 $ 0.91 $ 0.69 $ 0.49 $ 0.39
Diluted earnings............................ 0.61 0.48 0.69 0.86 0.65 0.47 0.38
Dividends................................... 0.075 0.075 0.10 0.08 0.07 0.07 0.03
Book value (at end of period)............... 11.04 10.11 10.26 8.53 7.67 6.84 6.47
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------- ------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data (at end
of period):
Total securities(1).......................... $132,814 $ 77,269 $ 71,134 $116,891 $ 65,383 $ 44,617 $ 38,296
Total gross loans............................ 584,919 352,236 397,277 281,965 218,495 171,343 126,069
Total assets................................. 763,815 449,838 518,697 416,308 311,872 246,734 196,917
Total deposits............................... 633,007 386,157 453,092 364,994 285,773 222,571 176,868
Funds borrowed............................... 71,258 15,000 15,000 20,000 -- 3,000 700
Total stockholders' equity................... 51,066 46,351 47,080 29,274 24,688 20,222 18,445
Trust assets under administration............ $785,738 $669,000 $729,904 $611,650 $469,646 $328,662 $212,456
Selected Financial/Ratios and Other
Data:/(1)/
Performance Ratios:
Net interest margin/(2)(3)/.................. 3.64% 3.71% 3.79% 3.64% 4.01% 3.73% 3.95%
Net interest spread/(4)/..................... 3.04 3.14 3.15 2.98 3.31 3.03 3.16
Non-interest income to average assets........ 0.44 0.45 0.45 0.37 0.45 0.42 0.40
Non-interest expense to average assets/(9)/.. 2.70 2.73 2.71 2.29 2.71 2.79 3.31
Net overhead ratio/(5)(9)/................... 2.26 2.28 2.26 1.91 2.26 2.38 2.90
Efficiency ratio/(6)(9)/..................... 68.20 57.18 65.76 60.82 64.53 69.17 77.09
Return on average assets/(7)(9)/............. 0.57 1.02 0.65 0.85 0.80 0.66 0.67
Return on average equity/(8)(9)/............. 7.91 12.50 7.66 11.27 9.49 7.38 6.22
Dividend payout ratio........................ 11.87 14.81 13.78 8.74 10.13 12.88 8.03
Asset Quality Ratios:
Non-performing loans to total loans.......... 0.10% 0.20% 0.21% 0.36% 0.24% 0.65% 1.90%
Allowance for loan losses to:
Total loans............................... 1.02 1.16 1.14 1.21 1.40 1.43 1.55
Non-performing loans...................... 1,058 579 548 336 578 220 82
Net charge-offs to average total loans....... 0.23 0.11 0.03 -- -- 0.02 --
Non-performing assets to total assets........ 0.07 0.16 0.16 0.24 0.17 0.45 1.22
Balance Sheet Ratios:
Loans to deposits............................ 92.40% 91.22% 87.7% 77.3% 76.5% 77.0% 71.3%
Average interest-earning assets to
average interest-bearing liabilities...... 111.5 115.6 116.3 116.4 117.7 118.6 120.7
Capital Ratios:
Leverage ratio............................... 5.54% 11.19% 9.08% 7.88% 8.70% 8.71% 9.76%
Tier 1 risk-based capital ratio.............. 6.72 14.09 12.84 10.40 10.50 10.96 13.31
Total risk-based capital ratio............... 8.51 15.22 13.96 11.53 11.75 12.21 14.56
Total equity to total assets................. 6.69 10.30 10.77 7.03 7.92 8.20 9.37
Ratio of Earnings to Fixed Charges:
Including deposit interest/(10).............. 1.19x 1.25x 1.25x 1.36x 1.34x 1.27x 1.11x
Excluding deposit interest/(10)/............. 2.71 5.46 5.48 256.21 1,130.00 16.35 15.14
</TABLE>
________________
(1) For all periods, the entire securities portfolio was classified "Available
for Sale."
(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) Earnings divided by average total assets.
(8) Earnings divided by average common equity.
(9) 2000 performance ratios presented in the table above include a third
quarter one-time severance charge and 1999 performance ratios include
special charges related to the Towne Square Financial Corporation
acquisition and St. Louis start-up costs incurred in the third and fourth
quarter, respectively, in the following amounts (in thousands):
Pre-Tax After-Tax
------- ---------
Severance charges...................... $ 562 $ 377
Towne Square Corporation acquisition... 1,433 1,382
St. Louis start-up costs............... 324 214
2000 and 1999 performance ratios excluding the special charges described
above are as follows:
Nine Months Ended Year Ended
September 30, 2000 December 31,
-------------------- --------------
2000 1999 1999
-------- -------- --------------
Non-interest expense to average
assets......................... 2.59% 2.33% 2.32%
Net overhead ratio................ 2.15 1.88 1.87
Efficiency ratio.................. 65.40 57.18 57.52
Return on average assets.......... 0.65 1.02 1.01
Return on average equity.......... 8.93 12.50 11.86
(10) In computing the ratio of earnings to fixed charges: (a) earnings have been
based on income from continuing operations before income taxes and fixed
charges, and (b) fixed charges consist of interest and amortization of debt
discount and expense including amounts capitalized and the estimated
interest portion of rents.
21
<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" on page 9 and
"Special Note Regarding Forward-Looking Statements" on page 16 in this
prospectus.
Overview
PrivateBancorp was organized as a Delaware corporation in 1989 to serve
as the holding company for a Chicago-based de novo (start-up) bank. Our flagship
downtown Chicago location opened in 1991. We expanded to Wilmette in north
suburban Cook County in 1994 and the Oak Brook facility in west suburban DuPage
County was established in 1997. We established the St. Charles office in January
2000, in connection with our purchase of Towne Square Financial Corporation (a
company which was in the process of forming a de novo, or start-up, bank) on
August 3, 1999. On February 11, 2000, we consummated our acquisition of Johnson
Bank Illinois, adding additional locations of The PrivateBank (Chicago) in Lake
Forest and Winnetka, Illinois. During the second quarter 2000, we received
regulatory approval to create a new subsidiary and on June 23, 2000,
PrivateBancorp capitalized The PrivateBank (St. Louis).
For financial information regarding our four separate lines of
business, Private Banking Services (Illinois), The PrivateBank (St. Louis),
Trust Services and Holding Company Activities, see "Note 4 -- Operating
Segments" to our unaudited consolidated financial statements as of and for the
period ended September 30, 2000, included in this prospectus on page F-7.
The profitability of our operations depends on our net interest income,
provision for loan losses, non- interest income, and non-interest expense. Net
interest income is dependent on the amounts and yields of interest- earning
assets as compared to the amounts and rates on interest-bearing liabilities. Net
interest income is sensitive to changes in market rates of interest as well as
to the execution of our asset/liability management strategy. The provision for
loan losses is affected by changes in the loan portfolio, management's
assessment of the collectability of the loan portfolio, loss experience, as well
as economic and market factors.
Non-interest income consists primarily of trust fee income, and to a
lesser extent, net securities gains and fees for ancillary banking services.
Non-interest income from fees and deposit service charges are below peer group
levels. This is largely the result of the profile of our typical client. Our
clients tend to have larger deposit account balances than customers of
traditional banks. Because average balances tend to be high, we do not earn high
service charge income typical of many retail banks.
Non-interest expenses are heavily influenced by the growth of
operations. Our growth directly affects the majority of our expense categories.
Profitability and expense ratios have been negatively impacted in 2000 due to
the start-up operation of the St. Charles office, the acquisition of Johnson
Bank Illinois, and the opening of The PrivateBank (St. Louis). It is expected
that our results for the remainder of 2000 will continue to be impacted to some
extent by the start-up nature of operations in St. Charles, St. Louis and in the
new offices acquired through the Johnson Bank Illinois transaction. During 2001,
we expect to continue to incur operating expenses in excess of revenues for the
St. Louis office.
On June 30, 1999, PrivateBancorp priced its initial public offering of
900,000 shares of its common stock at $18 per share. The closing date of the
offering was July 6, 1999, when we received net proceeds of approximately $14.4
million (after deduction of offering expenses). On July 26, 1999, an additional
135,000 shares were sold pursuant to the underwriters' exercise of their over
allotment option for additional net proceeds of $2.3 million. The year to date
earnings per share calculation as of December 31, 1999 does not equal the sum of
the individual quarter
22
<PAGE>
earnings per share amounts. Based upon the application of FASB Statement No.
128, "Earnings per Share", a difference arises that is attributable to the
impact of our initial public offering which closed in July, 1999, and the
acquisition of Towne Square Financial Corporation during the third quarter 1999.
Consolidated Results of Operations
Net Income
Net income for the third quarter 2000 was $968,000, or $0.20 per
diluted share, compared to third quarter 1999 net loss of $201,000, or $0.05
loss per diluted share. Excluding special, non-recurring charges, earnings for
the quarter ended September 30, 2000 were $1.3 million, or $0.28 per diluted
share, a 14.0% increase per share over earnings of $1.2 million, or $0.25 per
diluted share, for the quarter ended September 30, 1999.
Net income for the quarter ended September 30, 2000 included a
previously announced one-time charge of $377,000 after-tax, or $0.08 per diluted
share, comprised of severance packages for two departing executives as well as
amounts incurred to secure their replacements. Net income for the quarter ended
September 30, 1999 included an acquisition charge of $1.4 million after-tax, or
$0.29 per diluted share, related to the acquisition of Towne Square Financial
Corporation in St. Charles, Illinois. Third quarter 2000 net income includes a
full quarter of financial results of the former Johnson Bank Illinois locations
subsequent to their acquisition on February 11, 2000. Excluding the effect of
goodwill amortization and acquisition interest expense associated with this
transaction, the two offices located in Winnetka and Lake Forest have
contributed $857,000 to our net income on a year-to-date basis and $332,000 for
the third quarter ended September 30, 2000.
For the nine months ended September 30, 2000, net income totaled $2.9
million, or $0.61 per diluted share, compared to $1.9 million, or $0.48 per
diluted share, for the comparable period in 1999. Excluding the one-time
charges, earnings for the nine months ended September 30, 2000 were $3.3
million, or $0.69 per diluted share, compared to $3.3 million, or $0.82 per
diluted share, for the same period last year. The flat earnings growth between
the nine month periods is primarily due to increasing operating expenses
associated with our expansion strategy which more than offset our growth in net
interest income and non-interest income for the nine months ended September 30,
2000 as compared to the same period in 1999.
Net income for the year ended December 31, 1999 was $2.9 million, or
$0.69 per diluted share, compared to $3.0 million, or $0.86 per diluted share,
for the year ended December 31, 1998. Excluding the Towne Square Financial
Corporation acquisition-related charge (incurred in the third quarter) and the
St. Louis start-up costs, 1999 earnings were $4.5 million, an increase of 50%
over 1998 net income. Before these one-time charges, 1999 earnings per diluted
share were $1.07, a 24% increase over 1998 earnings per diluted share.
Our increase in earnings from operations before special charges is
primarily attributable to growth in the balance sheet, particularly in loans,
and improvement in our net interest margin. Increased fee income, mainly from
trust services, also contributed to the improvement in income before special
charges. The table below shows the computation of earnings from operations
before special charges for 1999.
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------
Before Tax Net of
Tax (Benefit) Tax
Amount Expense Amount
---------- ----------- ----------
(in thousands except per share data)
<S> <C> <C> <C>
Net income........................................... $ 4,172 $ 1,257 $ 2,915
Special charges(1)................................... (1,757) (162) (1,595)
------- ------- -------
Earnings from operations before special charges...... $ 5,929 $ 1,419 $ 4,510
======= ======= =======
Earnings per diluted share before special charges.... $ 1.07
=======
</TABLE>
________________
(1) Special charges for the year ended 1999 represent the Towne Square
Financial Corporation acquisition charges and the St. Louis start-up costs
(pre-tax) of $1,433,200 and $324,000, respectively.
23
<PAGE>
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.
Net Interest Income
Net interest income is the difference between interest income and fees
on earning assets and interest expense on deposits and borrowings. Net interest
margin represents the net interest income on a tax equivalent basis as a
percentage of average earning assets during the period. Net interest margin
reflects the spread between average yields earned on interest earning assets and
the average rates paid on interest bearing deposits and borrowings. The volume
of non-interest bearing funds, largely comprised of demand deposits and capital,
also affects the net interest margin.
Net interest income was $17.2 million for the nine months ended
September 30, 2000, compared to $11.2 million for the nine months ended
September 30, 1999. Average earning assets increased by $226.9 million over the
prior year period in 1999. Our net interest margin was 3.64% for the nine months
ended September 30, 2000 compared to 3.71% for the prior year period. Although
rising interest rates have improved the yield on average earning assets,
interest expense on deposits and other borrowed funds have also increased,
resulting in reduced net interest spread compared to the 1999 period. Net
interest margin has decreased between the nine-month periods due to rising
short-term rates which have resulted in increased cost of funds. Despite the
reduction in net interest spread between the nine-month periods, the reduction
in net interest margin is lesser primarily due to an increase in
non-interest-bearing deposits resulting from the Johnson Bank Illinois
acquisition. We expect to fund new loan growth in the remainder of 2000 out of
deposit growth, supplemented by short-term borrowings and brokered deposits at
prevailing market rates.
Net interest income was $15.5 million during the year ended December
31, 1999, compared to $12.0 million for 1998, an increase of 29.1%. Net interest
income is affected by both the volume of assets and liabilities held and the
corresponding rates earned and paid. The increase in 1999 was primarily
attributable to growth in earning assets and, to a lesser extent, improvement in
net interest spread. Average earning assets during 1999 were $432.2 million
compared to $331.6 million for 1998, an increase of 30.3%. Our net interest
margin was 3.79% for the year ended December 31, 1999, compared to 3.64% for the
prior year. The increase in net interest margin is attributable to a favorable
shift in the mix of earning assets resulting in a higher percentage of average
loans to total average assets and to the benefit in 1999 of investing the
proceeds of our initial public offering in interest-earning assets. In 1999, the
effect of non-interest bearing funds on the net interest margin added 64 basis
points to the 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 3.64%. 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 4.66% in 1998. Due to spread compression and competitive pressures, we
were unable to reduce rates paid on interest-bearing liabilities as quickly or
as significantly as
24
<PAGE>
experienced on the asset side of the balance sheet. 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.
The following tables present a summary of our net interest income and
related net interest margin, calculated on a tax equivalent basis:
25
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
----------------------------------------------------------------- ---------------------------------
2000 1999 1999
-------------------------------- ------------------------------- ---------------------------------
Average Average Average
Balance/(1)/ Interest Rate Balance/(1)/ Interest Rate Balance/(1)/ Interest Rate
------------ ---------- ------ ----------- ---------- ------ ----------- ---------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments........ $ 18,026 $ 822 5.99% $ 5,786 $ 215 4.95% $ 6,557 $ 329 5.02%
Investment securities/(2)/.... 101,780 5,400 7.07% 97,965 4,647 6.33% 93,903 6,055 6.45%
Loans, net of unearned
discount.................... 526,969 35,182 8.83% 316,102 18,861 7.96% 331,698 26,598 8.02%
--------- -------- --------- -------- --------- --------
Total earning assets.......... $ 646,775 $ 41,404 8.48% $ 419,853 $ 23,723 7.53% $ 432,158 $ 32,982 7.63%
========= ======== ========= ======== ========= ========
Interest bearing deposits..... $ 526,162 $ 20,950 5.30% $ 346,014 $ 11,278 4.35% $ 27,248 $ 604 2.22%
Funds borrowed................ 48,501 2,560 6.93% 17,284 674 5.20% 17,500 931 5.32%
--------- -------- ---------- -------- --------- --------
Total interest bearing
liabilities................. $ 574,663 23,510 5.44% $ 363,298 11,952 4.39% $ 370,421 16,606 4.48%
========= -------- ========= -------- ========= --------
Tax equivalent net interest
income...................... $ 17,894 $ 11,771 $ 16,376
======== ======== ========
Net interest spread........... 3.04% 3.14% 3.15%
Net interest margin........... 3.64% 3.71% 3.79%
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1998 1997
----------------------------------- --------------------------------------
Average Average
Balance/(1)/ Interest Rate Balance/(1)/ Interest Rate
------------- ---------- -------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments............. $ 40,230 $ 2,181 5.42% $ 15,917 $ 875 5.43%
Investment securities/(2)/......... 57,427 3,576 6.23% 40,164 2,519 6.27%
Loans, net of unearned discount.... 233,987 19,620 8.39% 195,237 16,729 8.60%
---------- --------- ---------- ----------
Total earning assets............... $ 331,644 $ 25,377 7.65% $ 251,318 $ 20,123 8.03%
========== ========= ========== ==========
Interest bearing deposits.......... $ 22,073 $ 487 2.21% $ 17,722 $ 377 2.13%
Funds borrowed..................... 373 19 5.09% 49 3 5.83%
---------- --------- ---------- ----------
Total interest bearing
liabilities...................... $ 285,411 13,312 4.66% $ 213,583 10,081 4.72%
========== --------- ========== ----------
Tax equivalent net interest
income........................... $ 12,065 $ 10,042
========= ==========
Net interest spread................ 2.99% 3.31%
Net interest margin................ 3.64% 4.01%
</TABLE>
_________________
(1) Average balances were generally computed using daily balances.
(2) Interest income on tax advantaged investment securities reflects a tax
equivalent adjustment based on a marginal federal corporate tax rate of 34%.
The total tax equivalent adjustment reflected in the above table is
approximately $659,000 and $594,000 for the nine months ended September 30,
2000 and 1999, respectively, and $914,000, $85,000 and $0 in the years
ending December 31, 1999, 1998 and 1997, respectively.
26
<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 a mix
of both, for the periods indicated on a tax equivalent basis. 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.
27
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
2000 Compared to 1999 1999 Compared to 1998
------------------------------------------ -----------------------------------------
Change Change Change Change Change
due to due to Change Total due to due to due to Total
rate volume due to mix change rate volume mix change
--------- ---------- ---------- -------- --------- ---------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments..... $ 45 $ 454 $ 108 $ 607 $ (27) $ (1,690) $ (135) $(1,852)
Investment securities...... 543 181 29 753 207 2,353 (81) 2,479
Loans, net of unearned
discount................. 2,059 12,566 1,696 16,321 (1,227) 7,836 369 6,978
--------- -------- -------- -------- -------- -------- --------- -------
Total interest income... 2,647 13,201 1,833 17,681 (1,047) 8,499 153 7,605
--------- -------- -------- -------- -------- -------- --------- -------
Interest bearing deposits.. 2,461 5,867 1,344 9,672 (776) 3,014 144 2,382
Funds borrowed............. 224 1,215 447 1,886 40 911 (39) 912
--------- -------- -------- -------- -------- -------- --------- -------
Total interest expense.. 2,685 7,082 1,791 11,558 (736) 3,925 105 3,294
--------- -------- -------- -------- -------- -------- --------- -------
Net interest income........ $ ( 38) $ 6,119 $ 42 $ 6,059 $ (311) $ 4,574 $ 48 $ 3,483
========= ======== ======== ======== ======== ======== ========= =======
<CAPTION>
1998 Compared to 1997
-------------------------------------------
Change Change Change
due to due to due to Total
rate volume mix change
--------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Short-term investments....... $ (4) $ 1,318 $ (8) $ 1,306
Investment securities........ (23) 1,075 5 1,057
Loans, net of unearned
discount.................... (491) 3,251 131 2,891
------- ------- ------ -------
Total interest income..... (518) 5,644 128 5,254
------- ------- ------ -------
Interest bearing deposits.... (171) 3,332 54 3,215
Funds borrowed............... (3) 17 2 16
-------- ------- ------ -------
Total interest expense.... (174) 3,349 56 3,231
------- ------- ------ -------
Net interest income.......... $ (344) $ 2,295 $ 72 $ 1,938
======= ======= ====== =======
</TABLE>
28
<PAGE>
Provision for Loan Losses
We provide for an adequate allowance for loan losses that are probable
and reasonably estimable in our portfolio. The provision for loan losses reflect
management's latest assessment of the inherent losses in the loan portfolio. A
discussion of the allowance for loan losses and the factors on which provisions
are based begins on page 35.
Our provision for loan losses was $1.4 million for the nine months
ended September 30, 2000, compared to $771,000 for the comparable period in
1999. Increases in the provision for loan losses compared to the prior year
periods are related to the growth in the loan portfolio.
Our provision for loan losses was $1.2 million for the year ended
December 31, 1999, compared to $362,000 for the comparable period in 1998. Net
charge-offs for the years ended December 31, 1999 and 1998 were $108,000 and
approximately $2,000, respectively.
Our provision for loan losses decreased 60.0% from $603,000 in 1997 to
$362,000 in 1998. Throughout 1998, we reassessed our allowance for loan losses
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.
Non-Interest Income
Non-interest income for the third quarter of 2000 was $745,000,
reflecting an increase of $233,000, or 45.5%, over the $512,000 reported in the
third quarter of 1999. The increase is primarily attributable to increases in
service charge income and trust fee revenues. Service charge income increased
$93,000 over the prior year quarter primarily due to fees earned on accounts
related to the former Johnson Bank Illinois offices in Winnetka and Lake Forest.
Trust fee revenue increased to $565,000 compared to $429,000 in the prior year
quarter. Trust assets under administration increased 17.4% to $785.7 million at
September 30, 2000 compared to $669.0 million at September 30, 1999. In February
2000, the acquisition of Johnson Bank Illinois added approximately $60.0 million
to trust assets under administration. We expect to continue to expand our trust
services beyond the Chicago office with the continued addition of trust staff to
our suburban offices and The PrivateBank (St. Louis) in 2001.
Non-interest income increased approximately $748,000, or 50.9%, to
$2,218,000 for the first nine months of 2000, as compared to $1,470,000 reported
in the comparable period in 1999. Trust income increased by $461,200 to
$1,655,361 for the nine months ended September 30, 2000, an increase of 38.6%
over the nine months ended September 30, 1999. Service charge revenue increased
by $218,854 to $423,015 for the nine months ended September 30, 2000 compared to
$204,161 for the nine months ended September 30, 1999. This increase is
primarily attributable to the addition of the former Johnson Bank Illinois
offices. We recognized $92,000 in securities gains during the first nine months
of 2000 compared to $57,000 in gains during the nine months ended September 30,
1999.
Non-interest income increased approximately $683,000, or 51.7%, to $2.0
million for the year ended December 31, 1999, compared to $1.3 million for 1998.
The largest component of non-interest income is trust fees, which grew 60.0% to
$1.6 million in 1999, reflecting a restructuring of trust fee schedules and
growth in trust assets under administration to $730.0 million at year end 1999
compared to $612.0 million at December 31, 1998, an increase of 19.3%.
In 1998, total non-interest income increased 9.2% to $1.3 million from
$1.2 million in 1997. 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. 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.
During 1997, we earned fees of $119,000 while administering a problem account.
This account was
29
<PAGE>
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%.
Total non-interest income also included $57,000, $40,000 and $0 in
realized gains from sales of investment securities during 1999, 1998 and 1997,
respectively.
Non-Interest Expense
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------- --------------------------------------
2000 1999 1999 1998 1997
------------- ----------- ------------- ------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................... $ 5,906 $3,403 $ 5,156 $4,077 $3,902
Severance charge................................. 562 -- -- -- --
Occupancy........................................ 2,180 1,126 1,563 1,379 1,274
Data processing.................................. 571 382 478 508 396
Marketing........................................ 845 429 692 567 500
Goodwill......................................... 525 -- -- -- --
Professional fees................................ 1,651 891 1,295 561 448
Insurance........................................ 222 132 214 134 115
Towne Square acquisition......................... -- 1,300 1,300 -- --
Other expense.................................... 1,254 1,208 1,389 864 627
------- ------ ------- ------ ------
Total non-interest expense...................... $13,716 $8,871 $12,087 $8,090 $7,262
======= ====== ======= ====== ======
</TABLE>
Non-interest expense for the first nine months of 2000 increased by
54.6%, or $4.8 million, as compared to the nine-month period ended September 30,
1999. The nine months ended September 30, 2000 reflected a one-time severance
charge of $562,000 relating to severance packages for two departing executives
and costs incurred in connection with the recruitment and hiring of their
replacements. Included in total non-interest expense for the nine months ended
1999 is the one-time $1.3 million charge associated with the acquisition of
Towne Square Financial Corporation, as well as $133,200 of transaction costs
associated with the acquisition.
Excluding one-time charges, non-interest expense increased 76.8% from
$7.4 million at September 30, 1999 to $13.2 million at September 30, 2000. A
portion of the increase is attributable to goodwill amortization of $525,000
recorded during the nine months ended September 30, 2000 resulting from the
Johnson Bank Illinois acquisition, which closed on February 11, 2000. The
remainder of the increase over the prior year level is also primarily due to
expenses incurred in connection with our expansion initiatives.
Non-interest expense for the nine months ended September 30, 2000
includes operating expenses of $887,000 and $1,408,000 related to the St.
Charles and the St. Louis offices, respectively. Additionally, 2000 results
reflect the addition of the two new locations acquired through the Johnson Bank
Illinois transaction which increased operating expenses by $1,587,000 for the
nine months ended September 30, 2000. Amortization of goodwill in the amount of
$525,000 was recognized during 2000 in connection with the Johnson Bank Illinois
acquisition. The remaining increase in non-interest expense of approximately
$1,299,000 is due to overall growth in salaries and benefits, professional
services and marketing costs at our existing offices.
Excluding the effect of the one-time $1.3 million charge associated
with the acquisition of Towne Square Financial, which is not tax deductible,
non-interest expense increased 33.3% to $10.8 million for the year ended
December 31, 1999 compared to $8.1 million for 1998. Non-interest expense as a
percentage of average assets changed from 2.71% in 1997 to 2.29% in 1998 to
2.32% in 1999.
Excluding the effects of one time charges during 2000 and 1999, our
efficiency ratio (tax equivalent), which measures the percentage of net revenue
that is paid as non-interest expense, was 65.4% for the nine months ended
September 30, 2000 as compared to 57.1% for the nine months ended September 30,
1999. Our efficiency ratio for
30
<PAGE>
2000 was negatively impacted due to the start-up nature of the St. Charles
office and the St. Louis office. During 2001, we expect to continue to incur
operating expenses in excess of revenues for the St. Louis office. We expect the
efficiency ratio to remain high until business development efforts at the new
offices generate revenue sufficient to offset the related operating expenses.
The efficiency ratio for the year ended December 31, 1999 was 65.8%
compared to 60.8% for the year ended December 31, 1998. However, excluding the
Towne Square acquisition-related charge (incurred in the third quarter) and the
St. Louis start-up costs (incurred in the fourth quarter), the efficiency ratio
improved to 57.5% in 1999 from 60.8% in 1998 and 64.5% in 1997.
The following table shows our operating efficiency (excluding special
charges) over the last three years:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------------- --------------------------------------
2000/(1)/ 1999/(2)/ 1999/(2)/ 1998 1997
------------ ------------ -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Non-interest expense to average assets....... 2.59% 2.33% 2.32% 2.29% 2.71%
Net overhead ratio/(3)/...................... 2.15 1.88 1.87 1.91 2.26
Efficiency ratio/(4)/........................ 65.40 57.18 57.52 60.80 64.50
</TABLE>
__________________
(1) Excludes a one-time severance charge of $562,000 (pre-tax).
(2) Excludes the special charges relating to the Towne Square Financial
Corporation acquisition and the St. Louis start-up costs (pre-tax) of
$1,433,200 and $324,000, respectively.
(3) Non-interest expense less non-interest income divided by average total
assets.
(4) Non-interest expense divided by the sum of net interest income plus non-
interest income.
For the nine months ended September 30, 2000, salaries and benefits
increased by approximately $2.5 million reflecting our increased level of full
time equivalent employees to 134 versus 77 at September 30, 1999. The increase
is due primarily to the increased number of employees, including the senior
officers, responsible for opening the St. Charles and St. Louis offices, as well
as the addition of employees from the Johnson Bank Illinois acquisition. Our
main office in Chicago has also experienced growth in personnel during 2000 in
response to the overall growth of the organization and to increased staffing
needs to support a public company.
During the nine months ended September 30, 2000, professional fees,
which include legal, accounting, consulting services and investment management
fees, increased by 85.3% to $1.7 million compared to prior year period fees of
$891,000, primarily due to higher legal, accounting and information-system
consultation services. Marketing expenses increased by $416,000 due to the use
of a public relations firm and investments in new marketing materials describing
our new offices and products.
Salary and employee benefit expense increased 26.5% to $5.2 million
for the year ended December 31, 1999 from $4.1 million for the year ended
December 31, 1998. Full-time- equivalent employees increased 28% to 91.5 at
December 31, 1999 from 71.5 at December 31, 1998. The increase in salary and
benefits for 1999 was affected by the start up of the St. Charles office. In
addition, we incurred approximately $262,000 in salary-related expense in
connection with the formation of the St. Louis office. A portion of the increase
in salaries and benefits is attributable to a general increase in our staffing
resulting from growth and increased staffing needs to support a public company.
Salaries and employee benefits increased 4.5% to $4.1 million in 1998 from $3.9
million in 1997.
Professional fees increased 130.8% to $1.3 million for the year ended
December 31, 1999 from $561,000 for 1998. Professional fees were $448,000 in
1997. The increase in 1999 is due to a number of factors including increased
consulting services rendered in regard to year 2000 readiness. During the third
quarter of 1999, we completed our data processing conversion to a new third-
party provider. We incurred $145,000 of consulting expenses related to the data
processing conversion during the third quarter 1999. These projects included the
system merger completed in connection with the Johnson Bank Illinois
acquisition, the upgrade of The PrivateBank (Chicago)'s wire transfer
31
<PAGE>
system, implementation of a new asset liability management software program and
various other projects which relate to general upgrades of our current
technology infrastructure.
Included in professional fees for the 1999 period are approximately
$95,000 of non-recurring legal and accounting fees associated with the Towne
Square acquisition and $13,000 of legal fees related to the start-up costs of
the St. Louis office. In addition, the increase in trust-related business has
resulted in increased investment management fees paid to third parties during
the year ended December 31, 1999.
During 2001, we plan to invest approximately $1.3 million in our
information technology infrastructure. These expenditures will result in new
hardware, innovative software and overall integration of our various technology
components. The upgrade to our information technology platform is the result of
an independent third- party assessment of our current operating environment,
which was conducted during 2000. The 2001 information technology renovation will
augment the technology expenditures that have been made in 1999 and 2000 in
connection with the implementation of a new data processing system, upgrades to
our internet banking products, web page development and other system related
projects that have increased our customer service capabilities.
For the years ended 1999, 1998 and 1997, the other expense category of
non-interest expense consists primarily of postage, telephone, delivery, office
supplies, training and other miscellaneous expenses. During 1999 these expenses
increased relative to 1998 by 61.0%. The increase of other expenses for 1999 is
attributable to the establishment of the St. Louis and St. Charles offices,
training incurred in connection with the new data processing system and a
general increase in business volumes during 1999. During 1998 the other non-
interest expense category increased 37.6% as compared to 1997, reflecting
overall growth in business volumes.
Income Taxes
The following table shows our income before income taxes, applicable
income taxes and effective tax rate for the nine months ended September 30, 2000
and 1999, and for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------------- -------------------------------------------
2000 1999 1999 1998 1997
------------- ------------ -------------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before taxes........... $4,381 $3,004 $4,172 $4,849 $3,387
Income tax provision.......... 1,466 1,066 1,257 1,839 1,242
Effective tax rate............ 33.5% 35.5% 30.1% 37.9% 36.7%
</TABLE>
The effective income tax rate varies from statutory rates principally
due to certain interest income which is tax-exempt for federal or state
purposes, and certain expenses (including the Towne Square acquisition charge)
which are disallowed for tax purposes. Decreases in the income tax provision for
the year ended December 31, 1999 as compared to 1998 resulted from the increase
of our municipal bond portfolio as a percentage of total investment securities.
Municipal securities on a year to date average basis increased to $39.5 million
for the year ended December 31, 1999 from $25.0 million for the year ended
December 31, 1998. The impact of increased non- taxable income in 1999 was
offset by the one-time non-tax deductible special charge related to the Towne
Square acquisition.
Financial Condition
Total Assets
Total assets were $763.8 million at September 30, 2000, an increase of
$245.1 million, or 47.3%, over $518.7 million at December 31, 1999. The balance
sheet growth was accomplished mainly through the acquisition
32
<PAGE>
of Johnson Bank Illinois, loan growth throughout the company, and increased
borrowings used to capitalize The PrivateBank (St. Louis).
Total assets were $518.7 million at December 31, 1999, an increase of
$102.4 million, or 24.6%, over the $416.3 million a year earlier. The balance
sheet growth was achieved mainly through loan growth funded through traditional
sources, as well as the use of Federal Home Loan Bank advances and brokered
deposits. We expect to continue to use Federal Home Loan Bank advances and
brokered deposits as alternative methods of funding loan growth. We will first
look toward internally generated deposits as funding sources, but expect to
supplement our funding needs with non-traditional funding sources as needed.
Federal Home Loan Bank advances have proven to be reliable sources of funds.
Brokered deposits are slightly more costly than Federal Home Loan Bank advances
but require no collateral.
Loans
Total loans increased to $584.9 million at September 30, 2000, an
increase of $187.6 million, or 47.2%, from $397.3 million at December 31, 1999.
Total loans at December 31, 1999 increased $115.3 from $282.0 million at
December 31, 1998.
The following table sets forth our loan portfolio, net of unearned
discount, by category as of September 30, 2000, and as of December 31 for the
previous five fiscal years:
<TABLE>
<CAPTION>
September 30, December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------- -------------- ------------- ------------- ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate..... $ 198,773 $ 146,368 $ 94,392 $ 55,429 $ 39,452 $ 29,114
Commercial................. 144,321 67,026 46,800 33,862 28,004 22,906
Residential real estate.... 87,156 72,972 54,171 56,307 45,012 25,973
Personal................... 58,952 57,497 44,094 42,077 35,339 28,150
Home equity................ 44,615 24,396 20,100 20,680 20,683 18,707
Construction............... 51,102 29,018 22,408 10,140 2,853 1,219
---------- ---------- ---------- ---------- ----------- -----------
Total loans............. $ 584,919 $ 397,277 $ 281,965 $ 218,495 $ 171,343 $ 126,069
========== ========== ========== ========== =========== ===========
</TABLE>
The following table classifies the loan portfolio, by category, at
September 30, 2000, by date at which the loans reprice:
<TABLE>
<CAPTION>
One year After one year After More than one year
-------------------------------
or less to five years five years Total Fixed Variable/(1)/
-------------- ------------- ---------- -------------- ------------- -----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate..... $ 76,662 $113,825 $ 8,286 $198,773 $71,260 $50,851
Commercial................. 117,280 26,796 245 144,321 27,039 2
Residential real estate.... 28,580 52,109 6,467 87,156 13,649 44,927
Personal................... 56,233 2,658 61 58,952 2,678 41
Home Equity................ 44,615 -- -- 44,615 -- --
Construction............... 49,222 1,880 -- 51,102 660 1,220
--------- -------- ------- -------- -------- -------
Total loans............. $ 372,592 $197,268 $15,059 $584,919 $115,286 $97,041
========= ======== ======= ======== ======== =======
</TABLE>
__________________
(1) Includes adjustable rate mortgage products.
33
<PAGE>
Nonaccrual and Nonperforming Loans
The following table classifies our non-performing loans as of the dates
shown:
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------------- ------------ ------------ ------------ --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans..................... $324 $600 $ -- $ -- $ -- $2,298
Loans past due 90 days or more....... 242 223 1,016 527 1,116 100
----- ---- ------ ----- ----- ------
Total non-performing loans........ 566 823 1,016 527 1,116 2,398
----- ---- ------ ----- ------ ------
Other real estate owned.............. -- -- -- -- -- --
----- ---- ------ ----- ------ ------
Total non-performing assets....... $566 $823 $1,016 $ 527 $1,116 $2,398
==== ==== ====== ===== ====== ======
Total non-performing loans to
total loans....................... 0.10% 0.21% 0.36% 0.24% 0.65% 1.90%
Total non-performing assets to 0.07 0.16 0.24 0.17 0.45 1.22
total assets......................
</TABLE>
It is our policy to discontinue the accrual of interest income on any
loan for which there exists 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 process 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 that have general risk characteristics that management believes
might jeopardize the future timely collection of principal and interest
payments. The principal amount of loans in this category as of September 30,
2000 was $242,000. At September 30, 2000, 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 and St.
Louis metropolitan areas and our involvement in lending secured by real estate,
we had no concentrations of loans exceeding 10% of total loans at September 30,
2000.
Nonaccrual loans decreased to $324,000 at September 30, 2000 as
compared to $600,000 at December 31, 1999. The largest component of nonaccrual
loans at December 31, 1999 consists of one residential real estate loan in the
amount of approximately $538,000. Nonaccrual loans were $0 as of December 31,
1998.
Nonperforming loans include nonaccrual loans and accruing loans which
are 90 days or more delinquent. Nonperforming loans were $566,000 at September
30, 2000, compared to $823,000 as of December 31, 1999 and $1.0 million at
December 31, 1998. Nonperforming loans were 0.10%, 0.21% and 0.36% of total
loans at September 30, 2000, December 31, 1999 and December 31, 1998,
respectively. Nonperforming loans were 0.07%, 0.16% and 0.24% of total assets at
September 30, 2000, December 31, 1999 and December 31, 1998, respectively.
34
<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.
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------------- ----------- ----------- ----------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period....... $ 4,510 $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025
Johnson Bank Illinois acquisition--
loan loss reserve................. 864 -- -- -- -- --
Loans Charged-Off:
Commercial real estate............... -- -- -- -- -- --
Commercial........................... 712 -- -- -- -- --
Residential real estate.............. -- -- -- -- -- --
Personal............................. 27 108 2 3 29 --
Home equity.......................... -- -- -- -- -- --
Construction......................... -- -- -- -- -- --
Total loans charged-off........... 739 108 2 3 29 --
-------- -------- -------- -------- -------- --------
Provision for loan losses............ 1,356 1,208 362 603 524 930
-------- -------- -------- -------- -------- --------
Balance at end of period............. $ 5,991 $ 4,510 $ 3,410 $ 3,050 $ 2,450 $ 1,955
======== ======== ======== ======== ======== ========
Average total loans.................. $528,150 $332,502 $234,486 $195,605 $141,043 $111,855
======== ======== ======== ======== ======== ========
Net charge-offs to average total
loans............................. 0.23% 0.03% -- -- 0.02% --
</TABLE>
The following table shows our allocation of the allowance for loan
losses by specific category at the dates shown. We considered various
qualitative and quantitative factors about the loan portfolio which we deemed
relevant in determining the level of the allowance for loan losses.
35
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
---------------------- ---------------------------------------------------------------------
2000 1999 1998 1997
---------------------- --------------------- --------------------- -----------------------
% of % of % of % of
Total Total Total Total
Amount Allowance Amount Allowance Amount Allowance Amount Allowance
---------- ---------- --------- ---------- ---------- ---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate........ $1,503 25.1% $1,154 25.6% $ 732 21.5% $ 429 14.1%
Commercial ................... 1,793 29.9 930 20.6 693 20.3 464 15.2
Residential real estate....... 421 7.0 423 9.4 277 8.1 306 10.0
Personal...................... 608 10.1 568 12.6 545 16.0 1,037 34.0
Home Equity................... 400 6.7 237 5.3 201 5.9 201 6.6
Construction.................. 646 10.8 369 8.2 236 6.9 106 3.5
Unallocated................... 620 10.3 829 18.3 726 21.3 507 16.6
------ ----- ------ ----- ------ ----- ------ -----
Total...................... $5,991 100.0% $4,510 100.0% $3,410 100.0% $3,050 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
December 31,
---------------------------------------------
1996 1995
--------------------- ---------------------
% of % of
Total Total
Amount Allowance Amount Allowance
---------- --------- --------- ---------
(dollars in thousands)
Commercial real estate........ $ 295 12.0% $ 226 11.6%
Commercial ................... 422 17.2 913 46.7
Residential real estate....... 254 10.4 142 7.3
Personal...................... 973 39.7 392 20.1
Home Equity................... 184 7.5 164 8.4
Construction.................. 28 1.1 13 0.7
Unallocated................... 294 12.0 105 5.4
------ ----- ------ -----
Total...................... $2,450 100.0% $1,955 100.0%
====== ===== ====== =====
</TABLE>
36
<PAGE>
Loan quality is continually monitored by management and is reviewed by
the loan/investment committee of the board of directors of the banks 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 is determined
based on a variety of factors, including assessment of the credit risk of the
portfolio, delinquent loans, evaluation of current economic conditions in the
market area, actual charge-offs during the year and historical loss experience.
The unallocated portion of the reserve involves the exercise of judgment by
management and reflects various considerations, including management's view that
the reserve should have a margin that recognizes the imprecision inherent in the
process of estimating credit losses.
We maintain an allowance for loan losses 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 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.
The allowance for loan losses as a percentage of total loans was 1.0%
at September 30, 2000, 1.1% as of December 31, 1999 and 1.2% as of December 31,
1998. Net charge-offs for the nine months ended September 30, 2000 and 1999 were
$739,000 and $102,000, respectively. Net charge-offs to average total loans were
0.23% as of September 30, 2000 compared to 0.03% as of December 31, 1999 and 0%
as of December 31, 1998. The increase in net charge-offs during 2000 is due
primarily to a single commercial credit relationship. In management's judgment,
an adequate allowance for loan losses has been established.
Investment Securities
Investments are substantially comprised of federal funds sold, debt
securities and, to a lesser extent, equity investments. "Federal funds sold" are
overnight investments in which, except for cash reserves, all remaining funds
are invested. Our debt securities portfolio is primarily comprised of U.S.
Treasury agency obligations, municipal bonds, mortgage-backed pools and
collateralized mortgage obligations. Equity securities consist of investments in
Federal Home Loan Bank stock.
All securities are classified as available-for-sale and may be sold as
part of our asset/liability management strategy in response to changes in
interest rates, liquidity needs or significant prepayment risk. Securities
available- for-sale are carried at fair value, with related unrealized net gains
or losses, net of deferred income taxes, recorded as an adjustment to equity
capital. At September 30, 2000, reported stockholders' equity was reduced by
unrealized securities losses net of tax of $1.8 million. This represented an
improvement of $982,000 from unrealized securities losses net of tax of $2.8
million at December 31, 1999, which was a decrease of $3.0 million from a net
unrealized gain of $151,000 recorded as part of equity at December 31, 1998.
Securities available-for-sale increased to $132.8 million at September
30, 2000, up 86.7% from $71.1 million as of December 31, 1999, and $116.9
million as of December 31, 1998. The increase in investment securities is the
result of the acquisition of the Johnson Bank Illinois portfolio. Following the
acquisition of Johnson Bank Illinois, we sold approximately $9.7 million of the
former Johnson Bank Illinois investment securities portfolio as part of our
realignment of our available-for-sale investment securities portfolio. The
proceeds from the sale of investment securities were reinvested in U.S.
government agency securities. We purchased approximately $35.0 million in
government agency securities during the third quarter 2000 in connection with
execution of our interest rate risk management strategy.
U.S. government agency securities and collateralized mortgage
obligations increased 228.1% to $85.3 million at September 30, 2000 from $26.0
million at December 31, 1999 and from $61.4 million at December 31, 1998. The
increase in U.S. government agency securities resulted from the Johnson Bank
Illinois acquisition in addition to the investment securities that were
purchased in the third quarter 2000. Municipal securities increased by $1.2
million at September 30, 2000 as compared to the year-end 1999 amount of
37
<PAGE>
$33.6 million and $37.8 million at December 31, 1998. Corporate debt and equity
securities increased slightly due to the Johnson Bank Illinois acquisition.
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------------------
2000 1999 1998 1997
-------------- ------------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities and U.S. Government agency
obligations............................................. $ 3,941 $ -- $ 6,095 $ 6,066
State and political subdivision obligations................ 34,844 33,614 37,804 --
Mortgage-backed securities and collateralized
mortgage obligations.................................... 81,325 25,987 61,414 40,308
Corporate debt securities/(1)/............................. 9,858 9,796 10,263 18,269
Equity securities and others............................... 2,846 1,737 1,315 740
-------- ------- -------- -------
Total investment securities.......................... $132,814 $71,134 $116,891 $65,383
======== ======= ======== =======
</TABLE>
________________
(1) Includes collateralized mortgage obligations not guaranteed by government
agencies.
Maturities of investment securities (based on the security's par
value), by category, as of September 30, 2000, are shown in the following table.
<TABLE>
<CAPTION>
Within From one From five to After
one year to five years ten years ten years Equity Total
-------- ------------- ------------ --------- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
Government agency obligations........ $ -- $ 3,000 $ -- $ -- $ -- $ 3,000
State and political subdivision
obligations.......................... 330 630 2,815 36,760 -- 40,535
Mortgage-backed securities and
collateralized mortgage
obligations.......................... 4,832 55,742 15,463 4,742 -- 80,779
Corporate debt securities/(1)/.......... -- 5,075 3,440 1,485 -- 10,000
Equity securities and others............ -- -- -- -- 2,846 2,846
------ ------- ------- ------- ------ --------
Total investment securities....... $5,162 $64,447 $21,718 $42,987 $2,846 $137,160
====== ======= ======= ======= ====== ========
</TABLE>
________________
(1) Includes collateralized mortgage obligations not guaranteed by government
agencies.
The weighted average yield (computed on a tax equivalent basis) for
each range of maturities of securities, by category, is shown below as of
September 30, 2000:
<TABLE>
<CAPTION>
Within From one From five to After
one year to five years ten years ten years Equity Total
-------- ------------- ----------- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
Government agency obligations.............. --% 7.15% --% --% --% 7.50%
State and political subdivisions
obligations................................ 9.04 8.67 6.27 6.63 -- 6.66
Mortgage-backed securities and
collateralized mortgage obligations........ 6.74 7.10 7.52 7.54 -- 7.19
Corporate debt securities/(1)/................ -- 7.57 7.56 7.57 -- 7.56
Equity securities and others.................. -- -- -- -- 6.97 6.97
---- ---- ---- ---- ---- ----
Total investment securities............. 6.89% 7.16% 7.36% 6.76% 6.97% 7.05%
==== ==== ==== ==== ==== ====
</TABLE>
_________________
(1) Includes collateralized mortgage obligations not guaranteed by government
agencies.
38
<PAGE>
Subsequent to September 30, 2000, we sold approximately $25.6 million
of collateralized mortgage obligations at a gain of approximately $95,000 and
replaced them with mortgage-backed pools to enhance our interest rate risk
management strategy. In addition, we sold approximately $2.8 million of
municipal bonds at a loss of approximately $95,000 and replaced them with
municipal bonds at current market rates to take advantage of favorable tax
treatment as well as enhance our interest rate risk management strategy. In
addition, we purchased $32.6 million of additional Federal Home Loan Bank stock,
$31.7 million as a short-term investment alternative and $900,000 of which is to
support additional borrowings.
Deposits and Funds Borrowed
Total deposits of $633.0 million at September 30, 2000 represent an
increase of $179.9 million, or 39.7%, from $453.1 million at December 31, 1999.
Deposits increased 24.1% during 1999 from $365.0 million at December 31, 1998.
Non-interest-bearing deposits were $55.8 million at September 30, 2000,
approximately $19.0 million more than the $36.8 million reported at December 31,
1999. Non-interest bearing deposits were $39.5 million at December 31, 1998.
Interest-bearing demand deposits increased 12.9% to $37.7 million at September
30, 2000 compared to $33.4 million at December 31, 1999, which increased $6.9
million from $26.5 million at December 31, 1998. Savings and money market
deposit accounts increased by $69.9 million to $274.0 million at September 30,
2000 as compared to $203.3 million at December 31, 1999, up from $170.7 million
at December 31, 1998. Other time deposits increased by approximately $49.9
million to $207.1 million as compared with the December 31, 1999 balance of
$157.2 million. Other time deposits were $128.3 million at year end 1998.
Brokered deposits increased to $58.3 million at September 30, 2000 from $21.7
million at December 31, 1999. We did not have any brokered deposits at year end
1998.
Our membership in the Federal Home Loan Bank System gives us the
ability to borrow funds from the Federal Home Loan Bank of Chicago (Federal Home
Loan Bank) for short- or long-term purposes under a variety of programs. We have
periodically used services of the Federal Home Loan Bank for short-term funding
needs and other correspondent services.
During 2000, we increased our utilization of Federal Home Loan Bank
advances to fund loan growth. Management anticipates that our reliance on
Federal Home Loan Bank borrowings as a funding source will likely increase
further during the fourth quarter to the extent that rates on Federal Home Loan
Bank advances continue to be more attractive than deposit pricing. Federal Home
Loan Bank borrowings totaled $15.0 million at December 31, 1999 and represented
fixed advances maturing in less than three months. At December 31, 1998, there
were $20.0 million in Federal Home Loan Bank advances at an interest rate of
5.20% outstanding. At September 30, 2000, we had $40.0 million of Federal Home
Loan Bank borrowings outstanding as follows:
<TABLE>
<CAPTION>
Debt Type Amount Contractual Rate Maturity Callable
--------- ------ ---------------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Fixed advance........................ $30,000 6.91% 12/06/00 N/A
Callable floating-rate advance....... 10,000 LIBOR minus 5 basis points 05/01/01 11/01/00
</TABLE>
At September 30, 2000, repurchase agreements of approximately $2.0
million were outstanding in addition to $7.0 million of federal funds purchased
for liquidity purposes. At December 31, 1999 and 1998, no repurchase agreements
and no federal funds purchased were outstanding.
On February 11, 2000, to effect the Johnson Bank Illinois acquisition,
we borrowed $7.5 million under a new, two-year, $18.0 million revolving credit
facility at an initial rate of 7.20%. During the second quarter 2000, we
increased borrowings under the revolving credit facility by approximately $8.0
million in order to capitalize The PrivateBank (St. Louis). During the third
quarter 2000, we increased our borrowings under the revolving credit facility by
approximately $1.75 million for business operating purposes. The interest rate
on borrowings under the revolving line is based on, at our option, either the
lender's prime rate or a 90-day LIBOR-based rate. We also entered into a
subordinated note issued to Johnson International in the principal amount of
$5.0 million as part of the $20.0 million purchase price. The interest rate on
the subordinated note is set each quarter based on the 90-day
39
<PAGE>
LIBOR rate. The initial rate of interest on the subordinated note was 6.60%. The
interest rate on the revolving line reset to 7.98% on July 3, 2000 and the
interest rate on the subordinated note reset to 7.18% on August 11, 2000.
The following table presents the balances of deposits by category, and
each category as a percentage of total deposits, at September 30, 2000 and at
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------------------------------------------
2000 1999 1998 1997
------------------------- ------------------------ -------------------- ---------------------
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......................... $ 55,831 8.8% $ 36,771 8.1% $ 39,490 10.8% $ 34,234 12.0%
Savings........................ 8,001 1.3 757 0.1 482 0.1 640 0.2
Interest-bearing demand........ 37,747 6.0 33,400 7.4 26,508 7.3 26,084 9.1
Money market................... 271,322 42.8 203,311 44.9 170,231 46.6 134,985 47.3
Certificates of deposit........ 201,803 31.9 157,157 34.7 128,283 35.2 89,830 31.4
Brokered deposits.............. 58,303 9.2 21,696 4.8 -- -- -- --
-------- ----- -------- ------- -------- ----- --------- -----
Total deposits.............. $633,007 100.0% $453,092 100.0% $364,994 100.0% $ 285,773 100.0%
======== ===== ======== ======= ======== ===== ========= =====
</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>
September 30, December 31,
--------------------------------------------------
2000 1999 1998 1997
--------------- --------------- -------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Three months or less.................. $ 97,741 $106,181 $ 67,922 $37,389
Over three through six months......... 48,935 24,915 18,974 16,200
Over six through twelve months........ 58,045 23,110 17,664 16,100
Over twelve months.................... 29,115 3,218 904 941
-------- -------- -------- -------
Total................................ $233,836 $157,424 $105,464 $70,630
======== ======== ======== =======
</TABLE>
Over the past several years, 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 traditional deposits, brokered deposits, borrowed money or capital
or we will liquidate assets to reduce our funding needs.
Capital Resources
Stockholders' equity rose to $51.1 million as of September 30, 2000, an
increase of $4.0 million from the 1999 year-end level of $47.1 million, due to
year-to-date 2000 net income and to a decrease in Accumulated Other
Comprehensive Loss, reflecting a $1.0 million increase (net of tax) in the fair
value of the available-for-sale investment portfolio at September 30, 2000 as
compared to the fair value at December 31, 1999. Stockholders' equity at
December 31, 1999 rose to $47.1 million, an increase of $17.8 million from the
1998 year-end level, due primarily to our initial public offering in July 1999
in net income for the year ended December 31, 1999. During July 1999, we raised
approximately $16.7 million in capital (net of commissions and offering costs)
through the issuance of 1,035,000 shares.
We are subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings and other factors, and
the
40
<PAGE>
regulators can lower classifications in certain areas. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
The prompt corrective action regulations provide five classifications:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If a banking subsidiary is not
"well capitalized," regulatory distributions are limited, as is asset growth and
expansion and plans for capital restoration are required.
The following table reflects various consolidated measures of our
capital at September 30, 2000, and at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------
2000 1999 1998 1997
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total equity to total assets............ 6.69% 7.03% 9.08% 7.92%
Leverage ratio.......................... 5.54 7.88 10.77 8.70
Tier 1 risk-based capital ratio......... 6.72 10.40 12.84 10.50
Total risk-based capital ratio.......... 8.51 11.53 13.96 11.75
</TABLE>
To be considered "well capitalized," an entity must maintain a leverage
ratio of at least 5.0%, a Tier 1 risk- based capital ratio of at least 6.0%, and
a total risk-based capital ratio of at least 10.0%. To be "adequately
capitalized," an entity must maintain a leverage ratio of at least 4.0%, a Tier
1 risk-based capital ratio of at least 4.0%, and a total risk-based capital
ratio of at least 8.0%. At September 30, 2000, we continued to exceed the
minimum levels of all regulatory capital requirements, and were considered
"adequately capitalized" under regulatory standards. At September 30, 2000, our
total risk-based capital ratio was 8.51%. With the exception of the total
risk-based capital ratio, we exceeded the "well capitalized" levels of our
regulatory capital requirements. We have committed to the Federal Reserve Bank
of Chicago to raising our capital ratios above the "well- capitalized"
thresholds under all regulatory standards by March 31, 2001. At September 30,
2000 our banking subsidiaries were considered "well-capitalized" under all
regulatory standards, including total risk-based capital ratio.
Liquidity
Liquidity measures our ability to meet maturing obligations and our
existing commitments, to withstand fluctuations in deposit levels, to fund our
operations and to provide for our clients' credit needs. Our liquidity
principally depends on our cash flows from our operating activities, investment
in and maturity of assets, changes in balances of deposits and borrowings and
our ability to borrow funds in the money or capital markets. Liquidity
management 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 committees, which take into
account the marketability of assets, the sources and stability of funding and
the level of unfunded commitments. Our principal sources of funds are deposits,
short-term borrowings and capital contributions by PrivateBancorp to the banks
funded by proceeds from draws on our line of credit or through new capital.
Our core deposits, the most stable source of liquidity due to the
nature of long-term relationships generally established with our clients, are
available to provide long-term liquidity. At September 30, 2000, 70.5% of our
total assets were funded by core deposits. At December 31, 1999, 79.6% of our
total assets were funded by core deposits. At December 31, 1998, 85.3% of total
assets were funded by core deposits. Core deposits are defined to include all
deposits including time deposits but excluding brokered deposits and public
funds. Time deposits are included as core deposits since these deposits have
historically not been volatile deposits for us.
We have continued to use Federal Home Loan Bank advances and brokered
deposits as alternative methods of funding loan growth. During 1999, we first
utilized brokered deposits as a funding tool to enhance liquidity in
anticipation of increasing loan demand and year 2000 contingency planning.
41
<PAGE>
During 2000 we expanded our brokered deposits program in order to fund liquidity
of The PrivateBank (Chicago). During 2001 we expect to continue to rely on
brokered deposits together with increased Federal Home Loan Bank advances. We
expect that The PrivateBank (St. Louis) will begin to purchase brokered deposits
in 2001 as well, in the absence of traditional deposit growth sufficient to fund
the expected loan growth in that market.
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 secure public
funds. At September 30, 2000, net liquid assets were approximately $84.0
million, as compared to $79.5 million at December 31, 1999, and $104.5 million
at December 31, 1998.
Net cash inflows provided by operations were $8.6 million in the first
nine months of 2000 compared to net cash inflows of $3.2 million for the year
ended December 31, 1999 and $4.3 million for the year ended December 31, 1998.
Net cash outflows from investing activities were $168.1 million in the first
nine months of 2000 compared to $74.1 million for the year ended December 31,
1999 compared to net cash outflows of $115.3 million for the year ended December
31, 1998. Net cash inflows from financing activities for the first nine months
of 2000 were $141.1 million compared to net cash inflows of $99.6 million in
1999 and $100.3 million in 1998.
In the event of short-term liquidity needs, our banking subsidiaries
may purchase federal funds from correspondent banks. Membership in the Federal
Home Loan Bank System gives our banking subsidiaries the ability to borrow funds
from the Federal Home Loan Bank of Chicago (Federal Home Loan Bank) for short-
or long-term purposes under a variety of programs. We have periodically used
services of the Federal Home Loan Bank for short-term funding needs and other
correspondent services. At December 31, 1999, Federal Home Loan Bank borrowed
funds totaled $15.0 million at an interest rate of 6.03%. This Federal Home Loan
Bank advance matured on January 20, 2000. The borrowings were used to fund loan
demand in advance of future anticipated deposit growth. At December 31, 1999,
The PrivateBank (Chicago) also had $21.4 million in Federal Home Loan Bank
letters of credit outstanding. At December 31, 1998, The PrivateBank (Chicago)
had $20.0 million in Federal Home Loan Bank advances at an interest rate of
5.20% and no Federal Home Loan Bank letters of credit outstanding. The
PrivateBank (Chicago) pays 0.125% per annum for Federal Home Loan Bank letters
of credit. The following table shows the maximum availability for and usage of
Federal Home Loan Bank advances and letters of credit.
Gross
Date Availability Usage
---- ------------ -----
(in thousands)
September 30, 200 ........ $ 87,950 $40,000
December 31, 1999......... 107,408 36,380
December 31, 1998......... 45,842 20,000
December 31, 1997......... 32,673 7,905
We accept 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 Federal
Home Loan Bank letters of credit as collateral. At December 31, 1999 and 1998,
The PrivateBank (Chicago) had approximately $17.5 million and $15.0 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.
During the fourth quarter 2000, we have a total of $65.0 million of
Federal Home Loan Bank advances outstanding as follows:
<TABLE>
<CAPTION>
Debt Type Amount Contractual Rate Maturity Callable
--------- ------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Callable floating-rate advance.... $10.0 million LIBOR minus 5 basis points 5/01/01 11/01/00
Fixed advance..................... 30.0 million 6.21% 12/06/03 N/A
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Debt Type Amount Contractual Rate Maturity Callable
--------- ------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Fixed advance..................... 25.0 million 6.50% 10/23/05 N/A
</TABLE>
Impact of 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 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.
Selected Quarterly Financial Data
The following table shows selected quarterly financial data
(unaudited):
43
<PAGE>
Selected Quarterly Financial Data
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------ ---------------------------------- ------------------------------------
Third Second First Fourth Third Second First Fourth Third Second First
------------------------------ ---------------------------------- ------------------------------------
(in thousands except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary Income
Statement
Interest Income
Loans, including fees. $13,540 $12,167 $ 9,475 $ 7,737 $ 7,006 $ 6,218 $ 5,636 $ 5,141 $ 4,979 $ 4,875 $ 4,624
Federal funds sold and
interest bearing
deposits........... 357 78 387 115 134 33 48 373 897 413 498
Securities............ 1,813 1,543 1,385 1,088 1,189 1,294 1,570 1,413 654 698 727
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest income... 15,710 13,788 11,247 8,940 8,329 7,545 7,254 6,927 6,530 5,986 5,849
Interest expense........ 9,378 7,781 6,351 4,653 4,166 3,948 3,838 3,624 3,481 3,111 3,096
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income..... 6,332 6,007 4,896 4,287 4,163 3,597 3,416 3,303 3,049 2,875 2,753
Provision for loan loss 383 662 311 437 273 213 285 90 91 90 91
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan loss 5,949 5,345 4,585 3,850 3,890 3,384 3,131 3,213 2,958 2,785 2,662
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Non-Interest income
Banking and trust
services........... 732 720 627 535 504 512 396 348 340 320 273
Securities (losses)
gains.............. 13 31 95 (1) 8 4 46 (2) 42 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total non-interest income 745 751 722 534 512 516 442 346 382 320 273
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Non-Interest expense
Salaries and employee
benefits........... 2,211 1,818 1,877 1,753 1,309 1,088 1,115 1,123 948 904 1,102
Severance charge...... 562 -- -- -- -- -- -- -- -- -- --
Towne Square
acquisition........ -- -- -- -- 1,300 -- -- -- -- -- --
Occupancy expense..... 803 764 613 437 401 373 352 368 345 333 334
Other non-interest
expense............ 1,651 1,870 1,547 1,026 1,227 918 788 692 660 717 564
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total non-interest expense 5,227 4,452 4,037 3,216 4,237 2,379 2,255 2,183 1,953 1,954 2,000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.............. 1,467 1,644 1,270 1,168 165 1,521 1,318 1,376 1,387 1,151 935
Provision for income
taxes.............. 499 546 421 191 366 409 291 484 541 449 365
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 968 $ 1,098 $ 849 $ 977 $ (201) $ 1,112 $ 1,027 $ 892 $ 846 $ 702 $ 570
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per
share.............. $ 0.21 $ 0.24 $ 0.18 $ 0.21 $ (0.05) $ 0.32 $ 0.30 $ 0.26 $ 0.25 $ 0.21 $ 0.18
Diluted earnings per 0.20 0.23 0.18 0.20 (0.05) 0.30 0.28 0.25 0.24 0.20 0.17
share..............
</TABLE>
44
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a continuing part of our financial strategy, we attempt to manage
the impact of fluctuations in market interest rates on our net interest income.
This effort entails providing a reasonable balance between interest rate risk,
credit risk, liquidity risk and maintenance of yield. Asset/liability management
policy is established by our board of directors and is monitored by management.
Our asset/liability management policy sets standards within which we are
expected to operate. These standards include guidelines for exposure to interest
rate fluctuations, liquidity, loan limits as a percentage of funding sources,
exposure to correspondent banks and brokers, and reliance on non-core deposits.
The policy also states our reporting requirements to our board of directors. The
investment policy complements the asset/lability policy by establishing criteria
by which we may purchase securities. These criteria include approved types of
securities, brokerage sources, terms of investment, quality standards, and
diversification.
We measure the impact of interest rate changes on our income statement
through the use of gap analysis. The gap represents the net position of assets
and liabilities subject to repricing in specified time periods. During any given
time period, if the amount of rate sensitive liabilities exceeds the amount of
rate sensitive assets, a company would generally be considered negatively gapped
and would benefit from falling rates over that period of time. Conversely, a
positively gapped company would generally benefit from rising rates.
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
September 30, 2000 was 0.67 and was outside of the guidelines of our policy.
Subsequent to September 30, 2000, we have entered into a total of $55 million of
longer term borrowings with the Federal Home Loan Bank which have placed our gap
position within our policy limits. 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 our earnings, while a short-term
drop in interest rates would help our earnings.
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.
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The following tables illustrate the estimated interest rate sensitivity
and periodic and cumulative gap positions calculated as of September 30, 2000
and December 31, 1999 and 1998.
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------------------
Time to Maturity or Repricing
------------------------------------------------------------------------
0-90 days 91-365 days 1-5 years Over 5 years Total
----------- ------------ --------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans........................................ $326,195 $ 45,849 $197,551 $ 15,059 $ 584,654
Investments.................................. 4,167 3,817 64,947 65,204 138,135
Federal funds sold........................... 4,060 -- -- -- 4,060
-------- ---------- -------- --------- ---------
Total interest-earning assets............... $334,422 $ 49,666 $262,498 $ 80,263 $ 726,849
======== ========== ======== ========= =========
Interest-Bearing Liabilities
Interest-bearing demand...................... $ 280 $ -- $ -- $ 37,467 $ 37,747
Savings and money market..................... 167,771 103,553 -- 2,700 274,024
Time deposits................................ 107,715 122,659 33,349 1,645 265,368
Funds borrowed............................... 53,808 17,250 -- -- 71,058
-------- --------- -------- --------- ---------
Total interest-bearing liabilities.......... $329,574 $ 243,462 $ 33,349 $ 41,812 $ 648,197
======== ========= ======== ========= =========
Cumulative
Rate sensitive assets (RSA).................. $334,422 $ 384,088 $646,586 $ 726,849
Rate sensitive liabilities (RSL)............. 329,574 573,036 606,385 648,197
GAP (GAP=RSA-RSL)............................ 4,848 (188,948) 40,201 78,652
RSA/RSL...................................... 101.47% 67.03% 106.63% 112.13%
RSA/Total assets............................. 44.61% 51.24% 86.26% 96.96%
RSL/Total assets............................. 43.97% 76.44% 80.89% 86.47%
GAP/Total assets............................. 0.65% 25.21% 5.36% 10.49%
GAP/Total RSA................................ 1.45% 49.19% 6.22% 10.82%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------------
Time to Maturity or Repricing
------------------------------------------------------------------------
0-90 days 91-365 days 1-5 years Over 5 years Total
----------- ------------ --------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans......................................... $184,288 $ 29,485 $ 157,332 $ 26,619 $ 397,724
Investments................................... 23,426 5,144 16,067 46,497 91,134
Federal funds sold............................ 9,243 -- -- -- 9,243
--------- ----------- --------- ---------- ---------
Total interest-earning assets............... $216,957 $ 34,629 $ 173,399 $ 73,116 $ 498,101
========= ========== ========= ========== =========
Interest-Bearing Liabilities
Interest-bearing demand....................... $ -- $ -- $ -- $ 33,400 $ 33,400
Savings and money market...................... 117,438 85,873 -- 4,133 207,444
Time deposits................................. 114,614 56,001 4,832 -- 175,447
Funds borrowed................................ 15,000 -- -- -- 15,000
--------- ----------- --------- ---------- ---------
Total interest-bearing liabilities.......... $247,052 $ 141,874 $ 4,832 $ 37,533 $ 431,291
========= ========== ========= ========== =========
Cumulative
Rate sensitive assets (RSA)................... $216,957 $ 251,586 $ 424,985 $ 498,101
Rate sensitive liabilities (RSL).............. 247,052 388,926 393,758 431,291
GAP (GAP=RSA-RSL)............................. (30,095) (137,340) 31,227 66,810
RSA/RSL....................................... 87.8% 64.7% 107.9% 115.5%
RSA/Total assets.............................. 41.8% 48.5% 81.9% 96.0%
RSL/Total assets.............................. 47.6% 75.0% 75.9% 83.1%
GAP/Total assets.............................. 5.8% 26.5% -6.0% -12.9%
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
GAP/RSA................................. 6.0% 27.6% -6.3% -13.4%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------------
Time to Maturity or Repricing
--------------------------------------------------------------------------
0-90 days 91-365 days 1-5 years Over 5 years Total
----------- ----------- --------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans............................................... $160,675 $ 27,437 $ 84,368 $ 9,509 $281,989
Investments......................................... 10,060 30,495 37,917 38,174 116,646
Federal funds sold.................................. 3,619 -- -- -- 3,619
-------- -------- -------- -------- --------
Total interest-earning assets..................... $174,354 $ 57,932 $122,285 $ 47,683 $402,254
======== ======== ======== ======== ========
Interest-Bearing Liabilities
Interest-bearing demand............................. $ -- $ -- $ -- $ 26,508 $ 26,508
Savings and money market............................ 85,193 85,045 -- 482 170,722
Time deposits....................................... 79,161 45,483 3,629 -- 128,273
Funds borrowed...................................... 20,000 -- -- -- 20,000
-------- -------- -------- -------- --------
Total interest-bearing liabilities................ $184,354 $130,530 $ 3,629 $ 26,990 $345,503
======== ======== ======== ======== ========
Cumulative
Rate sensitive assets (RSA)......................... $174,354 $232,286 $354,571 $402,254
Rate sensitive liabilities (RSL).................... 184,354 314,884 318,513 345,503
GAP (GAP=RSA-RSL)................................... (10,000) (82,598) 30,058 56,751
RSA/RSL............................................. 94.6% 73.8% 111.3% 116.4%
RSA/Total assets.................................... 41.9% 55.8% 85.2% 96.6%
RSL/Total assets.................................... 44.3% 75.6% 76.5% 83.0%
GAP/Total assets.................................... 2.4% 19.8% -8.7% -13.6%
GAP/Total RSA....................................... 2.5% 20.5% -9.0% -14.1%
</TABLE>
The following table shows the impact of an immediate 200 basis point
change in interest rates, assessed through a simulation model, on our earning
asset portfolio as of September 30, 2000, December 31, 1999 and March 31, 1999.
The simulation model attempts to measure the effect of rising and falling
interest rates over the next two-year horizon in a rapidly changing rate
environment. The rate shock data is not available as of December 31, 1998, as we
were not subject to this reporting requirement as of December 31, 1998.
Management feels that the composition of the balance sheet as of March 31, 1999
is not materially different from the balance sheet as of December 31, 1998.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999 March 31, 1999
----------------------- ---------------------- ------------------------
+200 Basis -200 Basis +200 Basis -200 Basis +200 Basis -200 Basis
Points Points Points Points Points Points
----------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <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......... -3.2% 8.9% -8.3% 10.8% -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 3.21%, 8.3% and 8.7% over a two-year horizon based on our earning
asset portfolio as of September 30, 2000, December 31, 1999 and March 31, 1999,
respectively. Conversely, a like shift of -200 basis points would increase net
interest income by 8.94% over a two-year horizon based on September 30, 2000
balances, down slightly from the 10.8% measured on the basis of the December 31,
1999 portfolio and the 10.3% measured on the basis of the March 31, 1999
portfolio.
Changes in the effect on net interest income from a 200 basis point
movement at September 30, 2000 as compared to December 31, 1999 are due
partially to the addition of assets and liabilities from the Johnson Bank
Illinois acquisition. As these assets and liabilities are more fixed rate in
nature the impact of changed rates over a two-year horizon shows a reduced
effect at September 30, 2000 as compared to December 31, 1999. In addition, we
increased our term borrowings and brokered deposits during 2000. These
additional funding sources mature or reprice within three months to three years.
As a result, changed rates show a reduced dollar impact over a two-year
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<PAGE>
horizon at September 30, 2000 compared to December 31, 1999. Our balance sheet
at December 31, 1999 as compared to March 31, 1999 became more liability
sensitive. During the last three quarters of 1999, we took advantage of certain
lending opportunities at fixed rates or with rates adjusting after an initial
rate term. This practice was consistent with past practices. However, we did not
choose to obtain a similar amount of deposits or borrowed funds with similar
repricing characteristics. In addition, management's likely reaction to changes
in interest rates is incorporated in assumptions made in these calculations.
Differences in these assumptions between the reporting periods have also had the
effect of reducing the impact of a changing interest rate environment.
The preceding sensitivity analysis is based on numerous assumptions
including: the nature and timing of interest rate levels including the shape of
the yield curve, prepayments on loans and securities, changes in deposit levels,
pricing decisions on loans and deposits, reinvestment/replacement of asset and
liability cash flows and others. While assumptions are developed based upon
current economic and local market conditions, we cannot make any assurances as
to the predictive nature of these assumptions including how client preferences
or competitor influences might change.
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.
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<PAGE>
BUSINESS
Overview
We organized PrivateBancorp as a Delaware corporation in 1989 to serve as
the holding company for a Chicago-based de novo (or start-up) bank designed to
provide highly personalized financial services primarily to affluent
individuals, professionals, entrepreneurs and their business interests. We were
one of the first banks newly formed in the Chicago area at that time. 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.
We have two banking subsidiaries -- The PrivateBank (Chicago) and The
PrivateBank (St. Louis). 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 managing directors to serve our client's individual and corporate
banking needs, and tailoring our products and services to meet their needs. Our
managing directors are strategically located in seven Midwestern United States
locations. Currently, we have six offices in the Chicago metropolitan area.
These offices are strategically located in downtown Chicago; in the affluent
North Shore communities of Wilmette, Winnetka and Lake Forest; in Oak Brook,
centrally located in the fast growing west suburban DuPage County; and in St.
Charles, in the far western Fox Valley area. We currently operate from one
location in the St. Louis market where we established The PrivateBank (St.
Louis), a federally chartered savings bank, in June 2000. The St. Louis-based
bank also focuses on clients who are seeking a higher level of service and a
broad array of personalized banking and wealth management products and services.
The PrivateBank (St. Louis) clients consist of individuals, small to
medium-sized businesses, commercial real estate investors and professionals.
Since year-end 1995 to September 30, 2000, we have grown our asset base at
a compound annual rate of 33.1% to $763.8 million. During the same period, loans
have grown at a compound annual rate of 38.1% to $584.9 million, assets at a
compound annual rate of 33.1% to $763.8 million, deposits at a compound annual
rate of 30.7% to $633.0 million and trust assets under administration at a
compound annual rate of 32.6% to $785.7 million.
The PrivateBank Approach
We are a client-driven organization. We emphasize personalized client
relationships and custom-tailored financial services, complemented by the
convenience of technology. We target 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 believe it offers significant growth
potential. 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 is
matched with a team of individuals headed by a managing director. This
managing director becomes our client's central point of contact with
us. Our 16 managing directors, who are senior financial professionals,
act as the financial partners of our clients, working
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<PAGE>
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 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. We offer our services to those members of this segment who are
focused on building and preserving wealth. Our clients include
affluent individuals, professionals, entrepreneurs 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 also recognize the growth potential of certain young professionals
and extend our services to those individuals whose incomes or net
worths 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. In taking a long-term relationship
approach to our clients, we are able to differentiate our services
from the "one-size-fits-all" mentality of other financial
institutions. Our clients use a wide variety of financial services
beyond the traditional banking products, and we work with them to
identify their particular needs and to develop and shape our services
tailored to meet those needs. While we offer a portfolio of products,
we believe that it is our personalized service that distinguishes us
from our competition. We encourage, not discourage, our clients to
contact us. 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 do
not have a lengthy chain of command. Our clients generally 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 approval process.
. Enhanced Personal Service through Technology. While we encourage our
clients to contact us directly, we also utilize technology to
complement and enhance client service. We offer 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 afford our clients the convenience of accessing our
services from remote locations at any time of day.
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:
. accesses deposit information and current deposit rate
schedules;
. allows transfers of funds among accounts;
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<PAGE>
. 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 bank personnel.
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 improve and expand dual-delivery systems providing
the quality of service to which our 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 their existing
investment management relationships when they become trust clients, or
use our approved 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, assist our clients in
selecting 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 an independent insurance
brokerage firm. 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 a registered securities broker-dealer
firm through which we offer our clients on-site securities brokerage
services.
Strategy for Growth
We seek to enhance long-term stockholder value through internal growth,
expanded product lines and selective geographic expansion. We expect to continue
to evaluate possible acquisition candidates and new office locations and we
intend to pursue opportunities that we perceive to be attractive to the
long-term value of our franchise. Our growth strategy entails four 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 and
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, particularly in
our newer offices. We believe that the growing need for private
banking services in these markets is still largely unmet and we
believe there is a significant opportunity to increase our client base
in these offices. We hope to capitalize on our reputation and the
reputations of our managing directors in 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. 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 business through
referrals from our existing clients. Referrals have been a significant
source of new
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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.
. Expanding into New Product Lines. Our goal is to be the primary source
of financial products and services for our clients. We believe that by
broadening our product line and adding additional financial services
not currently offered by us, we should be able to achieve an increase
in our franchise value through diversification of our fee income and
strengthening of our client relationships. To reach this goal, we
intend to consider acquisitions, joint ventures or strategic alliances
with other financial service 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 and help us develop new client relationships.
. 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 or
St. Louis. As we identify other markets that present opportunities for
growth and development similar to those in the Chicago and St. Louis
markets, we will consider selective geographic expansion through
possible acquisitions of existing institutions or by establishing new
banking offices.
PrivateBank Services
We offer banking services to our clients at a personal level. We believe
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. We offer 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. We tailor these products to meet the varied needs of
our clients. 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. We provide 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 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 us
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. Our trust services include investment
management, personal trust and estate services, custodial services,
retirement accounts and brokerage and investment services. Our trust
personnel work with our clients to define objectives, goals and
strategies for their investment portfolios. We assist the client with
the selection of an outside investment manager and work to tailor
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<PAGE>
the investment program accordingly. During 1999, we introduced
PrivateBank Counselor, an asset allocation program that combines
outside professional portfolio management with an investment plan that
our trust personnel tailor to the individual client's personal
financial goals. 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 management agent, trustee or executor, we often structure
and periodically monitor the performance of the investment management
of our clients' 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. We also offer retirement products such as individual
retirement accounts, 401(k)s, IRA rollovers, 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. Trust services are currently offered at The
PrivateBank (St. Louis) through the trust department of The
PrivateBank (Chicago).
. 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 cards, and brokerage accounts. Some of our clients are using
the 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
and contractual arrangements with an independent insurance brokerage
firm and a registered securities broker-dealer firm, 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: (1) commercial real estate; (2) commercial; (3) residential real
estate; (4) personal; (5) construction; and (6) home equity. We have adopted a
loan policy that contains general lending guidelines and is subject to review
and revision by our board of directors. We extend credit consistent with this
comprehensive loan policy.
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 decisions are based upon our
client's ability to repay the loan 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 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 limits, based on our banks' statements of financial
condition, are calculated at 20% of capital plus unencumbered reserves. At
September 30, 2000, The PrivateBank (Chicago)'s legal lending limit was $12.2
million and The PrivateBank (St. Louis)'s legal lending limit was $1.0 million.
A bank's legal lending limit is the
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<PAGE>
maximum amount of credit that the bank may commit to any one individual or
business entity after aggregating all related credit.
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.
Our chief credit officer, or his designate, is involved in all credit
decisions when the aggregate credit exposure is in excess of $250,000. The
loan/investment committee of The PrivateBank (Chicago) reviews all credit
decisions over $2.5 million and that of The PrivateBank (St. Louis) reviews all
credit decisions over $250,000. Prior approval is required for credit exposure
in excess of $5.0 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 obtaining the approval of individual 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. The PrivateBank (St. Louis) is required to maintain a
specific percentage of its loan portfolio in qualified residential real estate
loans. To address this regulatory requirement, from time to time, The
PrivateBank (St. Louis) intends to purchase qualifying loans from The
PrivateBank (Chicago) in exchange for loans generated in the St. Louis market
that do not meet the criteria for qualified-thrift- loans. We expect to price
sales of loans between the banks so as to allow each bank to achieve equal risk
rewards from a yield perspective. Prior to purchasing any loans, the chief
credit officer of The PrivateBank (Chicago) will apply the same credit policies
and procedures as are followed for any other loan approval. Likewise, The
PrivateBank (St. Louis) will apply the same lending discipline to loans
purchased from The PrivateBank (Chicago) as it does for externally generated
loans.
The following table sets forth our loan portfolio by category as of
September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
September 30, Percentage of December 31, Percentage of
2000 total loans 1999 total loans
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial real estate............... $198,773 34.0% $146,368 36.8%
Commercial........................... 144,321 24.7 67,026 16.9
Residential real estate.............. 87,156 14.9 72,972 18.4
Personal/(1)/........................ 58,952 10.1 57,497 14.5
Construction......................... 51,102 8.7 29,018 7.3
Home equity.......................... 44,615 7.6 24,396 6.1
-------- ----- -------- -----
Total loans....................... $584,919 100.0% $397,277 100.0%
======== ===== ======== =====
</TABLE>
___________________
(1) Includes overdraft lines.
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
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<PAGE>
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. ARM structure allows our clients to lock in an interest rate for a
fixed period of time in order to avoid interest rate risk during the lock-in
period. 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.
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 also 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
55
<PAGE>
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. Frequently, 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.
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 clients 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 and are based on 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 allow borrowers to 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.
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<PAGE>
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 to be reviewed at least annually by our board of
directors. Our board is provided quarterly 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 tax-exempt
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 portfolio also includes equity investments in the
Federal Home Loan Bank of Chicago and the Federal Home Loan Bank of Des Moines.
We invest in the Federal Home Loan Bank in order to be a member, which qualifies
us to use their services including Federal Home Loan Bank borrowings. In
addition, we have purchased participations in pools of loans from Neighborhood
Housing Services ("NHS"). 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.
Our chief financial officer is responsible for the management of our
investment portfolio as well as the implementation of our investment strategy.
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 long-standing 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;
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<PAGE>
. advising beneficiaries; and
. preparation of tax returns.
In addition to trust and estate administration, we offer:
. institutional accounts;
. guardianship administration;
. investment agency accounts;
. Section 1031 exchanges; and
. custodial accounts.
Since January 1, 1997, the average account value of new trusts
administered by us was approximately $3.0 million. We seek to continue to grow
our trust business as we expand our client base and our clients increasingly
reach retirement age and focus on their estate plans. The following table
indicates the break-down of our trust assets under administration at September
30, 2000 by account classification and related gross revenue for the nine months
ended September 30, 2000:
<TABLE>
<CAPTION>
At or for the
nine months ended
September 30, 2000
-----------------------------
Account Type Market Value Revenue
------------ ------------ ---------
<S> <C> <C>
Personal trust -- managed ............... $288,176,086 $ 941,107
Agency -- managed ....................... 112,186,700 280,842
Custody .............................. 352,419,240 383,729
Employee benefits -- managed ............. 32,954,805 49,682
------------ ----------
Total ............................. $785,736,831 $1,655,360
============ ==========
</TABLE>
We have chosen to outsource the investment management aspect of our
trust 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 help them select an investment management firm to 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 a selected group 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.
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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 its 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 quarterly 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.
Properties
We currently have seven physical banking locations. We have a variety
of renewal options in each of our properties and certain rights to secure
additional space. The main offices of PrivateBancorp and The PrivateBank
(Chicago) 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.
We established a north suburban office in the affluent North Shore area
located at 517 Green Bay Road, Wilmette, Illinois, in October 1994. We lease
approximately 5,300 square feet on the first floor of a commercial building.
This lease expires on June 30, 2004.
In January 1997, we opened a third office of The PrivateBank (Chicago)
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.
In January 2000, we opened our Fox Valley office at 24 South Second
Street, St. Charles, Illinois. We lease approximately 6,700 square feet of a
commercial building. This lease expires October 31, 2009.
On November 18, 1999, we announced that we had filed an application to
charter a new federal savings bank in St. Louis, Missouri. Pending regulatory
approval, our St. Louis location was opened as a loan production office of The
PrivateBank (Chicago) at 1401 South Brentwood Boulevard, St. Louis, Missouri. We
lease approximately 12,400 square feet on the first and second floors of a
commercial building. This lease expires on February 4, 2009.
Our offices in Lake Forest and Winnetka, Illinois, were both acquired
as part of the purchase of Johnson Bank Illinois. Our Lake Forest office is on
the first floor of a two-story office building located at 920 South Waukegan
Road, Lake Forest, Illinois. The lease is for approximately 9,400 square feet
and expires on July 31,
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2005. Our Winnetka office leases approximately 5,100 square feet and is located
at 1000 Green Bay Road, Winnetka, Illinois. This lease expires on June 30, 2003.
Competition
We do business in the highly competitive financial services industry.
Our geographic market is primarily the greater Chicago and St. Louis
metropolitan areas. 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 us for one or more of the following: loans, deposits, trust
services, or investment products. Some of these firms have business units that
promote 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 and St. Louis
markets 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 and, in the St. Louis market, with St. Louis-based financial
institutions and banking offices. 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 and
St. Louis-area financial institutions, some suburban banks, and brokerage
houses. For residential mortgage lending, we compete with banks, savings and
loans, mortgage brokers and numerous other financial services firms offering
mortgage loans in our market areas. 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, state banking
organizations and federal savings banks. In addition, the larger banking
organizations, investment banks and brokerage houses have significantly greater
resources than us. As a result, some of our competitors have advantages over us
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 we act 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. Neither PrivateBancorp nor any of our subsidiaries is a
party to any pending or threatened material legal proceedings.
Employees
As of September 30, 2000, we had approximately 134 full-time equivalent
employees. The salaries of all of our employees are paid by either The
PrivateBank (Chicago) or The PrivateBank (St. Louis), with the exception of
Messrs. Mandell and Svec and Lisa M. O'Neill, our controller, a portion of whose
salaries are paid by PrivateBancorp.
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.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, their ages as of December 31,
2000, and their principal position(s) with the company are shown in the table
below. All of our directors are also directors of The PrivateBank (Chicago)
except Messrs. Gottlieb, Jensen and Podl. 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)/........... 59 Chairman, President and CEO
Caren L. Reed/(5)/................. 66 Vice Chairman
Donald L. Beal/(2)(5)/............. 54 Director
Naomi T. Borwell/(1)(4)/........... 73 Director
William A. Castellano/(1)(3)(4)/... 59 Director
Robert F. Coleman/(2)(3)(6)/....... 56 Director
John E. Gorman/(2)(3)(5)/.......... 55 Director
Alvin J. Gottlieb/(4)/............. 73 Director
James M. Guyette/(1)(2)(3)(6)/..... 55 Director
Richard C. Jensen/(4)/............. 55 Director
Philip M. Kayman/(6)/.............. 58 Director
William R. Langley/(2)(3)(4)/...... 60 Director
Thomas F. Meagher/(1)(6)/.......... 70 Director
William J. Podl/(2)(6)/ ........... 56 Director
Michael B. Susman/(1)(5)/.......... 62 Director
Gary L. Svec....................... 34 Chief Financial Officer
Gary S. Collins.................... 42 Managing Director of The PrivateBank (Chicago)
M. Gail Fitzgerald................. 57 Managing Director of The PrivateBank (Chicago)
Hugh H. McLean..................... 41 Managing Director of The PrivateBank (Chicago)
</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 2003.
(6) Serves as a Class III director with a term expiring in 2001.
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Ralph B. Mandell, a director since 1989, is a co-founder of
PrivateBancorp and The PrivateBank (Chicago). A Managing Director of both The
PrivateBank (Chicago) and The PrivateBank (St. Louis), he has served as Chairman
and Chief Executive Officer of PrivateBancorp and The PrivateBank (Chicago)
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.
Prior to starting The PrivateBank (Chicago) 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, was a founding director of The
PrivateBank (Chicago). Mr. Reed is currently employed as Vice Chairman of
PrivateBancorp and The PrivateBank (Chicago). From 1990 to March 1999, Mr. Reed
also held the title of President of PrivateBancorp and The PrivateBank
(Chicago). Prior to joining the bank, Mr. Reed was an Executive Vice President
of Continental Bank, Chicago with a career spanning 34 years.
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.
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.
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.
Richard C. Jensen, has been a director since January 2000. Mr. Jensen
has been a Managing Director of The PrivateBank (Chicago) since November 1999.
He became Chairman, Chief Executive Officer and a Managing Director of The
PrivateBank (St. Louis) upon its receipt of its banking charter in June, 2000.
From May 1998 until joining us, Mr. Jensen served as Chairman and Chief
Executive Officer of Missouri Holdings, Inc. From March to May 1998, he served
as President and Chief Executive Officer of Royal Banks of Missouri. For the
previous 18 years, Mr. Jensen served in various executive positions with Nations
Bank and its predecessor, Boatmen's Bank, in St. Louis.
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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 The PrivateBank (Chicago). 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.
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.
William J. Podl has been a director since August 1999. Mr. Podl was an
organizer of Towne Square Financial Corporation, which was purchased by the
Company in August 1999. Mr. Podl founded Doran Scales, Inc. in 1976, and is
currently Chairman and Chief Executive Officer of that 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 L. Svec has been the Secretary/Treasurer and Chief Financial
Officer of PrivateBancorp since August 2000. Prior to joining the company, Mr.
Svec served as Vice President and as Investment and Asset/Liability Specialist
for Betzold, Berg, Nussbaum & Heitman, Inc., working with the firm's financial
institutions clients, from August 1995 to August 2000. He also served as Chief
Financial Officer of Betzold Berg Investment Management from August 1995 to
August 1998. From 1988 until July 1995, Mr. Svec was employed by Crowe, Chizek &
Company as an auditor, tax advisor and consultant to their financial
institutions group. Mr. Svec is a certified public accountant.
Gary S. Collins has been a Managing Director of The PrivateBank
(Chicago) 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 the bank in 1991, he held senior
positions at several Chicago Metropolitan area 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 The PrivateBank
(Chicago) 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 The PrivateBank
(Chicago) 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.
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<PAGE>
Board of Directors
Our board of directors currently consists of 16 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. 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 2003; 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: (1) the Compensation Committee; (2) the Audit
Committee; and (3) 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 Compensation
Committee also advises and assists management in formulating policies regarding
compensation. The members of the Compensation Committee are Messrs. Guyette
(Chairman), Castellano, Meagher, 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 responsibility for
oversight of financial controls, as well as our accounting, regulatory and audit
activities, and annually reviews the qualifications of the independent auditors.
The Audit Committee is composed entirely of outside directors who are not now
officers of PrivateBancorp. The members of the Audit Committee are Messrs.
Coleman (Chairman), Beal, Gorman, Guyette, Langley and Podl.
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 The PrivateBank (Chicago) 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.
During 1999, options to purchase a total of 39,000 shares were granted to non-
employee directors. As of September 30, 2000, there were outstanding options
granted to non-employee directors pursuant to this program to purchase an
aggregate of 234,880 shares of common stock at an average weighted per share
exercise price of $11.0.
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 The PrivateBank (Chicago) and The PrivateBank (St. Louis) are also
entitled to the same meeting fees. During 1999, the boards of
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<PAGE>
directors of each of PrivateBancorp and The PrivateBank (Chicago) met monthly.
Total board and committee meeting fees paid in 1999 were $55,500.
Compensation Committee Interlocks and Insider Participation
Messrs. Guyette, Castellano, Meagher and Susman and Ms. Borwell each
serve on the Compensation Committee of our board of directors. Each of these
individuals has engaged in certain transactions as clients of the bank, in the
ordinary course of the bank's business, including borrowings, during the last
three years, all of which transactions are or were on substantially the same
terms (including interest rates and collateral on loans) as those prevailing at
the time for comparable transactions with unaffiliated persons. In the opinion
of our management, none of these transactions involved more than the normal risk
of collectability or presented any other unfavorable features. See "Transactions
with Related Persons." In addition, Mr. Ralph B. Mandell, our chairman,
president and chief executive officer, serves on the compensation committee of
The PrivateBank (St. Louis), which is responsible for determining the
compensation of the senior officers of that bank. Mr. Richard C. Jensen,
chairman, chief executive officer and a managing director of The PrivateBank
(St. Louis), is a director of PrivateBancorp.
Executive Compensation
The following table summarizes the compensation paid by PrivateBancorp
and The PrivateBank (Chicago) to the Chairman, President and Chief Executive
Officer and the four other most highly paid executive officers, referred to
below as the "named executive officers", during 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term
Compensation
Annual Compensation Awards
-------------------------------------------- ----------------------------
Other
Annual Securities All Other
Compen- Restricted Underlying Compen-
Salary Bonus/(1)/ sation/(2)/ Stock/(3)/ Options/(4)/ sation
Name and Principal Position Year ($) ($) ($) ($) (#) ($)
--------------------------- ----- ------- ---------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell......................... 2000
Chairman, President and CEO 1999 230,000 200,000 19,871 90,000/(5)/ 6,000 59,034/(6)/
1998 210,000 125,000 18,845 77,000/(7)/ 6,400 34,723/(6)/
Donald A. Roubitchek..................... 2000
Former Secretary/Treasurer and CFO 1999 145,000 75,000 2,155 43,200/(13)/ 4,000 3,200/(9)/
1998 138,000 40,000 1,776 22,000/(14)/ 6,400 3,200/(9)/
Hugh H. McLean........................... 2000
Managing Director 1999 130,000 60,000 12,725 54,000/(11)/ 4,000 3,200/(9)/
1998 115,000 46,000 11,756 22,000/(10)/ 5,600 3,005/(6)/
M. Gail Fitzgerald....................... 2000
Senior Trust Officer and Managing Director 1999 118,000 50,000 3,504 36,000/(12)/ 4,000 3,200/(9)/
1998 112,000 41,000 3,206 22,000/(10)/ 5,600 3,067/(9)/
Gary S. Collins.......................... 2000
Managing Director 1999 120,000 57,000 10,210 43,200/(8)/ 4,000 3,200/(9)/
1998 112,000 45,000 9,429 22,000/(10)/ 5,600 2,749/(9)/
</TABLE>
________________
(1) Bonuses for 1999 and 1998 were determined in December of the respective
years and paid in the following January.
(2) Represents automobile allowances, life insurance premiums and club
membership dues and fees paid by the company.
(3) 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. The number and
value of the aggregate restricted stock holdings of each of the above
named persons as of December 31, 1999, based on the closing price of
$13.375 for our common stock on that date, were as follows:
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<PAGE>
Mr. Mandell -- 26,600 shares, $355,775; Mr. Roubitchek -- 13,200 shares,
$176,550; Mr. McLean -- 7,800 shares, $104,325; Mr. Collins -- 10,400
shares, $139,100; and Ms. Fitzgerald -- 6,800 shares, $90,950.
(4) Options to purchase shares of common stock granted in 1999 have an
exercise price of $18.00 and vest over a four year period; options
granted in 1998 have 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.
(5) Represents an award of 5,000 shares of restricted stock at a value of
$18.00 per share.
(6) 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 the
Company in connection with Mr. Mandell's 1998 stock purchase transaction.
See "Transactions with Certain Related Persons."
(7) Represents an award of 5,600 shares of restricted stock at a value of
$13.75 per share.
(8) Represents an award of 2,400 shares of restricted stock at a value of
$18.00 per share.
(9) Represents matching contributions to the Company's 401(k) plan made by
the Company for the benefit of the executive officer.
(10) Represents an award of 1,600 shares of restricted stock at a value of
$13.75 per share.
(11) Represents an award of 3,000 shares of restricted stock at a value of
$18.00 per share.
(12) Represents an award of 2,000 shares of restricted stock at a value of
$18.00 per share.
(13) Represents an award of 2,400 shares of restricted stock at a value of
$18.00 per share.
(14) Represents an award of 1,600 shares of restricted stock at a value of
$13.75 per share.
The table below summarizes certain information about the options which
we granted in 1999 to each named executive officer. All options were granted
have a per share exercise price equal to the initial public offering price of
our common stock, which was $18.00 per share.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
% of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of
Shares Granted to Exercise Stock Price
Underlying Employees or Base Appreciation
Options in Fiscal Price Expiration for Option Term ($)
-------------------------
Name Granted Year ($/Sh) Date 5% 10%
---- ----------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell................ 6,000 8.63% $18.00 03/24/09 $67,921 $172,124
Donald A. Roubitchek............ 4,000 5.75% 18.00 03/24/09 45,280 114,749
Gary S. Collins................. 4,000 5.75% 18.00 03/24/09 45,280 114,749
M. Gail Fitzgerald.............. 4,000 5.75% 18.00 03/24/09 45,280 114,749
Hugh H. McLean.................. 4,000 5.75% 18.00 03/24/09 45,280 114,749
</TABLE>
The following table summarizes for each named executive officer the
number of shares of common stock subject to outstanding options and the value of
such options that were unexercised at December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised In-The-Money
Options at Options at
December 31, 1999 (#) December 31, 1999 ($)/(2)/
Shares --------------------- ---------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable/(1)/ Unexercisable/(1)/
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
</TABLE>
66
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Ralph B. Mandell................. -- -- 75,840/12,400 489,860/--
Donald A. Roubitchek............. -- -- 38,736/10,400 248,354/--
Gary S. Collins.................. -- -- 31,616/ 9,600 203,064/--
M. Gail Fitzgerald............... -- -- 12,000/13,600 48,000/--
Hugh H. McLean................... -- -- 16,000/9,600 64,000/--
</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,
1999.
(2) The estimated fair market value of our common stock at December 31, 1999
was $13.375 per share.
Employment Agreements
We have entered into an employment agreement with Ralph B. Mandell, our
Chairman, President and Chief Executive Officer. The agreement, which has a term
of two years, expires on June 30, 2001, and is subject to renewal for a
successive two year term. Under the provisions of the agreement, Mr. Mandell is
entitled to an annual base salary of $230,000. Mr. Mandell may receive a
discretionary bonus to the extent determined by the board of directors and is
entitled to participate in benefit plans and other fringe benefits available to
our managing directors.
Under the agreement, Mr. Mandell's employment may be terminated by us
at any time for "cause," as defined in the agreement, in which case, or if he
resigns from the company without "good reason," the agreement immediately
terminates, and he would be entitled only to unpaid benefits accrued during the
term of his employment. If Mr. Mandell chooses to resign with good reason, or we
choose to terminate his employment without cause, he is also entitled to receive
severance in the amount equal to 18 months of his then current base annual
salary, plus a pro rata bonus for the year of termination based on the prior
year's bonus amount, if any. The agreement also provides for death benefits
equal to six months of his 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 contributions that would have been made by
us to him during the year under benefit plans and the annual value of any other
executive perquisites. The agreement entitles Mr. Mandell to receive gross up
payments to cover any federal excise taxes payable by him 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 agreement 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.
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<PAGE>
The agreement also contains non-compete provisions, which prohibit Mr.
Mandell from soliciting, either for his own account or for the benefit of any
entity located within a twenty-five mile radius of us 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 his
employment. The non-compete provisions do not apply in the event of a change in
control.
We have also entered into an employment agreement with Richard C.
Jensen, one of our directors, and the chairman, chief executive officer and a
managing director of The PrivateBank (St. Louis). The agreement, which has a
term of three years, expires on June 30, 2003, subject to renewal for a
successive term. The terms and provisions of Mr. Jensen's agreement are
substantially similar to those of the employment agreement with Mr. Mandell
summarized above, with the following exceptions:
. Mr. Jensen's annual base salary is $150,000;
. In the event of Mr. Jensen's discharge without cause or his
resignation with good reason, as defined in the agreement, Mr.
Jensen is entitled to (a) continue to receive his then current
base salary for a period of 12 months, plus a pro rata bonus for
the year of termination based on the prior year's bonus amount, if
any; and (b) outplacement counseling services for a period of up
to one year, or until Mr. Jensen is employed elsewhere or self-
employed; and
. In the event Mr. Jensen is terminated after a change of control of
the company, he will be entitled to a lump sum payment equal to
two times the sum of: (a) his annual base salary; (b) the greater
of (i) his bonus amount, if any, for the prior year or (ii) his
average bonus, if any, for the three preceding years; and (c) the
sum of contributions that would have been made by us to him during
the year under benefit plans and the annual value of any other
executive perquisites.
TRANSACTIONS WITH RELATED PERSONS
Some of our executive officers and directors are, and have been during
the preceding three years, clients of the banks, 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 the banks. As
such clients, they have had transactions in the ordinary course of business of
the banks, 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 collectability or presented any other unfavorable
features. At September 30, 2000, we had $10.3 million in loans outstanding to
certain directors and executive officers and their business interests of the
company and certain executive officers of the banks.
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 our long-term performance and further align
his interests with those of our stockholders. 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.
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<PAGE>
On July 6, 1999, we loaned $175,000 to Thomas Castronovo, a managing
director of The PrivateBank (Chicago), for the purpose of purchasing our common
stock in our initial public offering. The shares purchased serve as collateral
for the loan. The loan accrues no interest and is payable upon receipt of
certain bonus payments. The loan was repaid in full during the third quarter of
2000.
During 2000, 1999 and 1998, we incurred professional fees for services
provided by the law firm Spitzer, Addis, Susman & Krull in the amount of
approximately $186,000, $205,000 and $94,000, respectively. Michael B. Susman,
who is one of our directors, is a partner of that firm.
During 2000, 1999 and 1998, The PrivateBank (Chicago) acquired selected
furniture with a total cost of $61,733, $28,402 and $2,655, respectively,
through certain related parties of William A. Castellano, one of our directors.
In connection with our acquisition of Towne Square Financial
Corporation, William J. Podl, who subsequently became a director of
PrivateBancorp, received 15,278 shares of common stock of PrivateBancorp as
consideration for his 16.667% ownership interest of Towne Square Financial
Corporation. Mr. Podl is currently a 16.667% owner of Towne Square Realty, LLC,
from which The PrivateBank (Chicago), leases approximately 6,700 square feet in
a building located in St. Charles, IL. This lease became effective August 1,
1999. In 1999, we paid rent in the amount of $44,500 to Towne Square Realty, LLC
under such lease.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of December 20, 2000, 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>
Amount of
Common Total
Shares Currently Amount of Total
Beneficially Restricted Exercisable Beneficial Percentage
Owned/(1)/ Stock/(1)/ Options/(1)/ Ownership/(1)/ Ownership/(1)/
----- ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Directors
---------
Ralph B. Mandell**....................... 214,681/(2)/ 29,600/(3)/ 79,040 323,321 6.86%
Donald L. Beal........................... 17,464/(4)/ -- 18,720 36,184 *
Naomi T. Borwell......................... 164,800 -- 18,720 183,520 3.94
William A. Castellano.................... 152,400/(5)/ -- 18,720 171,120 3.68
Robert F. Coleman........................ 26,400/(6)/ -- 18,720 45,120 *
John E. Gorman........................... 49,000 -- 14,400 63,400 1.36
Alvin J. Gottlieb........................ 105,600 -- 9,240 114,840 2.47
James M. Guyette......................... 12,000 -- 18,720 30,720 *
Richard C. Jensen........................ 5,723/(7)/ 3,500 -- 9,223 *
Philip M. Kayman......................... 14,800 -- 18,720 33,520 *
William R. Langley....................... 89,600 -- 74,240 163,840 3.48
Thomas F. Meagher........................ 17,000 -- 12,480 29,480 *
William J. Podl.......................... 25,556 -- 3,000 28,556 *
Caren L. Reed............................ -- 9,600/(8)/ 12,440 22,040 *
Michael B. Susman........................ 25,400 -- 18,720 44,120 *
--------- ------ ------- --------- ------
Total Directors (15 persons).......... 920,424 42,700 335,880 1,299,004 26.12%
Non-director Named Executive Officers
-------------------------------------
Gary L. Svec............................. 1,761 3,500/(3)/ -- 5,261 *
Gary S. Collins.......................... 22,484/(9)/ 12,400/(3)/ 34,616 69,300 1.48
M. Gail Fitzgerald....................... 10,967/(10)/ 6,800/(11)/ 18,800 36,567 *
Hugh H. McLean........................... 52,728 9,800/(11)/ 18,800 81,328 1.75
--------- ------ ------- --------- ------
Total Directors and Named
Executive Officers (19 persons).... 1,008,364 75,200 407,896 1,491,460 29.56%
========= ====== ======= ========= ======
</TABLE>
_____________________
* Less than 1%
** Denotes person who serves as a director who is also a named executive
officer.
(1) Beneficial ownership is determined in accordance with SEC Rule 13d-3
promulgated under the Securities Exchange Act of 1934.
(2) Includes 72,720 shares which have been pledged as collateral to secure a
loan from us to Mr. Mandell. See "Transactions with Related Persons."
Also, includes 23,600 shares held by Mr. Mandell's spouse. Mr. Mandell's
business address is c/o The PrivateBank and Trust Company, Ten North
Dearborn Street, Chicago, Illinois 60602.
(3) Shares vest at various dates between 2001 and 2004, and are subject to
forfeiture until such time as they vest.
(4) Includes 10,364 shares held by Mr. Beal's spouse and children.
(5) Includes 14,000 shares held by Mr. Castellano's children and 10,000 shares
held by WMC Investment Ltd. Partnership.
(6) 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.
(7) Represents shares held by Mr. Jensen's spouse.
(8) Shares vest at various dates between 2001 and 2002, and are subject to
forfeiture until such time as they vest.
(9) Includes 4,420 shares held by Mr. Collins' spouse.
(10) Includes 2,400 shares held by Ms. Fitzgerald's spouse.
(11) Shares vest at various dates between 2002 and 2004, and are subject to
forfeiture until such time as they vest.
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<PAGE>
SUPERVISION AND REGULATION
General
Banking is a highly regulated industry. The following is a summary of
several applicable statutes and regulations. However, 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 the 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, as amended (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
the Federal Reserve. As part of this process, 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 define capital and establish minimum capital ratios in
relation to assets, both on an aggregate basis, and as adjusted for credit risks
and off-balance sheet exposures. At September 30, 2000, our consolidated assets
were $763.8 million. Under the Federal Reserve's risk- based guidelines
applicable to PrivateBancorp, capital is classified into two categories.
For bank holding companies, Tier 1, or "core", capital consists of:
. common stockholders' equity;
. qualifying noncumulative perpetual preferred stock;
. qualifying cumulative perpetual preferred stock (subject to some
limitations); and
. minority interests in the common equity accounts of consolidated
subsidiaries.
less:
. goodwill; and
. specified intangible assets.
Tier 2, or "supplementary," capital consists of:
. the allowance for loan and lease losses;
. perpetual preferred stock and related surplus;
. hybrid capital instruments;
. unrealized holding gains on equity securities;
. perpetual debt and mandatory convertible debt securities;
. term subordinated debt, including related surplus; and
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. 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 has established a minimum ratio of Tier 1 capital
to total assets of 3% for strong bank holding companies (those rated a composite
"1" under the Federal Reserve's rating system). For all other bank holding
companies, the minimum ratio of Tier 1 capital to total assets is 4%. In
addition, the Federal Reserve continues to consider the Tier 1 leverage ratio
(after deducting all intangibles) 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 state that banking organizations experiencing growth, whether
internally or by making acquisitions, are expected to maintain strong capital
positions substantially above the minimum levels.
As of September 30, 2000, we had regulatory capital in excess of the
Federal Reserve's minimum requirements. Our total risk-based capital ratio at
September 30, 2000 was 8.51% and our leverage ratio was 5.54%.
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 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, performing functions or
activities that may be performed by a trust company, or acting as an investment
or financial advisor. 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,
except with respect to traditional banking products, we may not condition a
client's purchase of one of our services on the purchase of another service. The
passage of the Gramm-Leach-Bliley Act, however, allows bank holding companies to
become financial holding companies. Financial holding companies do not face the
same prohibitions to entering into certain business transactions that bank
holding companies currently face. See the discussion of the Gramm-Leach-Bliley
Act below.
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. Under the Illinois Banking Act, any person who
acquires more than 10% of our stock may be required to obtain the prior approval
of the commissioner of the Illinois Office of Banks and Real Estate (the
"Commissioner"). Under the Change in Bank Control Act, a person may be required
to obtain the prior regulatory approval of the Federal Reserve before acquiring
the power to directly or indirectly control the management, operations or
policies of PrivateBancorp or before acquiring control of 10% or more of any
class of our outstanding voting stock.
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
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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, we are expected to
act as a source of financial strength to our banking subsidiaries and to commit
resources to support them. The Federal Reserve takes the position that in
implementing this policy, it may require us to provide financial support when we
otherwise would not consider ourselves 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 could be dividends which we expect to
receive from our banking subsidiaries, our ability to pay dividends will depend
on the amount of dividends paid by our banking subsidiaries. We cannot be sure
that our banking subsidiaries will pay such dividends to us.
Bank Regulation
The PrivateBank (Chicago) is subject to supervision and examination by
the commissioner of the Illinois Office of Banks and Real Estate (the
"Commissioner") and, as a non-member, FDIC-insured bank, to supervision and
examination by the Federal Deposit Insurance Corporation ("FDIC"). As an
affiliate of The PrivateBank (Chicago), we are also subject to examination by
the Commissioner. The PrivateBank (Chicago) is a member of the Federal Home Loan
Bank of Chicago and may be subject to examination by the Federal Home Loan Bank
of Chicago. The Federal Deposit Insurance Act ("FDIA") requires prior FDIC
approval for any merger and/or consolidation by or with another depository
institution, as well as for the establishment or relocation of any bank or
branch office. The FDIA also gives the power to the FDIC to issue cease and
desist orders. A cease and desist order could either prohibit a bank from
engaging in certain unsafe and unsound bank activity or could require a bank to
take certain affirmative action. The FDIC also supervises compliance with the
federal law and regulations which place restrictions on loans by FDIC-insured
banks to an executive officer, director or principal shareholder of the bank,
the bank holding company which owns the bank, and any subsidiary of such bank
holding company. The FDIC also examines The PrivateBank (Chicago) for its
compliance with statutes which restrict and, in some cases, prohibit certain
transactions between a bank and its affiliates. Among other provisions, these
laws place restrictions upon:
. extensions of credit to the bank holding 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.
Also, The PrivateBank (Chicago) is subject to restrictions with respect
to engaging in the issuance, underwriting, public sale or distribution of
certain types of securities and 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),
. the nature and amount of securities in which it may invest,
. the amount of investment in The PrivateBank (Chicago) premises, and
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. the manner in and extent to which it may borrow money.
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 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 PrivateBancorp and The
PrivateBank (Chicago) 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. The PrivateBank (Chicago) 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 $44.3 million of transaction accounts plus 10%
on the remainder. The first $5.0 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve) are exempted from the reserve
requirements. The PrivateBank (Chicago) 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 FDIC, 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 the safety and soundness
guidelines 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 have 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 stockholder controlling the company). In other
respects, FDICIA provides for enhanced supervisory authority, including greater
authority for
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the appointment of a conservator or receiver for critically under-capitalized
institutions. The capital-based prompt corrective action provisions of FDICIA
and its 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. Also, under FDICIA, insured
depository institutions with assets of $500 million or more at the beginning of
a fiscal year, must submit an annual report for that year, including financial
statements and a management report, to each of the FDIC, any appropriate federal
banking agency, and any appropriate bank supervisor. The PrivateBank (Chicago)
had assets of $500 million or more at the beginning of fiscal year 2000, and
must therefore provide an annual report as required by FDICIA.
As of September 30, 2000, The PrivateBank (Chicago) had capital in
excess of the requirements for a "well-capitalized" institution.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, The PrivateBank (Chicago) 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 statutorily required reserve ratios in the insurance funds and to impose
special additional assessments. Each depository institution is assigned to one
of three capital groups: "well capitalized," "adequately capitalized" or
"undercapitalized." Within each capital group, institutions are assigned to one
of three supervisory subgroups: "A" (institutions with few minor weaknesses),
"B" (institutions which demonstrate weaknesses which, if not corrected, could
result in significant deterioration of the institution and increased risk of
loss to BIF), and "C" (institutions that pose a substantial probability of loss
to BIF unless effective corrective action is taken). 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
1999, The PrivateBank (Chicago) paid deposit insurance premiums in the aggregate
amount of $42,889.
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practices, 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. Such terminations can
only occur, if contested, following judicial review through the federal courts.
We do not know any practice, condition or violation that might lead to
termination of our deposit insurance.
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 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.
The PrivateBank (Chicago) was assigned a "satisfactory" rating in
January 1999 as a result of its last CRA examination.
Compliance with Consumer Protection Laws. The PrivateBank (Chicago) is
subject to many federal consumer protection statutes and regulations including
the CRA, the Truth in Lending Act, the Truth in Savings Act,
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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 could
result. Such action could in turn 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
civil money penalties, cease and desist orders, receivership, conservatorship or
the termination of deposit insurance.
Impact of the Gramm-Leach-Bliley Act. On November 12, 1999, President
Clinton signed the Gramm- Leach-Bliley Act (the "GLB Act"), which among other
things, establishes a comprehensive framework to permit affiliations among
commercial banks, insurance companies and securities firms. Also, a bank holding
company which meets certain criteria may certify that it satisfies such criteria
and become a financial holding company, and thereby engage in a broader range of
activity than permitted a bank holding company.
The GLB Act imposes new requirements on financial institutions with
respect to customer privacy by generally prohibiting disclosure of customer
information to non-affiliated third parties unless the customer has been given
the opportunity to object and has not objected to such disclosure. Financial
institutions are further required to disclose their privacy policies to
customers annually. The GLB Act directs the federal regulators to promulgate
implementing regulations within six months of enactment. The privacy provisions
will become effective six months thereafter.
We do not believe that the GLB Act will have a material adverse effect
upon our operations in the near term. However, to the extent the GLB Act permits
banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This consolidation could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than we currently offer and that can aggressively
compete in the markets we currently serve.
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The PrivateBank (St. Louis). The PrivateBank (St. Louis) is a federally
chartered savings bank. Accordingly, it is governed by and subject to extensive
regulation, examination and supervision by the Office of Thrift Supervision
("OTS"), and is required to comply with the rules and regulations of the OTS
under the Home Owners' Loan Act ("HOLA"). As a federally chartered savings bank,
The PrivateBank (St. Louis) has greater flexibility in pursuing interstate
branching than an Illinois state bank. The activities of The PrivateBank (St.
Louis) are also governed by the Federal Deposit Insurance Act. The FDIC has
back-up regulatory authority over The PrivateBank (St. Louis). Although The
PrivateBank (St. Louis) has a different primary federal regulator from The
PrivateBank (Chicago), most, if not all, of the federal statutes and regulations
applicable to The PrivateBank (Chicago) are also applicable to The PrivateBank
(St. Louis).
Under such regulation and supervision, The PrivateBank (St. Louis) is
required to file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
establishing branches or entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. The OTS conducts
periodic examinations to test The PrivateBank's (St. Louis) compliance with
various regulatory and safety and soundness requirements. This regulation and
supervision establishes a comprehensive framework of supervision and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including discretion with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress, could have a material adverse impact on us, The
PrivateBank (St. Louis) and our operations.
The PrivateBank (St. Louis) is also required to be a qualified thrift
lender ("QTL"). The HOLA requires savings institutions to meet a QTL test, under
which the institution is required to either qualify as a "domestic building and
loan association" under the Internal Revenue Code or maintain at least 65% of
its "portfolio assets" (total assets less (1) specified liquid assets up to 20%
of total assets; (2) intangibles, including goodwill; and (3) the value of
property used to conduct business) in certain "qualified thrift investments,"
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) in at least nine months out of each twelve month
period. As part of its application process, The PrivateBank (St. Louis)
submitted a three-year business plan to the FDIC and the OTS which commits to
compliance with the QTL test among other objectives, including the maintenance
of sufficient capital. A savings institution that fails the QTL test is subject
to certain operating restrictions and may be required to convert to a bank
charter. In meeting the QTL test, The PrivateBank (St. Louis) may be assisted by
The PrivateBank (Chicago) through the purchase by The PrivateBank (Chicago) of
certain loans and/or assets from The PrivateBank (St. Louis).
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DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a trust agreement executed by us, as sponsor for the
trust, and the trustees, and a certificate of trust has been filed with the
Delaware Secretary of State. The trust agreement will be amended and restated in
its entirety in the form filed as an exhibit to the registration statement of
which this prospectus is a part, as of the date the preferred securities are
initially issued. The trust agreement will be qualified under the Trust
Indenture Act of 1939.
The holders of the preferred securities issued pursuant to the offering
described in this prospectus will own all of the issued and outstanding
preferred securities of the trust which have certain prior rights over the other
securities of the trust. We will not initially own any of the preferred
securities. We will acquire common securities in an amount equal to at least 3%
of the total capital of the trust and will initially own, directly or
indirectly, all of the issued and outstanding common securities. The common
securities, together with the preferred securities, are called the trust
securities.
The trust exists exclusively for the purposes of:
. issuing the preferred securities to the public for cash;
. issuing its common securities to us in exchange for our
capitalization of the trust;
. investing the proceeds from the sale of the trust securities in an
equivalent amount of debentures; and
. engaging in other activities that are incidental to those listed
above, such as receiving payments on the debentures and making
distributions to security holders, furnishing notices and other
administrative tasks.
The rights of the holders of the trust securities are as set forth in
the trust agreement, the Delaware Business Trust Act and the Trust Indenture
Act. The trust agreement does not permit the trust to borrow money or make any
investment other than in the debentures. Other than with respect to the trust
securities, PrivateBancorp has agreed to pay for all debts and obligations and
all costs and expenses of the trust, including the fees and expenses of the
trustees and any income taxes, duties and other governmental charges, and all
costs and expenses related to these charges, to which the trust may become
subject, except for United States withholding taxes that are properly withheld.
The number of trustees of the trust will initially be five. Three of
the trustees will be persons who are employees or officers of or who are
affiliated with PrivateBancorp. They are the administrative trustees. The fourth
trustee will be an entity that maintains its principal place of business in the
State of Delaware. It is the Delaware trustee. Initially, Wilmington Trust
Company, a Delaware banking corporation, will act as Delaware trustee. The fifth
trustee, called the property trustee, will also initially be Wilmington Trust
Company. The property trustee is the institutional trustee under the trust
agreement and acts as the indenture trustee called for under the applicable
provisions of the Trust Indenture Act. Also for purposes of compliance with the
Trust Indenture Act, Wilmington Trust Company will act as guarantee trustee and
indenture trustee under the guarantee agreement and the indenture. We, as holder
of all of the common securities, will have the right to appoint or remove any
trustee unless an event of default under the indenture has occurred and is
continuing, in which case only the holders of the preferred securities may
remove the Delaware trustee or the property trustee. The trust has a term of
approximately 31 years but may terminate earlier as provided in the trust
agreement.
The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "payment account" established with Wilmington Trust Company
to hold all payments made on the debentures for the benefit of the holders of
the trust securities. The property trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
trust securities out of funds from the payment account. The guarantee
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trustee will hold the guarantee for the benefit of the holders of the preferred
securities. We will pay all fees and expenses related to the trust and the
offering of the preferred securities, including the fees and expenses of the
trustees.
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities will be issued pursuant to the trust
agreement. For more information about the trust agreement, see "Description of
the Trust" beginning on page 78. Wilmington Trust Company will act as property
trustee for the preferred securities under the trust agreement for purposes of
complying with the provisions of the Trust Indenture Act. The terms of the
preferred securities will include those stated in the trust agreement and those
made part of the trust agreement by the Trust Indenture Act.
The following discussion contains a description of the material
provisions of the preferred securities and is subject to, and is qualified in
its entirety by reference to, the trust agreement and the Trust Indenture Act.
We urge you to read the form of amended and restated agreement, which is filed
as an exhibit to the registration statement of which this prospectus forms a
part.
General
The trust agreement authorizes the administrative trustees, on behalf
of the trust, to issue the trust securities, which are comprised of the
preferred securities to be sold to the public and the common securities. We will
own all of the common securities issued by the trust. The trust is not permitted
to issue any securities other than the trust securities or incur any other
indebtedness.
The preferred securities will represent preferred undivided beneficial
interests in the assets of the trust, and the holders of the preferred
securities will be entitled to a preference over the common securities upon an
event of default with respect to distributions and amounts payable on redemption
or liquidation. The preferred securities will rank equally, and payments on the
preferred securities will be made proportionally, with the common securities,
except as described under "-- Subordination of Common Securities of the Trust"
on page 83.
The property trustee will hold legal title to the debentures in trust
for the benefit of the holders of the trust securities. We will guarantee the
payment of distributions out of money held by the trust, and payments upon
redemption of the preferred securities or liquidation of the trust, to the
extent described under "Description of the Guarantee" on page 101. The guarantee
agreement does not cover the payment of any distribution or the liquidation
amount when the trust does not have sufficient funds available to make these
payments.
Distributions
Source of Distributions. The funds of the trust available for
distribution to holders of the preferred securities will be limited to payments
made under the debentures, which the trust will purchase with the proceeds from
the sale of the trust securities. Distributions will be paid through the
property trustee, which will hold the amounts received from our interest
payments on the debentures in the payment account for the benefit of the holders
of the trust securities. If we do not make interest payments on the debentures,
the property trustee will not have funds available to pay distributions on the
preferred securities.
Payment of Distributions. Distributions on the preferred securities
will be payable at the annual rate of % of the $10 stated liquidation amount,
payable quarterly on March 31, June 30, September 30 and 31 of each year, to the
holders of the preferred securities on the relevant record dates. So long as the
preferred securities are represented by a global security, as described below,
the record date will be the business day immediately preceding the relevant
distribution date. The first distribution date for the preferred securities will
be March 31, 2001.
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Distributions will accumulate from the date of issuance, will be
cumulative and will be computed on the basis of a 360-day year of twelve 30-day
months. If the distribution date is not a business day, then payment of the
distributions will be made on the next day that is a business day, without any
additional interest or other payment for the delay. However, if the next
business day is in the next calendar year, payment of the distribution will be
made on the business day immediately preceding the scheduled distribution date.
When we use the term "business day" we mean any day other than a Saturday, a
Sunday, a day on which banking institutions in New York, New York are authorized
or required by law, regulation or executive order to remain closed or a day on
which the corporate trust office of the property trustee or the indenture
trustee is closed for business.
Extension Period. As long as no event of default under the indenture
has occurred and is continuing, we have the right to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. We refer to this period of deferral as an "extension period." No
extension period may extend beyond December 31, 2030 or end on a date other than
an interest payment date, which dates are the same as the distribution dates. If
we defer the payment of interest, quarterly distributions on the preferred
securities will also be deferred during any such extension period. Any deferred
distributions under the preferred securities will accumulate additional amounts
at the annual rate of %, compounded quarterly from the relevant distribution
date. The term "distributions" as used in this prospectus includes those
accumulated amounts.
During an extension period, we may not:
. declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to,
any of our capital stock (other than stock dividends, non-cash
dividends in connection with the implementation of a shareholder
rights plan, purchases of common stock in connection with employee
benefit plans or in connection with the reclassification of any
class of our capital stock into another class of capital stock) or
allow any of our subsidiaries to do the same with respect to their
capital stock (other than the payment of dividends or distributions
to us);
. make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with, or
junior in interest to, the debentures or allow any of our
subsidiaries to do the same;
. make any guarantee payments with respect to any other guarantee by
us of any other debt securities of any of our subsidiaries if the
guarantee ranks equally with or junior to the debentures (other
than payments under the guarantee); or
. redeem, purchase or acquire less than all of the debentures or any
of the preferred securities.
After the termination of any extension period and the payment of all amounts
due, we may elect to begin a new extension period, subject to the above
requirements.
We do not currently intend to exercise our right to defer distributions
on the preferred securities by deferring the payment of interest on the
debentures.
Redemption or Exchange
General. Subject to the prior approval of the Federal Reserve, if
required, we will have the right to redeem the debentures:
. in whole at any time, or in part from time to time, on or after
December 31, 2005;
. at any time, in whole, within 180 days following the occurrence of
a Tax Event, an Investment Company Event or a Capital Treatment
Event, which terms we define below; or
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. at any time, and from time to time, to the extent of any preferred
securities we purchase, plus a proportionate amount of the common
securities we hold.
Mandatory Redemption. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on December 31, 2030 or earlier, the property
trustee will apply the proceeds to redeem the same amount of the trust
securities, upon not less than 30 days' nor more than 60 days' notice, at the
redemption price. The redemption price will equal 100% of the aggregate
liquidation amount of the trust securities plus accumulated but unpaid
distributions to the date of redemption. If less than all of the debentures are
to be repaid or redeemed on a date of redemption, then the proceeds from such
repayment or redemption will be allocated to redemption of preferred securities
and common securities proportionately.
Distribution of Debentures in Exchange for Preferred Securities. Upon
prior approval of the Federal Reserve, if required, we will have the right at
any time to dissolve, wind-up or terminate the trust and, after satisfaction of
the liabilities of creditors of the trust as provided by applicable law,
including, without limitation, amounts due and owing the trustees of the trust,
cause the debentures to be distributed directly to the holders of trust
securities in liquidation of the trust. See "-- Liquidation Distribution Upon
Termination" on page 84.
After the liquidation date fixed for any distribution of debentures in
exchange for preferred securities:
. those trust securities will no longer be deemed to be outstanding;
. certificates representing debentures in a principal amount equal to
the liquidation amount of those preferred securities will be issued
in exchange for the preferred securities certificates;
. we will use our best efforts to list the debentures on the Nasdaq
National Market or a national exchange;
. any certificates representing trust securities that are not
surrendered for exchange will be deemed to represent debentures
with a principal amount equal to the liquidation amount of those
preferred securities, accruing interest at the rate provided for in
the debentures from the last distribution date on the preferred
securities;
. all rights of the trust securityholders other than the right to
receive debentures upon surrender of a certificate representing
trust securities will terminate.
We cannot assure you that the market prices for the preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur would be favorable. The preferred
securities that an investor may purchase, or the debentures that an investor may
receive on dissolution and liquidation of the trust, may trade at a discount to
the price that the investor paid to purchase the preferred securities.
Redemption upon a Tax Event, Investment Company Event or Capital
Treatment Event. If a Tax Event, an Investment Company Event or a Capital
Treatment Event occurs, we will have the right to redeem the debentures in
whole, but not in part, and thereby cause a mandatory redemption of all of the
trust securities at the redemption price. If one of these events occurs and we
do not elect to redeem the debentures, or to dissolve the trust and cause the
debentures to be distributed to holders of the trust securities, then the
preferred securities will remain outstanding and additional interest may be
payable on the debentures.
"Tax Event" means the receipt by the trust and us of an opinion of
counsel experienced in such matters stating that, as a result of any change or
prospective change in the laws or regulations of the United States or any
political subdivision or taxing authority of the United States, or as a result
of any official administrative pronouncement or judicial decision interpreting
or applying the tax laws or regulations, there is more than an insubstantial
risk that:
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. interest payable by us on the debentures is not, or within 90 days
of the date of the opinion will not be, deductible by us, in whole
or in part, for federal income tax purposes;
. the trust is, or will be within 90 days after the date of the
opinion, subject to federal income tax with respect to income
received or accrued on the debentures; or
. the trust is, or will be within 90 days after the date of the
opinion, subject to more than an immaterial amount of other taxes,
duties, assessments or other governmental charges.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of a change in law or regulation
or a change in interpretation or application of law or regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the preferred
securities as Tier 1 capital for purposes of the current capital adequacy
guidelines of the Federal Reserve, as a result of any amendment to any laws or
any regulations.
For all of the events described above, we or the trust must request and
receive an opinion with regard to the event within a reasonable period of time
after we become aware of the possible occurrence of an event of this kind.
Redemption of Debentures in Exchange for Preferred Securities We
Purchase. Upon prior approval of the Federal Reserve, if required, we will also
have the right at any time, and from time to time, to redeem debentures in
exchange for any preferred securities we may have purchased in the market. If we
elect to surrender any preferred securities beneficially owned by us in exchange
for redemption of a like amount of debentures, we will also surrender a
proportionate amount of common securities in exchange for debentures. Preferred
securities owned by other holders will not be called for redemption at any time
when we elect to exchange trust securities we own to redeem debentures.
The common securities we surrender will be in the same proportion to
the preferred securities we surrender as is the ratio of common securities
purchased by us to the preferred securities issued by the trust. In exchange for
the trust securities surrendered by us, the property trustee will cause to be
released to us for cancellation debentures with a principal amount equal to the
liquidation amount of the trust securities, plus any accumulated but unpaid
distributions, if any, then held by the property trustee allocable to those
trust securities. After the date of redemption involving an exchange by us, the
trust securities we surrender will no longer be deemed outstanding and the
debentures redeemed in exchange will be cancelled.
Redemption Procedures
Preferred securities will be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the preferred securities will be made, and the redemption price
will be payable, on each redemption date only to the extent that the trust has
funds available for the payment of the redemption price.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the date of redemption to each holder of trust securities to
be redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accumulate on the
debentures called for redemption on and after the date of redemption.
If the trust gives notice of redemption of its trust securities, then
the property trustee, to the extent funds are available, will irrevocably
deposit with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust securities
irrevocable instructions and authority to pay the redemption price to the
holders of the trust securities. If the preferred securities are no longer in
book-entry only
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form, the property trustee, to the extent funds are available, will deposit with
the designated paying agent for such preferred securities funds sufficient to
pay the aggregate redemption price and will give the paying agent irrevocable
instructions and authority to pay the redemption price to the holders upon
surrender of their certificates evidencing the preferred securities.
Notwithstanding the foregoing, distributions payable on or prior to the date of
redemption for any trust securities called for redemption will be payable to the
holders of the trust securities on the relevant record dates for the related
distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment of the interest will be made on
the immediately preceding business day.
If payment of the redemption price in respect of trust securities
called for redemption is improperly withheld or refused and not paid by the
trust, or by us pursuant to the guarantee, distributions on the trust securities
will continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this case, the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price.
Payment of the redemption price on the preferred securities and any
distribution of debentures to holders of preferred securities will be made to
the applicable recordholders as they appear on the register for the preferred
securities on the relevant record date. As long as the preferred securities are
represented by a global security, the record date will be the business day
immediately preceding the date of redemption or liquidation date, as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately to those trust securities based upon the relative
liquidation amounts. The particular preferred securities to be redeemed will be
selected by the property trustee from the outstanding preferred securities not
previously called for redemption by a method the property trustee deems fair and
appropriate. This method may provide for the redemption of portions equal to $10
or an integral multiple of $10 of the liquidation amount of the preferred
securities. The property trustee will promptly notify the registrar for the
preferred securities in writing of the preferred securities selected for
redemption and, in the case of any preferred securities selected for partial
redemption, the liquidation amount to be redeemed.
Subject to applicable law, and if we are not exercising our right to
defer interest payments on the debentures, we may, at any time, purchase
outstanding preferred securities.
Subordination of Common Securities
Payment of distributions on, and the redemption price of, the preferred
securities and common securities will be made based on the liquidation amount of
these securities. However, if an event of default under the indenture has
occurred and is continuing, no distributions on or redemption of the common
securities may be made unless payment in full in cash of all accumulated and
unpaid distributions on all of the outstanding preferred securities for all
distribution periods terminating on or before that time, or in the case of
payment of the redemption price, payment of the full amount of the redemption
price on all of the outstanding preferred securities then called for redemption,
has been made or provided for. All funds available to the property trustee will
first be applied to the payment in full in cash of all distributions on, or the
redemption price of, the preferred securities then due and payable.
In the case of the occurrence and continuance of any event of default
under the trust agreement resulting from an event of default under the
indenture, we, as holder of the common securities, will be deemed to have waived
any right to act with respect to that event of default under the trust agreement
until the effect of the event of default has been cured, waived or otherwise
eliminated. Until the event of default under the trust agreement has been so
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cured, waived or otherwise eliminated, the property trustee will act solely on
behalf of the holders of the preferred securities and not on our behalf, and
only the holders of the preferred securities will have the right to direct the
property trustee to act on their behalf.
Liquidation Distribution Upon Termination
We will have the right at any time to dissolve, wind-up or terminate
the trust and cause the debentures to be distributed to the holders of the
preferred securities. This right is subject, however, to us receiving approval
of the Federal Reserve, if required.
In addition, the trust will automatically terminate upon expiration of
its term and will terminate earlier on the first to occur of:
. our bankruptcy, dissolution or liquidation;
. the distribution of a like amount of the debentures to the holders
of trust securities, if we have given written direction to the
property trustee to terminate the trust;
. redemption of all of the preferred securities as described on page
81 under "-- Redemption or Exchange -- Mandatory Redemption"; or
. the entry of a court order for the dissolution of the trust.
With the exception of a redemption as described on page 81 under "--
Redemption or Exchange -- Mandatory Redemption," if an early termination of the
trust occurs, the trust will be liquidated by the administrative trustees as
expeditiously as they determine to be possible. After satisfaction of
liabilities to creditors of the trust as provided by applicable law, the
trustees will distribute to the holders of trust securities, debentures:
. in an aggregate stated principal amount equal to the aggregate
stated liquidation amount of the trust securities;
. with an interest rate identical to the distribution rate on the
trust securities; and
. with accrued and unpaid interest equal to accumulated and unpaid
distributions on the trust securities.
However, if the property trustee determines that the distribution is
not practical, then the holders of trust securities will be entitled to receive,
instead of debentures, a proportionate amount of the liquidation distribution.
The liquidation distribution will be the amount equal to the aggregate of the
liquidation amount plus accumulated and unpaid distributions to the date of
payment. If the liquidation distribution can be paid only in part because the
trust has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable directly by the trust on the trust
securities will be paid on a proportional basis, based on liquidation amounts,
to us, as the holder of the common securities, and to the holders of the
preferred securities. However, if an event of default under the indenture has
occurred and is continuing, the preferred securities will have a priority over
the common securities. See "-- Subordination of Common Securities" on page 83.
Under current federal income tax law and interpretations and assuming
that the trust is treated as a grantor trust, as is expected, a distribution of
the debentures should not be a taxable event to holders of the preferred
securities. Should there be a change in law, a change in legal interpretation, a
Tax Event or another circumstance, however, the distribution could be a taxable
event to holders of the preferred securities. See "Material Federal Income Tax
Consequences -- Receipt of Debentures or Cash Upon Liquidation of the Trust" on
page 106 for more information regarding a taxable distribution.
If we do not elect to redeem the debentures prior to maturity or to
liquidate the trust and distribute the debentures to holders of the preferred
securities, the preferred securities will remain outstanding until the repayment
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of the debentures. If we elect to dissolve the trust and thus cause the
debentures to be distributed to holders of the preferred securities in
liquidation of the trust, we will continue to have the right to shorten the
maturity of the debentures.
Liquidation Value
The amount of the liquidation distribution payable on the preferred
securities in the event of any liquidation of the trust is $10 per preferred
security plus accumulated and unpaid distributions to the date of payment, which
may be in the form of a distribution of debentures having a liquidation value
and accrued interest of an equal amount.
Events of Default; Notice
Any one of the following events constitutes an event of default under
the trust agreement with respect to the preferred securities:
. the occurrence of an event of default under the indenture;
. a default by the trust in the payment of any distribution when it
becomes due and payable, and continuation of the default for a
period of 30 days;
. a default by the trust in the payment of any redemption price of
any of the trust securities when it becomes due and payable;
. a default in the performance, or breach, in any material respect,
of any covenant or warranty of the trustees in the trust agreement,
other than those defaults covered in the previous two points, and
continuation of the default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the
trustee(s) by the holders of at least 25% in aggregate liquidation
amount of the outstanding preferred securities, a written notice
specifying the default or breach and requiring it to be remedied
and stating that the notice is a "Notice of Default" under the
trust agreement; or
. the occurrence of events of bankruptcy or insolvency with respect
to the property trustee and our failure to appoint a successor
property trustee within 60 days.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to the holders of the preferred securities, the
administrative trustees and to us, unless the event of default has been cured or
waived. PrivateBancorp and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under the
trust agreement.
If an event of default under the indenture has occurred and is
continuing, the preferred securities will have preference over the common
securities upon termination of the trust. The existence of an event of default
under the trust agreement does not entitle the holders of preferred securities
to accelerate the maturity thereof, unless the event of default is caused by the
occurrence of an event of default under the indenture and both the indenture
trustee and holders of at least 25% in principal amount of the debentures fail
to accelerate the maturity thereof.
Removal of the Trustees
Unless an event of default under the indenture has occurred and is
continuing, we may remove any trustee at any time. If an event of default under
the indenture has occurred and is continuing, only the holders of a majority in
liquidation amount of the outstanding preferred securities may remove the
property trustee or the Delaware trustee. The holders of the preferred
securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us as the
holder of the common securities. No resignation or removal of a
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trustee and no appointment of a successor trustee will be effective until the
successor trustee accepts the appointment in accordance with the trust
agreement.
Co-Trustees and Separate Property Trustee
Unless an event of default under the indenture has occurred and is
continuing, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the trust property may
at the time be located, we will have the power to appoint at any time or times,
and upon written request of the property trustee will appoint, one or more
persons or entities either (1) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (2) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
Merger or Consolidation of Trustees
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. For these purposes, if we consolidate or merge with another
entity, or transfer or sell substantially all of our assets to another entity,
in some cases that transaction may be considered to involve a replacement of the
trust, and the conditions set forth below would apply to such transaction. The
trust may, at our request, with the consent of the administrative trustees and
without the consent of the holders of the preferred securities, the property
trustee or the Delaware trustee, undertake a transaction listed above if the
following conditions are met:
. the successor entity either (a) expressly assumes all of the
obligations of the trust with respect to the preferred securities,
or (b) substitutes for the preferred securities other securities
having substantially the same terms as the preferred securities
(referred to as "successor securities") so long as the successor
securities rank the same in priority as the preferred securities
with respect to distributions and payments upon liquidation,
redemption and otherwise;
. we appoint a trustee of the successor entity possessing
substantially the same powers and duties as the property trustee in
its capacity as the holder of the debentures;
. the successor securities are listed or traded or will be listed or
traded on any national securities exchange or other organization on
which the preferred securities are then listed, if any;
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the preferred securities
(including any successor securities) in any material respect;
. the successor entity has a purpose substantially identical to that
of the trust;
. prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from
independent counsel that (a) any transaction of this kind does not
adversely affect the rights, preferences and privileges of the
holders of the preferred securities (including any successor
securities) in any material respect, and (b) following the
transaction, neither the trust nor the
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successor entity will be required to register as an "investment
company" under the Investment Company Act; and
. we own all of the common securities of the successor entity and
guarantee the obligations of the successor entity under the
successor securities at least to the extent provided by the
guarantee, the debentures, the trust agreement and the expense
agreement.
Notwithstanding the foregoing, the trust may not, except with the consent of
every holder of the preferred securities, enter into any transaction of this
kind if the transaction would cause the trust or the successor entity not to be
classified as a grantor trust for federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as described below and under "Description of the Guarantee --
Amendments" on page 102 and as otherwise required by the Trust Indenture Act and
the trust agreement, the holders of the preferred securities will have no voting
rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the preferred securities, in the
following circumstances:
. with respect to acceptance of appointment by a successor trustee;
. to cure any ambiguity, correct or supplement any provisions in the
trust agreement that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or
questions arising under the trust agreement, as long as the
amendment is not inconsistent with the other provisions of the
trust agreement and does not have a material adverse effect on the
interests of any holder of trust securities; or
. to modify, eliminate or add to any provisions of the trust
agreement if necessary to ensure that the trust will be classified
for federal income tax purposes as a grantor trust at all times
that any trust securities are outstanding or to ensure that the
trust will not be required to register as an "investment company"
under the Investment Company Act.
With the consent of the holders of a majority of the aggregate
liquidation amount of the outstanding trust securities, we and the trustees may
amend the trust agreement if the trustees receive an opinion of counsel to the
effect that the amendment or the exercise of any power granted to the trustees
in accordance with the amendment will not affect the trust's status as a grantor
trust for federal income tax purposes or the trust's exemption from status as an
"investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, the trust agreement may not be
amended to (a) change the amount or timing of any distribution on the trust
securities or otherwise adversely affect the amount of any distribution required
to be made in respect of the trust securities as of a specified date, or (b)
restrict the right of a holder of trust securities to institute suit for the
enforcement of the payment on or after that date.
As long as the property trustee holds any debentures, the trustees will
not, without obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of all outstanding preferred securities:
. direct the time, method and place of conducting any proceeding for
any remedy available to the indenture trustee, or executing any
trust or power conferred on the property trustee with respect to
the debentures;
. waive any past default that is waivable under the indenture;
. exercise any right to rescind or annul a declaration that the
principal of all the debentures will be due and payable; or
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. consent to any amendment or termination of the indenture or the
debentures, where the property trustee's consent is required.
However, where a consent under the indenture requires the consent
of each holder of the affected debentures, no consent will be given
by the property trustee without the prior consent of each holder of
the preferred securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the preferred securities except by subsequent vote of the
holders of the preferred securities. The property trustee will notify each
holder of preferred securities of any notice of default with respect to the
debentures. In addition to obtaining the foregoing approvals of the holders of
the preferred securities, prior to taking any of the foregoing actions, the
trustees must obtain an opinion of counsel experienced in these matters to the
effect that the trust will not be classified as an association taxable as a
corporation for federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting or by written consent. The property trustee will cause a notice of any
meeting at which holders of the trust securities are entitled to vote, or of any
matter upon which action by written consent of the holders is to be taken, to be
given to each holder of record of trust securities.
No vote or consent of the holders of preferred securities will be
required for the trust to redeem and cancel its preferred securities in
accordance with the trust agreement.
Notwithstanding the fact that holders of preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the preferred securities that are owned by PrivateBancorp, the trustees or
any affiliate of PrivateBancorp or any trustee, will, for purposes of the vote
or consent, be treated as if they were not outstanding.
Global Preferred Securities
The preferred securities will be represented by one or more global
preferred securities registered in the name of The Depository Trust Company, New
York, New York, referred to below as DTC, or its nominee. A global preferred
security is a security representing interests of more than one beneficial
holder. Ownership of beneficial interests in the global preferred securities
will be reflected in DTC participant account records through DTC's book-entry
transfer and registration system. Participants are brokers, dealers, or others
having accounts with DTC. Indirect beneficial interests of other persons
investing in the preferred securities will be shown on, and transfers will be
effected only through, records maintained by DTC participants. Except as
described below, preferred securities in definitive form will not be issued in
exchange for the global preferred securities.
No global preferred security may be exchanged for preferred securities
registered in the names of persons other than DTC or its nominee unless:
. DTC notifies the indenture trustee that it is unwilling or unable
to continue as a depositary for the global preferred security and
we are unable to locate a qualified successor depositary;
. we execute and deliver to the indenture trustee a written order
stating that we elect to terminate the book-entry system through
DTC; or
. there shall have occurred and be continuing an event of default
under the indenture.
Any global preferred security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in the
names as DTC shall direct. It is expected that the instructions will be based
upon directions received by DTC with respect to ownership of beneficial
interests in the global preferred security. If preferred securities are issued
in definitive form, the preferred securities will be in denominations of $10 and
integral multiples of $10 and may be transferred or exchanged at the offices
described below.
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Unless and until it is exchanged in whole or in part for the individual
preferred securities represented thereby, a global preferred security may not be
transferred except as a whole by DTC to a nominee of DTC, by a nominee of DTC to
DTC or another nominee of DTC or by DTC or any nominee to a successor depositary
or any nominee of the successor.
Payments on global preferred securities will be made to DTC, as the
depositary for the global preferred securities. If the preferred securities are
issued in definitive form, distributions will be payable by check mailed to the
address of record of the persons entitled to the distribution, and the transfer
of the preferred securities will be registrable, and preferred securities will
be exchangeable for preferred securities of other denominations of a like
aggregate liquidation amount, at the corporate office of the property trustee,
or at the offices of any paying agent or transfer agent appointed by the
administrative trustees. In addition, if the preferred securities are issued in
definitive form, the record dates for payment of distributions will be the 15th
day of the month in which the relevant distribution date occurs. For a
description of the terms of DTC arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance" on page 99.
Upon the issuance of one or more global preferred securities, and the
deposit of the global preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
preferred securities represented by the global preferred security to the
designated accounts of persons that participate in the DTC system. These
participant accounts will be designated by the dealers, underwriters or agents
selling the preferred securities. Ownership of beneficial interests in a global
preferred security will be limited to persons or entities having an account with
DTC or who may hold interests through participants. With respect to interests of
any person or entity that is a DTC participant, ownership of beneficial
interests in a global preferred security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee. With respect to persons or entities who hold interests in a global
preferred security through a participant, the interest and any transfer of the
interest will be shown only on the participant's records. The laws of some
states require that certain purchasers of securities take physical delivery of
securities in definitive form. These laws may impair the ability to transfer
beneficial interests in a global preferred security.
So long as DTC or another depositary, or its nominee, is the registered
owner of the global preferred security, the depositary or the nominee, as the
case may be, will be considered the sole owner or holder of the preferred
securities represented by the global preferred security for all purposes under
the trust agreement. Except as described in this prospectus, owners of
beneficial interests in a global preferred security will not be entitled to have
any of the individual preferred securities represented by the global preferred
security registered in their names, will not receive or be entitled to receive
physical delivery of any the preferred securities in definitive form and will
not be considered the owners or holders of the preferred securities under the
trust agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the preferred securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of the global preferred security representing the
preferred securities or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global preferred security,
immediately will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global preferred security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in the global preferred security held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." The payments will be the responsibility of
the participants.
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Payment and Paying Agency
Payments in respect of the preferred securities shall be made to DTC,
which shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the preferred securities are not held by DTC,
the payments shall be made by check mailed to the address of the holder as
listed on the register of holders of the preferred securities. The paying agent
for the preferred securities will initially be the property trustee and any co-
paying agent chosen by the property trustee and acceptable to us and the
administrative trustees. The paying agent for the preferred securities may
resign as paying agent upon 30 days' written notice to the administrative
trustees, the property trustee and us. If the property trustee no longer is the
paying agent for the preferred securities, the administrative trustees will
appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to us and the property trustee.
Registrar and Transfer Agent
The property trustee will act as the registrar and the transfer agent
for the preferred securities. Registration of transfers of preferred securities
will be effected without charge by or on behalf of the trust, but upon payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The trust and its registrar and transfer agent will
not be required to register or cause to be registered the transfer of preferred
securities after they have been called for redemption.
Information Concerning the Property Trustee
The property trustee undertakes to perform only the duties set forth in
the trust agreement. After the occurrence of an event of default that is
continuing, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its own affairs. The
property trustee is under no obligation to exercise any of the powers vested in
it by the trust agreement at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred. If no event of default under the trust
agreement has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous or inconsistent
provisions in the trust agreement or is unsure of the application of any
provision of the trust agreement, and the matter is not one on which holders of
preferred securities are entitled to vote upon, then the property trustee will
take the action directed in writing by us. If the property trustee is not so
directed, then it will take the action it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
Miscellaneous
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
. the trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act;
. the trust will not be classified as an association taxable as a
corporation for federal income tax purposes; and
. the debentures will be treated as indebtedness of PrivateBancorp
for federal income tax purposes.
In this regard, we and the administrative trustees are authorized to take any
action not inconsistent with applicable law, the certificate of trust or the
trust agreement, that we and the administrative trustees determine to be
necessary or desirable for these purposes.
The administrative trustees are required to use their best efforts to
maintain the listing of the preferred securities on the Nasdaq National Market
or a national securities exchange, but this requirement will not prevent us from
redeeming all or a portion of the preferred securities in accordance with the
trust agreement.
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Holders of the preferred securities have no preemptive or similar
rights. The trust agreement and the trust securities will be governed by
Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the preferred securities, the trust
will invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and Wilmington Trust Company, as indenture trustee. The
indenture will be qualified under the Trust Indenture Act.
The following discussion contains a description of the material
provisions of the debentures and is subject to, and is qualified in its entirety
by reference to, the indenture and to the Trust Indenture Act. We urge
prospective investors to read the form of the indenture, which is filed as an
exhibit to the registration statement of which this prospectus forms a part.
General
The debentures will be limited in aggregate principal amount to
$18,556,710 or $20,618,560 if the underwriters' over-allotment option is
exercised in full. This amount represents the sum of the aggregate stated
liquidation amounts of the trust securities. The debentures will bear interest
at the annual rate of % of the principal amount. The interest will be payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
beginning March 31, 2001, to the person in whose name each debenture is
registered at the close of business on the 15/th/ day of the last month of the
calendar quarter. It is anticipated that, until the liquidation, if any, of the
trust, the debentures will be held in the name of the property trustee in trust
for the benefit of the holders of the trust securities.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. If any date on which interest
is payable on the debentures is not a business day, then payment of interest
will be made on the next day that is a business day without any additional
interest or other payment in respect of the delay. However, if the next business
day is in the next calendar year, payment of interest will be made on the
immediately preceding business day. Accrued interest that is not paid on the
applicable interest payment date will bear additional interest on the amount due
at the annual rate of %, compounded quarterly.
The debentures will mature on December 31, 2030, the stated maturity
date. We may shorten this date once at any time to any date not earlier than
December 31, 2005, subject to the prior approval of the Federal Reserve, if
required.
We will give notice to the indenture trustee and the holders of the
debentures, no more than 180 days and no less than 30 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after December 31, 2005,
except if (a) a Tax Event, an Investment Company Event or a Capital Treatment
Event, which terms are defined on pages 81 and 82, has occurred, or (b) we
repurchase preferred securities in the market, in which case we can elect to
redeem debentures specifically in exchange for a like amount of preferred
securities owned by us plus a proportionate amount of common securities.
The debentures will be unsecured and will rank junior to all of our
senior and subordinated debt, including indebtedness we may incur in the future.
Because we are a holding company, our right to participate in any distribution
of assets of any of our subsidiaries, upon any subsidiary's liquidation or
reorganization or otherwise, and thus the ability of holders of the debentures
to benefit indirectly from any distribution by a subsidiary, is subject to the
prior claim of creditors of the subsidiary, except to the extent that we may be
recognized as a creditor of the subsidiary. The debentures will, therefore, be
effectively subordinated to all existing and future liabilities of our
subsidiaries, and holders of debentures should look only to our assets for
payment. The indenture does not limit our ability to incur or issue secured or
unsecured senior and junior debt, except in limited circumstances. See
"Description of the Debentures--Miscellaneous" on page 99.
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Except in limited circumstances, the indenture does not contain
provisions that afford holders of the debentures protection in the event of a
highly leveraged transaction or other similar transaction involving us, nor does
it require us to maintain or achieve any financial performance levels or to
obtain or maintain any credit rating on the debentures.
Option to Extend Interest Payment Period
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of %, compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of preferred securities if they are then
outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Material Federal Income Tax Consequences -- Interest
Payment Period and Original Issue Discount" on page 105.
During an extension period, we may not:
. declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to,
any of our capital stock (other than stock dividends, non-cash
dividends in connection with the implementation of a shareholder
rights plan, purchases of common stock in connection with
employee benefit plans or in connection with the reclassification
of any class of our capital stock into another class of capital
stock) or allow any of our subsidiaries to do the same with
respect to their capital stock (other than payment of dividends
or distributions to us);
. make or allow any of our subsidiaries to make any payment of
principal, interest or premium on, or repay, repurchase or redeem
any debt securities issued by us that rank equally with or junior
to the debentures;
. make or allow any of our subsidiaries to make any guarantee
payments with respect to any other guarantee by us of any other
debt securities of any of our subsidiaries if the guarantee ranks
equally with or junior to the debentures (other than payments
under the guarantee relating to the preferred securities); or
. redeem, purchase or acquire less than all of the debentures or
any of the preferred securities.
Prior to the termination of any extension period, so long as no event
of default under the indenture is continuing, we may further defer the payment
of interest subject to the above stated requirements. Upon the termination of
any extension period and the payment of all amounts then due, we may elect to
begin a new extension period at any time. We do not currently intend to exercise
our right to defer payments of interest on the debentures.
We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (a) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or (b) the date we are required to give notice of the
record date, or the date the distributions are payable, to the Nasdaq National
Market, or other applicable self-regulatory organization, or to holders of the
preferred securities, but in any event at least one business day prior to the
record date.
Other than as described above, there is no limitation on the number of
times that we may elect to begin an extension period.
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Additional Sums to be Paid as a Result of Additional Taxes
If the trust is required to pay any additional taxes, duties,
assessments or other governmental charges as a result of the occurrence of a Tax
Event, we will pay as additional interest on the debentures any amounts which
may be required so that the net amounts received and retained by the trust after
paying any additional taxes, duties, assessments or other governmental charges
will not be less than the amounts the trust would have received had the
additional taxes, duties, assessments or other governmental charges not been
imposed.
Redemption
Subject to prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
. on or after December 31, 2005, in whole at any time or in part
from time to time; or
. in whole at any time within 180 days following the occurrence of
a Tax Event, an Investment Company Event or a Capital Treatment
Event; or
. at any time, and from time to time, to the extent of any
preferred securities we purchase, plus a proportionate amount of
the common securities we hold.
In each case we will pay a redemption price equal to the accrued and unpaid
interest on the debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount of the redeemed debentures.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of debentures to be
redeemed at its registered address. Redemption of less than all outstanding
debentures must be effected proportionately, by lot or in any other manner
deemed to be fair and appropriate by the indenture trustee. Unless we default in
payment of the redemption price for the debentures, on and after the redemption
date interest will no longer accrue on the debentures or the portions of the
debentures called for redemption.
The debentures will not be subject to any sinking fund.
Distribution Upon Liquidation
As described under "-- Liquidation Distribution Upon Termination" on
page 84, under certain circumstances and with the Federal Reserve's approval,
the debentures may be distributed to the holders of the preferred securities in
liquidation of the trust after satisfaction of liabilities to creditors of the
trust. If this occurs, we will use our best efforts to list the debentures on
the Nasdaq National Market or other stock exchange or national quotation system
on which the preferred securities are then listed, if any. There can be no
assurance as to the market price of any debentures that may be distributed to
the holders of preferred securities.
Restrictions on Payments
We are restricted from making certain payments (as described below) if
we have chosen to defer payment of interest on the debentures, if an event of
default has occurred and is continuing under the indenture, or if we are in
default with respect to our obligations under the guarantee.
If any of these events occur, we will not:
. declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to,
any of our capital stock (other than stock dividends, non-cash
dividends in connection with the implementation of a shareholder
rights plan, purchases of common stock in connection with
employee benefit plans or in connection with the reclassification
of any class of our
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capital stock into another class of capital stock) or allow any
of our subsidiaries to do the same with respect to their capital
stock (other than payment of dividends or distributions to us);
. make or allow any of our subsidiaries to make any payment of
principal, interest or premium on, or repay or repurchase or
redeem any of our debt securities that rank equally with or
junior to the debentures;
. make or allow any of our subsidiaries to make any guarantee
payments with respect to any guarantee by us of the debt
securities of any of our subsidiaries if the guarantee ranks
equally with or junior to the debentures (other than payments
under the guarantee relating to the preferred securities); or
. redeem, purchase or acquire less than all of the debentures or
any of the preferred securities.
Subordination
The debentures are subordinated and junior in right of payment to all
of our senior and subordinated debt, as defined below. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up or reorganization of PrivateBancorp, whether voluntary or involuntary in
bankruptcy, insolvency, receivership or other proceedings in connection with any
insolvency or bankruptcy proceedings, the holders of our senior and subordinated
debt will first be entitled to receive payment in full of principal and interest
before the holders of debentures will be entitled to receive or retain any
payment in respect of the debentures.
If the maturity of any debentures is accelerated, the holders of all of
our senior and subordinated debt outstanding at the time of the acceleration
will also be entitled to first receive payment in full of all amounts due to
them, including any amounts due upon acceleration, before the holders of the
debentures will be entitled to receive or retain any principal or interest
payments on the debentures.
No payments of principal or interest on the debentures may be made if
there has occurred and is continuing a default in any payment with respect to
any of our senior or subordinated debt or an event of default with respect to
any of our senior or subordinated debt resulting in the acceleration of the
maturity of the senior or subordinated debt, or if any judicial proceeding is
pending with respect to any default.
The term "debt" means, with respect to any person, whether recourse is
to all or a portion of the assets of the person and whether or not contingent:
. every obligation of the person for money borrowed;
. every obligation of the person evidenced by bonds, debentures,
notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets
or businesses;
. every reimbursement obligation of the person with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of the person;
. every obligation of the person issued or assumed as the deferred
purchase price of property or services, excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business;
. every capital lease obligation of the person; and
. every obligation of the type referred to in the first five points
of another person and all dividends of another person the payment
of which, in either case, the first person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or
otherwise.
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The term "senior debt" means the principal of, and premium and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us, on, debt, whether incurred on
or prior to the date of the indenture or incurred after the date. However,
senior debt will not be deemed to include:
. any debt where it is provided in the instrument creating the debt
that the obligations are not superior in right of payment to the
debentures or to other debt which is equal with, or subordinated
to, the debentures;
. any of our debt that when incurred and without regard to any
election under the federal bankruptcy laws, was without recourse
to us;
. any debt of ours to any of our non-banking subsidiaries;
. any debt to any of our employees;
. any debt that by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of the
debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater than
they otherwise would have been as a result of any obligation of
the holders to pay amounts over to the obligees on the trade
accounts payable or accrued liabilities arising in the ordinary
course of business as a result of subordination provisions to
which the debt is subject; and
. debt which constitutes subordinated debt.
The term "subordinated debt" means the principal of, and premium and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us, on, debt. Subordinated debt
includes debt incurred on or prior to the date of the indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other debt of ours, other than the debentures. However, subordinated debt
will not be deemed to include:
. any of our debt which when incurred and without regard to any
election under the federal bankruptcy laws was without recourse to
us;
. any debt of ours to any of our non-banking subsidiaries;
. any debt to any of our employees;
. any debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of the
debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater than
they otherwise would have been as a result of any obligation of
the holders to pay amounts over to the obligees on the trade
accounts payable or accrued liabilities arising in the ordinary
course of business as a result of subordination provisions to
which the debt is subject;
. debt which constitutes senior debt; and
. any debt of ours under debt securities (and guarantees in respect
of these debt securities) initially issued to any trust, or a
trustee of a trust, partnership or other entity affiliated with us
that is, directly or indirectly, our financing subsidiary in
connection with the issuance by that entity of preferred
securities or other securities which are intended to qualify for
"Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and,
except in certain circumstances, there is no limitation under the indenture on
the amount of indebtedness we may incur. We had consolidated senior and
subordinated debt of $22.3 million outstanding principal amount at September 30,
2000. Although a portion of these amounts is expected to be repaid
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with a portion of the proceeds from the sale of the debentures, we expect to
incur additional senior or subordinated debt in the future.
Payment and Paying Agents
Generally, payment of principal of and interest on the debentures will
be made at the office of the indenture trustee in Wilmington, Delaware. However,
we have the option to make payment of any interest by (a) check mailed to the
address of the person entitled to payment at the address listed in the register
of holders of the debentures, or (b) wire transfer to an account maintained by
the person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
applicable record date. Payment of any interest on debentures will be made to
the person in whose name the debenture is registered at the close of business on
the regular record date for the interest payment, except in the case of
defaulted interest.
Any moneys deposited with the indenture trustee or any paying agent for
the debentures, or then held by us in trust, for the payment of the principal of
or interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on
December 31 of each year. If we hold any of this money in trust, then it will be
discharged from the trust to us and the holder of the debenture will thereafter
look, as a general unsecured creditor, only to us for payment.
Registrar and Transfer Agent
The indenture trustee will act as the registrar and the transfer agent
for the debentures. Debentures may be presented for registration of transfer,
with the form of transfer endorsed thereon, or a satisfactory written instrument
of transfer, duly executed, at the office of the registrar. Provided that we
maintain a transfer agent in Wilmington, Delaware, we may rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. We may at any time designate additional transfer
agents with respect to the debentures.
If we redeem any of the debentures, neither we nor the indenture
trustee will be required to (a) issue, register the transfer of or exchange any
debentures during a period beginning at the opening of business 15 days before
the day of the mailing of and ending at the close of business on the day of the
mailing of the relevant notice of redemption, or (b) transfer or exchange any
debentures so selected for redemption, except, in the case of any debentures
being redeemed in part, any portion not to be redeemed.
Modification of Indenture
We and the indenture trustee may, from time to time without the consent
of the holders of the debentures, amend, waive our rights under or supplement
the indenture for purposes which do not materially adversely affect the rights
of the holders of the debentures. Other changes may be made by us and the
indenture trustee with the consent of the holders of a majority in principal
amount of the outstanding debentures. However, without the consent of the holder
of each outstanding debenture affected by the proposed modification, no
modification may:
. extend the maturity date of the debentures; or
. reduce the principal amount or the rate or extend the time of
payment of interest; or
. reduce the percentage of principal amount of debentures required
to amend the indenture.
As long as any of the preferred securities remain outstanding, no modification
of the indenture may be made that requires the consent of the holders of the
debentures, no termination of the indenture may occur, and no waiver of any
event of default under the indenture may be effective, without the prior consent
of the holders of a majority of the aggregate liquidation amount of the
preferred securities.
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Debenture Events of Default
The indenture provides that any one or more of the following events
with respect to the debentures that has occurred and is continuing constitutes
an event of default under the indenture:
. our failure to pay any interest on the debentures for 30 days
after the due date, except where we have properly deferred the
interest payment;
. our failure to pay any principal on the debentures when due
whether at maturity, upon redemption or otherwise;
. our failure to observe or perform in any material respect any
other covenants or agreements contained in the indenture for 90
days after written notice to us from the indenture trustee or the
holders of at least 25% in aggregate outstanding principal amount
of the debentures; or
. our bankruptcy, insolvency or reorganization or dissolution of the
trust.
The holders of a majority of the aggregate outstanding principal amount
of the debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee. The
indenture trustee, or the holders of at least 25% in aggregate outstanding
principal amount of the debentures, may declare the principal due and payable
immediately upon an event of default under the indenture. The holders of a
majority of the outstanding principal amount of the debentures may rescind and
annul the declaration and waive the default if the default has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the indenture trustee.
The holders may not annul the declaration and waive a default if the default is
the non-payment of the principal of the debentures which has become due solely
by the acceleration. Should the holders of the debentures fail to annul the
declaration and waive the default, the holders of at least 25% in aggregate
liquidation amount of the preferred securities will have this right.
If an event of default under the indenture has occurred and is
continuing, the property trustee will have the right to declare the principal of
and the interest on the debentures, and any other amounts payable under the
indenture, to be immediately due and payable and to enforce its other rights as
a creditor with respect to the debentures.
We are required to file annually with the indenture trustee a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the indenture.
Enforcement of Certain Rights by Holders of the Preferred Securities
If an event of default under the indenture has occurred and is
continuing and the event is attributable to the failure by us to pay interest on
or principal of the debentures on the date on which the payment is due and
payable, then a holder of preferred securities may institute a direct action
against us to compel us to make the payment. We may not amend the indenture to
remove the foregoing right to bring a direct action without the prior written
consent of all of the holders of the preferred securities. If the right to bring
a direct action is removed, the trust may become subject to the reporting
obligations under the Securities Exchange Act of 1934.
The holders of the preferred securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the debentures unless there has been an event of
default under the trust agreement.
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Consolidation, Merger, Sale of Assets and Other Transactions
We may not consolidate with or merge into any other entity or convey or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into us or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to us, unless:
. if we consolidate with or merge into another person or convey or
transfer our properties and assets substantially as an entirety to
any person, the successor person is organized under the laws of
the United States or any state or the District of Columbia, and
the successor person expressly assumes by supplemental indenture
our obligations on the debentures, and the ultimate parent entity
of the successor entity expressly assumes our obligations under
the guarantee, to the extent the preferred securities are then
outstanding;
. immediately after the transaction, no event of default under the
indenture, and no event which, after notice or lapse of time, or
both, would become an event of default under the indenture, has
occurred and is continuing; and
. other conditions as prescribed in the indenture are met.
Under certain circumstances, if we consolidate or merge with another
entity, or transfer or sell substantially all of our assets to another entity,
such transaction may be considered to involve a replacement of the trust, and
the provisions of the trust agreement relating to a replacement of the trust
would apply to such transaction. See "-- Mergers, Consolidations, Amalgamations
or Replacements of the Trust" on page 86.
Satisfaction and Discharge
The indenture will cease to be of further effect and we will be deemed
to have satisfied and discharged our obligations under the indenture when all
debentures not previously delivered to the indenture trustee for cancellation:
. have become due and payable;
. will become due and payable at their stated maturity within one
year or are to be called for redemption within one year, and we
deposit or cause to be deposited with the indenture trustee funds,
in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the debentures not previously
delivered to the indenture trustee for cancellation, for the
principal and interest due to the date of the deposit or to the
stated maturity or redemption date, as the case may be.
We may still be required to provide officers' certificates, opinions of
counsel and pay fees and expenses due after these events occur.
Governing Law
The indenture and the debentures will be governed by and construed in
accordance with Illinois law.
Information Concerning the Indenture Trustee
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable security or indemnity by the
holder against the costs, expenses and liabilities which might be incurred. The
indenture trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
indenture trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
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Miscellaneous
We have agreed, pursuant to the indenture, for so long as preferred
securities remain outstanding:
. to maintain directly or indirectly 100% ownership of the common
securities of the trust, except that certain successors that are
permitted pursuant to the indenture may succeed to our ownership
of the common securities;
. not to voluntarily terminate, wind up or liquidate the trust
without prior approval of the Federal Reserve, if required;
. to use our reasonable efforts to cause the trust (a) to remain a
business trust (and to avoid involuntary termination, winding up
or liquidation), except in connection with a distribution of
debentures, the redemption of all of the trust securities of the
trust or mergers, consolidations or amalgamations, each as
permitted by the trust agreement; and (b) to otherwise continue
not to be treated as an association taxable as a corporation or
partnership for federal income tax purposes;
. to use our reasonable efforts to cause each holder of trust
securities to be treated as owning an individual beneficial
interest in the debentures;
. not to issue or incur, directly or indirectly, any additional
indebtedness in connection with the issuance of additional trust
preferred securities or similar securities that are senior in
right of payment to the debentures; and
. not to issue or incur, directly or indirectly, any additional
indebtedness related to the issuance of additional trust preferred
securities or similar securities that rank equal in right of
payment with the debentures unless:
. the pro forma sum of all outstanding debt issued by us or any
of our subsidiaries in connection with any trust preferred
securities issued by any of our finance subsidiaries,
including the debentures and the maximum liquidation amount
of the additional trust preferred or similar securities that
we or our finance subsidiary is then proposing to offer, plus
our total long term debt (excluding any long term debt which,
by its terms, is expressly stated to be junior and
subordinate to the debentures),
is less than 60 percent of
. the sum of our common and preferred shareholders' equity,
plus any long term debt which, by its terms, is expressly
stated to be junior and subordinate to the debentures, in
each case on a consolidated basis.
BOOK-ENTRY ISSUANCE
General
DTC will act as securities depositary for the preferred securities and
may act as securities depositary for all of the debentures in the event of the
distribution of the debentures to the holders of preferred securities. Except as
described below, the preferred securities will be issued only as registered
securities in the name of Cede & Co. (DTC's nominee). One or more global
preferred securities will be issued for the preferred securities and will be
deposited with DTC.
DTC is a limited purpose trust company organized under New York banking
law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, the American Stock Exchange and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of preferred securities within the DTC system must be made by
or through direct participants, which will receive a credit for the preferred
securities on DTC's records. The ownership interest of each actual purchaser of
each preferred security, referred to below as a "beneficial owner", is in turn
to be recorded on the direct and indirect participants' records. Beneficial
owners will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owners
purchased preferred securities. Transfers of ownership interests in the
preferred securities are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners
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will not receive certificates representing their ownership interest in preferred
securities, except if use of the book- entry-only system for the preferred
securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the
preferred securities; DTC's records reflect only the identity of the direct
participants to whose accounts the preferred securities are credited, which may
or may not be the beneficial owners. The participants will remain responsible
for keeping account of their holdings on behalf of their customers.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be accurate, but we and
the trust assume no responsibility for the accuracy thereof. Neither we nor the
trust have any responsibility for the performance by DTC or its participants of
their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.
Notices and Voting
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder
of the preferred securities. If less than all of the preferred securities are
being redeemed, the amount to be redeemed will be determined in accordance with
the trust agreement.
Although voting with respect to the preferred securities is limited to
the holders of record of the preferred securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to preferred securities. Under its usual procedures, DTC would mail an
omnibus proxy to the property trustee as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
direct participants to whose accounts the preferred securities are credited on
the record date.
Distribution of Funds
The property trustee will make distribution payments on the preferred
securities to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the property trustee, disbursement of the payments to direct participants is
the responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
Successor Depositaries and Termination of Book-Entry System
DTC may discontinue providing its services with respect to any of the
preferred securities at any time by giving reasonable notice to the property
trustee or us. If no successor securities depositary is obtained, definitive
certificates representing the preferred securities are required to be printed
and delivered. We also have the option to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary). After an event of
default under the indenture, the holders of a majority in liquidation amount of
preferred securities may determine to discontinue the system of book-entry
transfers through DTC. In these events, definitive certificates for the
preferred securities will be printed and delivered.
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DESCRIPTION OF THE GUARANTEE
The preferred securities guarantee agreement will be executed and
delivered by us concurrently with the issuance of the preferred securities for
the benefit of the holders of the preferred securities. The guarantee agreement
will be qualified as an indenture under the Trust Indenture Act. Wilmington
Trust Company, the guarantee trustee, will act as trustee for purposes of
complying with the provisions of the Trust Indenture Act, and will also hold the
guarantee for the benefit of the holders of the preferred securities.
Prospective investors are urged to read the form of the guarantee agreement,
which has been filed as an exhibit to the registration statement of which this
prospectus forms a part.
General
We agree to pay in full on a subordinated basis, to the extent
described in the guarantee agreement, the guarantee payments (as defined below)
to the holders of the preferred securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the trust may have or assert
other than the defense of payment.
The following payments with respect to the preferred securities are
called the "guarantee payments" and, to the extent not paid or made by the trust
and to the extent that the trust has funds available for those distributions,
will be subject to the guarantee:
. any accumulated and unpaid distributions required to be paid on
the preferred securities;
. with respect to any preferred securities called for redemption,
the redemption price; and
. upon a voluntary or involuntary dissolution, winding up or
termination of the trust (other than in connection with the
distribution of debentures to the holders of preferred securities
in exchange for preferred securities), the lesser of:
(a) the amount of the liquidation distribution; and
(b) the amount of assets of the trust remaining available
for distribution to holders of preferred securities in
liquidation of the trust.
We may satisfy our obligations to make a guarantee payment by making a
direct payment of the required amounts to the holders of the preferred
securities or by causing the trust to pay the amounts to the holders.
The guarantee agreement is a guarantee, on a subordinated basis, of the
guarantee payments, but the guarantee only applies to the extent the trust has
funds available for those distributions. If we do not make interest payments on
the debentures purchased by the trust, the trust will not have funds available
to make the distributions and will not pay distributions on the preferred
securities.
Status of the Guarantee
The guarantee constitutes our unsecured obligation that ranks
subordinate and junior in right of payment to all of our senior and subordinated
debt in the same manner as the debentures. We expect to incur additional
indebtedness in the future, although we have no specific plans in this regard
presently, and neither the indenture nor the trust agreement limits the amounts
of the obligations that we may incur.
The guarantee constitutes a guarantee of payment and not of collection.
If we fail to make guarantee payments when required, holders of preferred
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by the trust or upon distribution of the
debentures to the holders of the preferred securities. Because we are a
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bank holding company, our right to participate in any distribution of assets of
any subsidiary upon the subsidiary's liquidation or reorganization or otherwise
is subject to the prior claims of creditors of that subsidiary, except to the
extent we may be recognized as a creditor of that subsidiary. Our obligations
under the guarantee, therefore, will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and claimants should look only to
our assets for payments under the guarantee.
Amendments
Except with respect to any changes that do not materially adversely
affect the rights of holders of the preferred securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval of
the holders of a majority of the aggregate liquidation amount of the outstanding
preferred securities.
Events of Default; Remedies
An event of default under the guarantee agreement will occur upon our
failure to make any required guarantee payments or to perform any other
obligations under the guarantee. The holders of a majority in aggregate
liquidation amount of the preferred securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the guarantee trustee in respect of the guarantee and may direct the exercise of
any power conferred upon the guarantee trustee under the guarantee agreement.
Any holder of preferred securities may institute and prosecute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
We are required to provide to the guarantee trustee annually a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the guarantee agreement.
Termination of the Guarantee
The guarantee will terminate and be of no further force and effect
upon:
. full payment of the redemption price of the preferred securities;
. full payment of the amounts payable upon liquidation of the trust;
or
. distribution of the debentures to the holders of the preferred
securities.
If at any time any holder of the preferred securities must restore payment of
any sums paid under the preferred securities or the guarantee, the guarantee
will continue to be effective or will be reinstated with respect to such
amounts.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance
of our default in performance of the guarantee, undertakes to perform only those
duties as are specifically set forth in the guarantee. When an event of default
has occurred and is continuing, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to those provisions, the guarantee
trustee is under no obligation to exercise any of the powers vested in it by the
guarantee at the request of any holder of any preferred securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
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Expense Agreement
We will, pursuant to the Agreement as to Expenses and Liabilities
entered into by us and the trust under the trust agreement, irrevocably and
unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
preferred securities or other similar interests in the trust of the amounts due
to the holders pursuant to the terms of the preferred securities or other
similar interests, as the case may be. Third party creditors of the trust may
proceed directly against us under the expense agreement, regardless of whether
they had notice of the expense agreement.
Governing Law
The guarantee will be governed by Delaware law.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE
DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the preferred
securities, to the extent the trust has funds available for the payment of these
amounts. We and the trust believe that, taken together, our obligations under
the debentures, the indenture, the trust agreement, the expense agreement and
the guarantee agreement provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of distributions
and other amounts due on the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes a guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the preferred securities.
If and to the extent that we do not make payments on the debentures,
the trust will not pay distributions or other amounts due on the preferred
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of preferred securities is to institute a legal proceeding
directly against us for enforcement of payment of the distributions to the
holder. Our obligations under the guarantee are subordinated and junior in right
of payment to all of our other indebtedness.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on
the debentures, these payments will be sufficient to cover distributions and
other payments due on the preferred securities, primarily because:
. the aggregate principal amount of the debentures will be equal to
the sum of the aggregate stated liquidation amount of the trust
securities;
. the interest rate and interest and other payment dates on the
debentures will match the distribution rate and distribution and
other payment dates for the preferred securities;
. we will pay for any and all costs, expenses and liabilities of the
trust, except the obligations of the trust to pay to holders of
the preferred securities the amounts due to the holders pursuant
to the terms of the preferred securities; and
. the trust will not engage in any activity that is not consistent
with the limited purposes of the trust.
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Enforcement Rights of Holders of Preferred Securities
A holder of any preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have been paid in full or any payment default
has been cured or waived. Failure to make required payments on the debentures
would constitute an event of default under the trust agreement.
Limited Purpose of the Trust
The preferred securities evidence preferred undivided beneficial
interests in the assets of the trust. The trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
preferred security and the rights of a holder of a debenture is that a holder of
a debenture is entitled to receive from us the principal amount of and interest
accrued on debentures held, while a holder of preferred securities is entitled
to receive distributions from the trust (or from us under the guarantee) if and
to the extent the trust has funds available for the payment of the
distributions.
Rights Upon Termination
Upon any voluntary or involuntary termination, winding-up or
liquidation of the trust involving the liquidation of the debentures, the
holders of the preferred securities will be entitled to receive, out of assets
held by the trust, the liquidation distribution in cash. See "Description of the
Preferred Securities -- Liquidation Distribution Upon Termination."
Upon our voluntary or involuntary liquidation or bankruptcy, the
property trustee, as holder of the debentures, would be a subordinated creditor
of ours. Therefore, the property trustee would be subordinated in right of
payment to all of our senior and subordinated debt, but is entitled to receive
payment in full of principal and interest before any of our shareholders receive
payments or distributions. Since we are the guarantor under the guarantee and
have agreed to pay for all costs, expenses and liabilities of the trust other
than the obligations of the trust to pay to holders of the preferred securities
the amounts due to the holders pursuant to the terms of the preferred
securities, the positions of a holder of the preferred securities and a holder
of the debentures relative to our other creditors and to our stockholders in the
event of liquidation or bankruptcy are expected to be substantially the same.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion of the material federal income tax
considerations that may be relevant to the purchasers of preferred securities,
insofar as the discussion relates to matters of law and legal conclusions,
represents the opinion of Vedder, Price, Kaufman & Kammholz, counsel to
PrivateBancorp and the trust. The conclusions expressed herein are based upon
current provisions of the Internal Revenue Code of 1986, as amended, regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change at any time, with possible retroactive effect. Subsequent
changes may cause tax consequences to vary substantially from the consequences
described below. Furthermore, the authorities on which the following summary is
based are subject to various interpretations, and it is therefore possible that
the federal income tax treatment of the purchase, ownership and disposition of
preferred securities may differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of preferred securities.
Moreover, the discussion generally focuses on holders of preferred
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securities who are individual citizens or residents of the United States and
trust and estates whose federal taxable income is taxed in the same manner as
individual citizens or residents of the United States, and who acquire preferred
securities on their original issue at their initial offering price and hold
preferred securities as capital assets. The discussion has only limited
application to dealers in securities, corporations, partnerships, or nonresident
aliens and does not address all the tax consequences that may be relevant to
holders who may be subject to special tax treatment, such as, for example,
banks, thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors
or persons that will hold the preferred securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following discussion also does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar or the tax consequences to shareholders, partners or beneficiaries of a
holder of preferred securities. Further, it does not include any description of
any alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the preferred
securities. Accordingly, each prospective investor should consult, and should
rely exclusively on, the investor's own tax advisors in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of preferred securities with regard to the particular tax
consequences specific to that investor, which may vary for investors in
different tax situations, and not addressed in this discussion.
Classification of the Debentures
Based on advice of counsel, we intend to take the position that the
debentures will be classified for federal income tax purposes as indebtedness of
PrivateBancorp under current law, and, by acceptance of a preferred security,
you, as a holder, covenant to treat the debentures as indebtedness and the
preferred securities as evidence of an indirect beneficial ownership interest in
the debentures. No assurance can be given, however, that this position will not
be challenged by the Internal Revenue Service ("IRS") or, if challenged, that it
will not be successful. The remainder of this discussion assumes that the
debentures will be classified for federal income tax purposes as indebtedness of
PrivateBancorp.
Classification of the Trust
Vedder, Price, Kaufman & Kammholz, counsel for PrivateBancorp and the
trust, has rendered its opinion that, under current law and assuming full
compliance with the terms of the trust agreement and indenture, the trust will
be classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for federal income tax
purposes, you, as a holder of preferred securities will be treated as owning an
undivided beneficial interest in the debentures, and you will be required to
include in your gross income any interest with respect to the debentures at the
time such interest is accrued or is received, in accordance with your method of
accounting. If the debentures were determined to be subject to the original
issue discount ("OID") rules, you, as a holder would instead be required to
include in your gross income any OID accrued with respect to your allocable
share of the debentures whether or not cash was actually distributed to you.
Interest Payment Period and Original Issue Discount
Under applicable Treasury regulations, debt instruments such as the
debentures, which are issued at face value will not be considered issued with
OID, even if their issuer can defer payments of interest, if the likelihood of
any deferral is remote. Assuming the accuracy of our conclusion as set forth
below that the likelihood of exercising our option to defer payments is remote,
the debentures will not be treated as issued with OID. Accordingly, except as
set forth below, stated interest on the debentures generally will be included in
your income as ordinary income at the time it is paid or accrued in accordance
with your regular method of accounting.
A debt instrument will generally be treated as issued with OID if the
stated interest on the instrument does not constitute "qualified stated
interest." Qualified stated interest is generally any one of a series of stated
interest payments on an instrument that are unconditionally payable at least
annually at a single fixed rate. In determining whether stated interest on an
instrument is unconditionally payable and thus constitutes qualified stated
interest, remote contingencies as to the timely payment of stated interest are
ignored. In the case of the debentures, we have
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concluded that the likelihood of exercising our option to defer payments of
interest is remote. This is in part because we have commenced paying dividends
on our common stock and intend to continue to do so, and we would be unable to
continue paying these dividends, which could adversely affect the market for our
common stock, if we deferred our payments under the debentures.
If the likelihood that we would exercise the option to defer any
payment of interest was determined not to be "remote" or if PrivateBancorp
actually exercises its option to defer the payment of interest, the debentures
would be treated as issued with OID at the time of issuance or at the time of
such exercise, as the case may be, and all stated interest would thereafter be
treated as OID as long as the debentures remained outstanding. In such event,
all of your taxable interest income in respect of the debentures would
constitute OID that would have to be included in income on a constant yield
method before the receipt of the cash attributable to such income, regardless of
your method of tax accounting, and actual distributions of stated interest would
not be reported as taxable income. Consequently, you, as a holder of preferred
securities would be required to include such OID in gross income even though
PrivateBancorp would not make any actual cash payments during an extension
period.
The Treasury regulations referred to above have not been interpreted by
any court decisions or addressed in any ruling or other pronouncements of the
IRS referred to above, and it is possible that the IRS could take a position
contrary to the conclusions herein.
Because income on the preferred securities will constitute interest,
corporate holders of preferred securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the preferred securities.
Market Discount and Acquisition Premium
Holders of preferred securities other than a holder who purchased the
preferred securities upon original issuance or who purchased for a price other
than the first price at which a substantial amount of the preferred securities
were sold for money other than to a bond house, broker, or other person acting
as an underwriter, placement agent or wholesaler may be considered to have
acquired their undivided interests in the debentures with "market discount" or
"acquisition premium" as these phrases are defined for federal income tax
purposes. Such holders are advised to consult their tax advisors as to the
income tax consequences of the acquisition, ownership and disposition of the
preferred securities.
Receipt of Debentures or Cash Upon Liquidation of the Trust
Under the circumstances described under "Description of the Preferred
Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of preferred
securities upon a liquidation of the trust. Under current federal income tax
law, such a distribution would be treated as a nontaxable event to the holder
and would result in the holder having an aggregate tax basis in the debentures
received in the liquidation equal to the holder's aggregate tax basis in the
preferred securities immediately before the distribution. A holder's holding
period in debentures received in liquidation of the trust would include the
period for which the holder held the preferred securities.
If, however, a Tax Event occurs which results in the trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the preferred securities. Under
certain circumstances described herein, the debentures may be redeemed for cash
and the proceeds of the redemption distributed to holders in redemption of their
preferred securities. Under current law, such a redemption should, to the extent
that it constitutes a complete redemption, constitute a taxable disposition of
the redeemed preferred securities, and, for federal income tax purposes, a
holder should therefore recognize gain or loss as if the holder sold the
preferred securities for cash.
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Disposition of Preferred Securities
A holder that sells preferred securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the preferred
securities and the holder's adjusted tax basis in the preferred securities. A
holder's adjusted tax basis in the preferred securities generally will be its
initial purchase price increased by OID, if any, previously includible in the
holder's gross income to the date of disposition and decreased by payments, if
any, received on the preferred securities in respect of OID to the date of
disposition. A gain or loss of this kind will generally be a capital gain or
loss and will be a long-term capital gain or loss if the preferred securities
have been held for more than one year at the time of sale.
The preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
debentures. A holder that disposes of its preferred securities between record
dates for payments of distributions thereon will be required to include accrued
but unpaid interest on the debentures through the date of disposition in income
as ordinary income, and to add the amount to its adjusted tax basis in its
proportionate share of the underlying debentures deemed disposed of. Any OID
included in income will increase a holder's adjusted tax basis as discussed
above. To the extent the selling price is less than the holder's adjusted tax
basis a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
federal income tax purposes.
Effect of Possible Changes in Tax Laws
Congress and the Clinton Administration have considered certain
proposed tax law changes in the past that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the term was in excess of 20 years. Although these proposed tax
law changes have not been enacted into law, there can be no assurance that tax
law changes will not be reintroduced into future legislation which, if enacted
after the date hereof, may adversely affect the federal income tax deductibility
of interest payable on the debentures.
In addition, in a case filed in the U.S. Tax Court, Enron Corp. v.
Commissioner, Tax Court Docket No. 6149-98, the IRS challenged the deductibility
for federal income tax purposes of interest paid on securities which are
similar, but not identical, to the preferred securities. The parties filed a
stipulation of settled issues, a portion of which stipulated there shall be no
adjustment for the interest deducted by the taxpayer with respect to the
securities. The IRS may also challenge the deductibility of interest paid on the
debentures, which, if such challenge were litigated resulting in the IRS's
position being sustained, would trigger a Tax Event and possibly a redemption of
the preferred securities.
Accordingly, there can be no assurance that a Tax Event will not occur.
A Tax Event would permit us, upon approval of the Federal Reserve, if then
required, to cause a redemption of the preferred securities before, as well as
after, December 31, 2005.
Backup Withholding and Information Reporting
Interest paid, or, if applicable, OID accrued, on the preferred
securities held of record by individual citizens or residents of the United
States, or certain trusts, estates and partnerships, will be reported to the IRS
on Forms 1099-INT, or, where applicable, Forms 1099-OID, which forms should be
mailed to the holders by January 31 following each calendar year. Payments made
on, and proceeds from the sale of, the preferred securities may be subject to a
"backup" withholding tax (currently at 31%) unless the holder complies with
certain identification and other requirements. Any amounts withheld under the
backup withholding rules will be allowed as a credit against the holder's
federal income tax liability, provided the required information is provided to
the Internal Revenue Service.
107
<PAGE>
The federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon the particular
situation of a holder of preferred securities. Holders of preferred securities
should consult their tax advisors with respect to the tax consequences to them
of the purchase, ownership and disposition of the preferred securities,
including the tax consequences under state, local, foreign and other tax laws
and the possible effects of changes in federal or other tax laws and
particularly with regard to the tax consequences which vary for investors in
different tax situations.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, or Section 4975 of the Internal Revenue Code,
generally may purchase preferred securities, subject to the investing
fiduciary's determination that the investment in preferred securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the plan.
In any case, we and/or any of our affiliates may be considered a "party
in interest" (within the meaning of ERISA) or a "disqualified person" (within
the meaning of Section 4975 of the Internal Revenue Code) with respect to
certain plans. These plans generally include plans maintained or sponsored by,
or contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of preferred securities by a
plan (or by an individual retirement arrangement or other plans described in
Section 4975(e)(1) of the Internal Revenue Code) with respect to which we or any
of our affiliates are considered a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Internal Revenue Code, unless the preferred securities are acquired
pursuant to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates or
any of its affiliates is a party in interest or a disqualified person should not
acquire preferred securities unless the preferred securities are acquired
pursuant to and in accordance with an applicable exemption. Any other plans or
other entities whose assets include plan assets subject to ERISA or Section 4975
of the Internal Revenue Code proposing to acquire preferred securities should
consult with their own counsel.
108
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
PrivateBancorp, the trust and the underwriters named below, for whom Stifel,
Nicolaus & Company, Incorporated and Legg Mason Wood Walker, Incorporated are
acting as representatives, the underwriters have severally agreed to purchase
from the trust, and the trust has agreed to sell to them, an aggregate of
1,800,000 preferred securities in the amounts set forth below opposite their
respective names.
Number of
Underwriters Preferred Securities
------------ --------------------
Stifel, Nicolaus & Company, Incorporated........
Legg Mason Wood Walker, Incorporated............
---------
Total........................................ 1,800,000
=========
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to accept and pay for all of the preferred
securities, if any are taken. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the non-defaulting
underwriters may be increased or, in certain cases, the underwriting agreement
may be terminated. In the underwriting agreement, the obligations of the
underwriters are subject to approval of certain legal matters by their counsel,
including, without limitation, the authorization and the validity of the
preferred securities, and to various other conditions contained in the
underwriting agreement, such as receipt by the underwriters' of officers'
certificates and legal opinions.
The underwriters propose to offer the preferred securities directly to
the public at the public offering price set forth on the cover page of this
prospectus, and to certain securities dealers (who may include the underwriters)
at this price, less a concession not in excess of $ per preferred security.
The underwriters may allow, and the selected dealers may reallow, a concession
not in excess of $ per preferred security to certain brokers and dealers.
After the preferred securities are released for sale to the public, the offering
price and other selling terms may from time to time be changed by the
underwriters.
The trust has granted to the underwriters an option, exercisable within
30 days after the date of this prospectus, to purchase up to 200,000 additional
preferred securities at the same price per preferred security to be paid by the
underwriters for the other preferred securities being offered as set forth
below. If the underwriters purchase any of the additional preferred securities
under this option, each underwriter will be committed to purchase the additional
shares in approximately the same proportion allocated to them in the table
above. The underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the
preferred securities being offered.
If the underwriters exercise their option to purchase additional
preferred securities, the trust will issue and sell to us additional common
securities and we will issue and sell to the trust junior subordinated
debentures in an aggregate principal amount equal to the total aggregate
liquidation amount of the additional preferred securities being purchased under
the option and the additional common securities sold to us.
109
<PAGE>
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by the trust as shown in the table
below do not reflect estimated expenses of $ payable by us.
<TABLE>
<CAPTION>
Per Preferred Total with
Security Total Overallotment
------------- ----------- -------------
<S> <C> <C> <C>
Public Offering Price............................. $10.00 $18,000,000 $20,000,000
Underwriting discount.............................
Proceeds to PrivateBancorp Capital Trust I........ $10.00 $18,000,000 $20,000,000
</TABLE>
The offering of the preferred securities 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 the preferred
securities.
We and the trust have agreed to indemnify the several underwriters
against several liabilities, including liabilities under the Securities Act of
1933.
The preferred securities are expected to be approved for inclusion in
the Nasdaq National Market, and trading is expected to commence on or prior to
delivery of the preferred securities. The representatives have advised the trust
that they presently intend to make a market in the preferred securities after
the commencement of trading on Nasdaq, but no assurances can be made as to the
liquidity of the preferred securities or that an active and liquid market will
develop or, if developed, that the market will continue. The offering price and
distribution rate have been determined by negotiations among representatives of
PrivateBancorp and the underwriters, and the offering price of the preferred
securities may not be indicative of the market price following the offering. The
representatives will have no obligation to make a market in the preferred
securities, however, and may cease market-making activities, if commenced, at
any time.
In connection with the offering, the underwriters may engage in
transactions that are intended to stabilize, maintain or otherwise affect the
price of the preferred securities during and after the offering, such as the
following:
. the underwriters may over-allot or otherwise create a short
position in the preferred securities for their own account by
selling more preferred securities than have been sold to them;
. the underwriters may elect to cover any short position by
purchasing preferred securities in the open market or by
exercising the over-allotment option;
. the underwriters may stabilize or maintain the price of the
preferred securities by bidding;
. the underwriters may engage in passive market making transactions;
and
. the underwriters may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers
participating in this offering are reclaimed if preferred
securities 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 the preferred
securities to the extent that it discourages resales. No representation is made
as to the magnitude or effect of any such stabilization or other transactions.
Such transactions may be effected in the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Because the National Association of Securities Dealers, Inc. may view
the preferred securities as interests in a direct participation program, the
offer and sale of the preferred securities is being made in compliance with the
provisions of Rule 2810 under the NASD Conduct Rules.
110
<PAGE>
Certain of the underwriters and their affiliates have, from time to
time, performed investment banking and other services for us in the ordinary
course of business and have received fees from us for their services.
LEGAL MATTERS
Certain legal matters, including matters relating to federal income tax
considerations, for PrivateBancorp and the trust will be passed upon by Vedder,
Price, Kaufman & Kammholz, Chicago, Illinois, counsel to PrivateBancorp and the
trust. Certain legal matters will be passed upon for the underwriters by Lewis,
Rice & Fingersh, L.C., St. Louis, Missouri. Vedder, Price, Kaufman & Kammholz
and Lewis, Rice & Fingersh, L.C. will rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law.
EXPERTS
The consolidated financial statements of PrivateBancorp for each of the
years in the three-year period ended December 31, 1999, included in this
prospectus, have been audited by Arthur Andersen LLP, independent 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
This prospectus is a part of a Registration Statement on Form S-1 filed
by us and the trust with the SEC under the Securities Act, with respect to the
preferred securities, the debentures and the guarantee. This prospectus does not
contain all the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and the securities offered by
this prospectus, reference is made to the registration statement. Statements
contained in this prospectus concerning the provisions of such documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
We file periodic reports, proxy statements and other information with
the SEC. Our filings are available to the public over the Internet at the SEC's
web site at http://www.sec.gov. You may also inspect and copy these materials at
the public reference facilities of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information.
Each holder of the trust securities will receive a copy of our annual
report at the same time as we furnish the annual report to the holders of our
common stock.
111
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PRIVATEBANCORP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Interim Consolidated Financial Statements (unaudited)
----------------------------------------------------
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999................................... F-2
Consolidated Statements of Income for the nine months ended September 30, 2000 and 1999...................... F-3
Consolidated Statements of Changes in Stockholders' Equity for the nine months ended
September 30, 2000 and 1999................................................................................ F-4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999.................. F-5
Notes to Interim Consolidated Financial Statements (unaudited)............................................... F-6
Annual Consolidated Financial Statements (audited)
-------------------------------------------------
Report of Arthur Andersen LLP, Independent Public Accountants................................................ F-12
Consolidated Balance Sheets as of December 31, 1999 and 1998................................................. F-13
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997....................... F-14
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................................................................... F-15
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................... F-15
Notes to Consolidated Financial Statements................................................................... F-16
</TABLE>
F-1
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks.................................................. $ 21,815 $ 14,940
Short-term investments................................................... 4,060 29,243
---------- ----------
Total cash and cash equivalents....................................... 25,875 44,183
---------- ----------
Available-for-sale securities, at fair value............................. 132,814 71,134
Loans net of unearned discount........................................... 584,919 397,277
Allowance for loan losses................................................ (5,991) (4,510)
---------- ----------
Net loans................................................................ 578,928 392,767
---------- ----------
Goodwill................................................................. 11,835 --
Bank premises and equipment, net......................................... 4,386 2,028
---------- ----------
Accrued interest receivable.............................................. 5,158 2,870
Other assets............................................................. 4,819 5,715
---------- ----------
Total assets............................................................. $ 763,815 $ 518,697
---------- ----------
Liabilities and Stockholders' Equity
Demand deposits:
Noninterest-bearing................................................... $ 55,831 $ 36,771
Interest-bearing...................................................... 37,747 33,400
Savings and money market deposit accounts................................ 274,025 204,068
Brokered deposits........................................................ 58,303 21,696
Other time deposits...................................................... 207,101 157,157
---------- ----------
Total deposits........................................................ 633,007 453,092
Funds borrowed........................................................... 71,258 15,000
Accrued interest payable................................................. 3,411 1,056
Other liabilities........................................................ 5,073 2,469
---------- ----------
Total liabilities........................................................ $ 712,749 $ 471,617
---------- ----------
Stockholders' Equity
Preferred Stock, 1,000,000 shares authorized............................. -- --
Common stock, without par value, $1 stated value; 12,000,000 shares
authorized; 4,623,532, 4,590,332, and 4,584,092 shares issued and
outstanding as of September 30, 2000, December 31, 1999, and
September 30, 1999, respectively..................................... $ 4,624 $ 4,590
Surplus.................................................................. 40,107 39,761
Retained earnings........................................................ 9,994 7,425
Accumulated other comprehensive income................................... (1,830) (2,812)
Deferred compensation.................................................... (879) (759)
Loans to officers........................................................ (950) (1,125)
---------- ----------
Total stockholders' equity............................................... 51,066 47,080
---------- ----------
Total liabilities and stockholders' equity............................... $ 763,815 $ 518,697
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-2
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Interest Income
Loans, including fees.......................................... $ 35,182 $ 18,860
Federal funds sold and interest bearing deposits............... 822 215
Securities..................................................... 4,741 4,053
--------- ---------
Total interest income........................................ 40,745 23,128
Interest Expense
Deposits:
Interest-bearing demand...................................... 640 426
Savings and money market deposit accounts.................... 9,938 5,520
Other time................................................... 10,433 5,332
Funds borrowed................................................. 2,499 674
--------- ---------
Total interest expense......................................... 23,510 11,952
--------- ---------
Net interest income............................................ 17,235 11,176
Provision for loan losses...................................... 1,356 771
--------- ---------
Net interest income after provision for loan losses............ 15,879 10,405
--------- ---------
Non-interest Income
Banking and trust services..................................... 2,079 1,412
Securities gains and other income.............................. 139 58
--------- ---------
Total non-interest income.................................... 2,218 1,470
--------- ---------
Non-interest Expense
Salaries and employee benefits................................. 5,906 3,403
Severance charge............................................... 562 --
Occupancy expense, net......................................... 2,180 1,126
Professional fees.............................................. 1,651 891
Towne Square acquisition....................................... -- 1,300
Goodwill amortization.......................................... 525 --
Other non-interest expense..................................... 2,892 2,151
--------- ---------
Total non-interest expense................................... 13,716 8,871
--------- ---------
Income before income taxes..................................... 4,381 3,004
Income tax provision........................................... 1,466 1,066
--------- ---------
Net income..................................................... $ 2,915 $ 1,938
========= =========
Basic earnings per share....................................... $0.63 $0.51
Diluted earnings per share..................................... $0.61 $0.48
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-3
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and 1999 (unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Deferred Total
Common Retained hensive Compen- Loans to Stockholders'
Stock Surplus Earnings Income sation Officers Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999........ $3,431 $22,274 $4,913 $ 150 $(544) $ (950) $29,274
Net income...................... -- -- 1,938 -- -- -- 1,938
Net decrease in fair value of
Securities classified as
available-for-sale, net of
income taxes and
reclassification adjustments... -- -- -- (2,719) -- -- (2,719)
--------- --------- --------- --------- --------- --------- ---------
Total comprehensive income...... -- -- 1,938 (2,719) -- -- (781)
--------- --------- --------- --------- --------- --------- ---------
Cash dividends declared --
($0.075 per share)............. -- -- (288) -- -- (288)
Issuance of common stock........ 1,153 17,447 -- -- -- -- 18,600
Awards granted.................. -- -- -- -- (448) -- (448)
Amortization of deferred
compensation................... -- -- -- -- 169 -- 169
Loans to officers............... -- -- -- -- -- (175) (175)
--------- --------- --------- --------- --------- --------- ---------
Balance, September 30, 1999..... $4,584 $39,721 $6,563 $(2,569) $(823) $(1,125) $46,351
========= ========= ========= ========= ========= ========= =========
Balance, January 1, 2000........ $4,590 $39,761 $7,425 $(2,812) $(759) $(1,125) $47,080
Net income...................... -- -- 2,915 -- -- -- 2,915
Net increase in fair value of
securities classified as
available-for-sale, net of
income taxes and
reclassification adjustments... -- -- -- 982 -- -- 982
--------- --------- --------- --------- --------- --------- ---------
Total comprehensive income...... -- -- 2,915 982 -- -- 3,897
--------- --------- --------- --------- --------- --------- ---------
Cash dividends declared......... --
($0.075 per share)............. -- -- (346) -- -- (346)
Issuance of common stock........ 34 346 -- -- -- -- 380
Awards granted.................. -- -- -- -- (270) -- (270)
Amortization of deferred
compensation................... -- -- -- -- 150 -- 150
Repayment of loans to officers.. -- -- -- -- -- 175 175
--------- --------- --------- --------- --------- --------- ---------
Balance, September 30, 2000..... $4,624 $40,107 $9,994 $(1,830) $(879) $ (950) $51,066
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999 (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------
2000 1999
---------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
Net income................................................................ $ 2,915 $ 1,938
----------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization............................................. 816 384
Goodwill amortization..................................................... 525 --
Johnson Bank Illinois fair value accretion, net........................... (231) --
Amortization of deferred compensation..................................... 150 168
Provision for loan losses................................................. 1,356 771
Gain on sale of securities................................................ (92) (58)
Increase (Decrease) in deferred loan fees................................. 328 (24)
(Increase) in accrued interest receivable................................. (1,529) (752)
Increase in accrued interest payable...................................... 1,744 63
Decrease (Increase) in other assets....................................... 51 (576)
Increase in other liabilities............................................. 2,595 226
----------- ---------
Total adjustments...................................................... 5,713 202
Net cash provided by operating activities.............................. 8,628 2,140
----------- ---------
Cash flows from investing activities
Proceeds from maturities, paydowns, and sales of securities............... 18,039 50,020
Purchase of securities available-for-sale................................. (57,801) (14,725)
Johnson Bank Illinois acquisition, net of cash received................... (15,763) --
Capitalization of The PrivateBank (St. Louis)............................. (8,000) --
Net loan principal advanced............................................... (102,143) (70,524)
Bank premises and equipment expenditures.................................. (2,396) (258)
----------- ---------
Net cash used in investing activities.................................. (168,064) (35,487)
----------- ---------
Cash flows from financing activities
Net increase in total deposits............................................ 88,366 21,163
Issuance of common stock.................................................. 109 18,152
Dividends paid............................................................ (346) (287)
Net increase (decrease) in funds borrowed................................ 52,999 (5,000)
----------- ---------
Net cash provided by financing activities.............................. 141,128 34,028
----------- ---------
Net (decrease) increase in cash and cash equivalents...................... (18,308) 681
Cash and cash equivalents at beginning of year............................ 44,183 15,514
----------- ---------
Cash and cash equivalents at end of period................................ $ 25,875 $ 16,195
=========== =========
Non-cash transactions
(Repayment) Loan to executive officer for purchase of common stock........ $ (175) $ 175
----------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The consolidated financial information of PRIVATEBANCORP, Inc. (the
"Company") and its Subsidiaries, The PrivateBank and Trust Company (the "Bank"
or "PrivateBank") and The PrivateBank (St. Louis), included herein is unaudited;
however, such information reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation for the interim periods. The financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The annualized results of operations for the nine months ended
September 30, 2000, are not necessarily indicative of the results expected for
the full year ending December 31, 2000. The accompanying consolidated financial
statements are unaudited and do not include information or footnotes necessary
for a complete presentation of financial condition, results of operations, or
cash flows in accordance with generally accepted accounting principles. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes for the year ended December 31, 1999
included in the Company's Annual Report on Form 10-K (File No. 000-25887).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expense during the reported
period. Actual results could differ from these estimates.
NOTE 2-EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings
per share (in thousands except per share data):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- ---------------------
2000 1999 2000 1999
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Income (Loss).............................................. $2,915 $1,938 $ 968 $ (201)
======== ======== ======== ========
Average common shares outstanding.............................. 4,606 3,787 4,628 4,460
Average common shares equivalent/(1)/........................... 181 253 196 258
-------- -------- -------- --------
Weighted average common shares and common share
equivalents................................................. 4,787 4,040 4,824 4,718
======== ======== ======== ========
Net income per average common share - basic.................... $ 0.63 $ 0.51 $ 0.21 $ (0.05)
======== ======== ======== ========
Net income per average common share - diluted.................. $ 0.61 $ 0.48 $ 0.20 $ (0.05)
======== ======== ======== ========
</TABLE>
_________________
(1) Common shares equivalent result from stock options being treated as if
they had been exercised and are computed by application of the treasury
stock method.
Net income for the third quarter ended September 30, 2000 was $968,000,
or $0.20 per diluted share, compared to the third quarter 1999 net loss of
$201,000, or $0.05 loss per diluted share. Excluding special, non- recurring
charges, earnings for the quarter ended September 30, 2000 were $1,345,000, or
$0.28 per diluted share, a 14.0% increase over earnings before special charges
of $1,180,000 for the quarter ended September 30, 1999.
Net income for the quarter ended September 30, 2000 included a
previously announced one-time charge of approximately $377,000 after-tax, or
$.08 per diluted share, comprised of severance packages for two departing
F-6
<PAGE>
executives as well as amounts incurred to secure their replacements. Net income
for the quarter ended September 30, 1999 included an acquisition charge of
approximately $1,382,000 after-tax related to the acquisition of Towne Square
Financial Corporation in St. Charles, Illinois.
Net income for the nine months ended September 30, 2000 was $2,915,000,
or $0.61 per diluted share, compared to $1,938,000, or $0.48 per diluted share,
over the same period last year. Excluding the one-time charges, earnings for the
nine months ended September 30, 2000 were $3,292,000, or $0.69 per diluted
share, compared to $3,320,000, or $0.82 per diluted share, for the same period
last year.
NOTE 3 - NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Related Hedging Activities", amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133 -- an Amendment of SFAS No. 133," and SFAS No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," will, on January 1, 2001, require all derivatives to be recorded at
fair value in the balance sheet, with changes in fair value recorded in the
income statement. If derivatives are documented and effective as hedges, the
change in the derivative fair value will be offset by an equal change in the
fair value of the hedged item. All hedge ineffectiveness will be recognized
immediately in earnings. The Statement may be adopted early at the start of a
calendar quarter. The Company does not plan to adopt the Statement early and
adoption is not expected to have a material impact since the Company does not
have derivative instruments or hedging activity.
Effective January 1, 2000, Statement of Financial Accounting Standards
No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise", allows mortgage loans that are securitized to be classified as
trading, available for sale, or in certain circumstances, held to maturity.
Since the Company has not securitized loans, this Statement does not currently
impact the Company.
NOTE 4 - OPERATING SEGMENTS
The Company manages its operations in four lines of business: Private
Banking Services (Illinois) ("PrivateBank"), The PrivateBank (St. Louis), Trust
Services and Holding Company activities. For purposes of making operating
decisions and assessing performance, management treats PrivateBank, The
PrivateBank (St. Louis), Trust Services and the Holding Company as four
operating segments. The Company's investment portfolio is included in total
assets of PrivateBank and reported in the results of Private Banking Services
(Illinois). The business segments summarized below and in the following tables
are primarily managed with a focus on various performance objectives including
total assets, total deposits, borrowings, gross loans, total capital and net
income. Indirect costs are allocated to Trust Services from the PrivateBank
based on Trust full time equivalent employees as a percentage of total
PrivateBank employees.
Private Banking Services (Illinois)
In the PrivateBank segment, The PrivateBank and Trust Company, through
its main offices located in downtown Chicago as well as five full-service
Chicago suburban locations, provides personal and commercial banking services
primarily to affluent individuals, professionals, entrepreneurs and their
business interests. Until June 23, 2000, the date The PrivateBank (St. Louis)
was established, operations in St. Louis were a loan production office of The
PrivateBank and Trust Company and those activities are reflected in the segment
reporting for PrivateBank. PrivateBank's commercial lending products include
lines of credit for working capital, term loans for equipment and letters of
credit to support the commitments made by its clients. Non-credit products
include lock- box, cash concentration accounts, merchant credit card processing,
electronic funds transfer, other cash management products and insurance.
PrivateBank offers a full range of real estate lending products including fixed
and floating
F-7
<PAGE>
rate permanent and mini-permanent mortgages, construction and commercial real
estate loans. Personal loans include installment loans and lines of credit, home
equity loans and a wide variety of home mortgage loans.
Individual banking services include interest bearing checking, money
market accounts, certificates of deposit, ATM/debit cards and investment
brokerage accounts. Additionally, PrivateBank offers secured and unsecured
personal loans and lines of credit. Through PrivateBank and Trust Company's
affiliations with Mesirow Financial, Inc. and Sterling Investment Services,
Inc., clients have access to insurance products and securities brokerage
services. PrivateBank also offers domestic and international wire transfers and
foreign currency exchange.
<TABLE>
<CAPTION>
Private Banking Services (Illinois)
------------------------------------
September 30, September 30,
2000 1999
----------------- ------------------
(in thousands)
<S> <C> <C>
Total gross loans................... $575,123 $352,236
Total assets........................ 748,839 449,838
Total deposits...................... 627,191 395,286
Total borrowings.................... 49,008 15,000
Total capital....................... 65,141 37,178
Year-to-date net income............. $ 4,616 $ 1,292
</TABLE>
The PrivateBank (St. Louis)
The PrivateBank (St. Louis), a federal savings bank, was established as
a new bank subsidiary of PrivateBancorp, Inc. on June 23, 2000, upon the
Company's receipt of the final regulatory approval necessary to open a federal
savings bank in St. Louis. The revenues and expenses associated with the St.
Louis loan production office that was operated by PrivateBank prior to June 23,
2000, are included in Private Banking Services (Illinois).
Commercial lending products include lines of credit for working
capital, term loans for equipment and letters of credit to support the
commitments made by its clients. Non-credit products include lock-box, cash
concentration accounts, merchant credit card processing, electronic funds
transfer, other cash management products and insurance. The PrivateBank (St.
Louis) offers a full range of real estate lending products including fixed and
floating rate permanent and mini-permanent mortgages and construction loans.
Personal loans include installment loans and lines of credit, home equity loans
and a wide variety of home mortgage loans. Individual banking services include
interest bearing checking, money market deposit accounts, certificates of
deposit, ATM/debit cards and investment brokerage accounts. The PrivateBank (St.
Louis) also offers domestic and international wire transfers and foreign
currency exchange.
<TABLE>
<CAPTION>
The PrivateBank (St. Louis)
----------------------------------
September 30, September 30,
2000 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
Total gross loans......................... $ 9,795 $--
Total assets.............................. 14,022 --
Total deposits............................ 6,288 --
Total borrowings.......................... -- --
Total capital............................. 7,591 --
Year-to-date net loss (since June 23,
2000).................................... (407) --
</TABLE>
F-8
<PAGE>
Trust Services
Trust Services include investment management, personal trust and estate
services, custodial services, retirement accounts and brokerage and investment
services. Investment management professionals work with trust clients to define
objectives, goals and strategies of the clients' investment portfolios. Trust
Services personnel assist trust clients with the selection of an outside
portfolio manager to direct account investments. Trust and estate account
administrators work with clients and their attorneys to establish estate plans.
Consistent with the PrivateBank philosophy, Trust Services emphasizes a high
level of personal service, including prompt collection and reinvestment of
interest and dividend income, weekly valuation, tracking of tax information,
customized reporting and ease of security settlement.
Trust Services
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
(in thousands)
Trust assets under administration........ $785,738 $669,000
Year-to-date net income.................. 85 27
Holding Company Activities
Holding Company Activities consist of parent company only matters. The
Holding Company's most significant assets are its net investments in its two
banking subsidiaries, The PrivateBank and Trust Company and The PrivateBank (St.
Louis). Holding Company Activities are reflected primarily by operating
expenses. Recurring holding company operating expenses consist of compensation
(amortization of restricted stock awards, other salary expense) and
miscellaneous professional fees.
Holding Company Activities
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
(in thousands)
Total assets............................. $ 73,334 $ 46,383
Total borrowings......................... 22,250 --
Interest expense......................... 785 --
Total capital............................ 51,066 46,351
Year-to-date net loss.................... (1,379) (1,747)
The following table identifies the significant differences between the sum
of the reportable segments and the reported consolidated results for total
assets:
Total Assets
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
(in thousands)
Sum of reportable segments............... $836,195 $496,221
Adjustments.............................. (72,380) (46,383)
-------- --------
Consolidated PrivateBancorp, Inc......... $763,815 $449,838
======== ========
The adjustments to total assets presented in the table above represent the
elimination of the net investment in banking subsidiaries in consolidation, the
elimination of the Company's cash that is maintained in a subsidiary bank
account, the reclassification of the unearned discount of loans and the
reclassification related to deferred taxes.
F-9
<PAGE>
NOTE 5 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENT
The carrying values and estimated fair values of financial instruments as
of September 30, 2000, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 1999.
NOTE 6 - OTHER COMPREHENSIVE INCOME
Change in fair value of securities available-for-sale is presented on a net
basis on the Consolidated Statement of Changes in Stockholders' Equity. The
following table discloses the changes in other comprehensive income for the nine
months ended September 30, 2000 and 1999, on a gross basis (in thousands):
<TABLE>
<CAPTION>
September 30, 2000
------------------------------
Before Tax Net of
Tax (Benefit) Tax
Amount Expense Amount
------ ------- ------
<S> <C> <C> <C>
Unrealized gains on securities available-for-sale--
Unrealized holding gains.............................. $1,580 $ 537 $1,043
Less: reclassification adjustment for gain
included in net income............................. 92 31 61
------ ------ ------
Net unrealized gain................................... $1,488 $ 506 $ 982
====== ====== ======
<CAPTION>
September 30, 1999
------------------------------
Before Tax Net of
Tax (Benefit) Tax
Amount Expense Amount
------ ------- ------
<S> <C> <C> <C>
Unrealized (losses) on securities available-for-sale--
Unrealized holding (losses)........................... $(4,327) $(1,644) $(2,683)
Less: reclassification adjustment for gain
included in net income............................. 58 22 36
------- ------- -------
Net unrealized (losses)............................... $(4,385) $(1,666) $(2,719)
======= ======= =======
</TABLE>
NOTE 7 - CAPITAL TRANSACTIONS
On June 23, 2000, the Company established The PrivateBank (St. Louis) as a
federal savings bank in St. Louis, Missouri. The PrivateBank (St. Louis) was
capitalized with $8.0 million of borrowed funds drawn from the Company's
revolving credit facility. This facility, entered into with a commercial bank in
February 2000, is a two-year $18 million revolver. The interest rate on
borrowings under the revolving line is based on, at the borrower's option,
either the lender's prime rate or a 90 day LIBOR-based rate. The Company has
committed to raise additional capital by March 31, 2001. The PrivateBank (St.
Louis) is a wholly-owned subsidiary of the Company, and its financial condition
and results of operations are included in the Company's consolidated financial
statements.
During the third quarter of 1999, the Company completed its initial public
offering of 1,035,000 shares of its common stock. The initial public offering
price was $18 per share, and the Company received aggregate net proceeds of
approximately $16.7 million after deducting underwriting commissions and
offering expenses and including the underwriters' overallotment shares.
During March and April 1999, the Company's board of directors and
stockholders approved an increase in the number of authorized shares to
12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
board also approved a change in the per share stated value of the common stock
from $2.50 to $1.00 per share. Such change in authorized shares and change in
stated value became effective prior to the effectiveness of the
F-10
<PAGE>
registration statement relating to the Company's initial public offering. On
September 24, 1999, to effect a two-for-one stock split, the Company's board of
directors declared a one-for-one stock dividend on its common stock payable on
September 28, 1999, to stockholders of record as of the close of business on
September 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.
NOTE 8 - ACQUISITIONS
On August 3, 1999, in a stock-for-stock transaction, the Company completed
its acquisition of Towne Square Financial Corporation, a company then in the
process of forming a de novo bank. At closing, the Company issued 91,668 shares
of common stock and recorded a one-time $1.3 million charge that is non-
deductible for tax purposes.
On February 11, 2000, the Company completed its acquisition of Johnson Bank
Illinois, a unit of Johnson International, Inc., Racine, Wisconsin. At closing,
Johnson Bank Illinois had total assets of approximately $113 million and total
deposits of approximately $77 million. The purchase price was $20 million. $15
million was paid in cash and the remainder was paid in the form of a LIBOR-
based, floating rate subordinated note issued to Johnson International in the
principal amount of $5 million. The interest rate on the subordinated note is
set each quarter based on the 90-day LIBOR rate. The note is payable in full on
or before February 11, 2007, and provides for certain rate escalations beginning
after two years.
The cash portion of the purchase price was funded with $7.5 million out of
the remaining proceeds of the Company's initial public offering and $7.5 million
from borrowings under the Company's revolving credit facility with a commercial
bank entered into at closing. The interest rate on borrowings under the
revolving line is based on, at the borrower's option, either the lender's prime
rate or a 90-day LIBOR-based rate.
At closing, Johnson Bank Illinois was merged into The PrivateBank and Trust
Company. The two acquired offices, located on Chicago's North Shore in Lake
Forest and Winnetka, became additional offices of The PrivateBank and Trust
Company. The Johnson Bank Illinois transaction was accounted for as a purchase.
All assets and liabilities were adjusted to fair value as of the effective date
of the merger creating goodwill in the amount of $12.3 million, which was
pushed-down to The PrivateBank and Trust Company, and is being amortized on the
straight line basis over 15 years. Premiums and discounts related to the Johnson
Bank Illinois transaction were recorded on the balance sheet as fair value
adjustments and amounted to $20,045 and $2,344,041, respectively.
The following table summarizes the unaudited pro forma financial results
for the nine months ended September 30, 2000 and 1999 as if Johnson Bank
Illinois had been acquired on January 1, 1999.
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
-------------- -------------
(in thousands, except per share amounts)
<S> <C> <C>
Net interest income after provision for loan
losses........................................ $16,309 $12,744
Total non-interest income...................... 2,554 2,440
Total non-interest expense..................... 14,307 12,771
Income taxes................................... 1,665 922
Net income..................................... 2,890 1,491
Diluted earnings per share..................... 0.61 0.37
</TABLE>
The pro forma information is not necessarily indicative of the actual
results of operations which would have occurred had the acquisition of Johnson
Bank Illinois been consummated on January 1, 1999, nor is it indicative of
future operating results
F-11
<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,
1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000 (except with respect to the matter discussed in Note 20, as to
which the date is February 11, 2000).
F-12
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Assets:
Cash and due from banks................................................... $ 14,940 $ 11,895
Short-term investments.................................................... 29,243 3,619
--------- ---------
Total cash and cash equivalents....................................... 44,183 15,514
--------- ---------
Available-for-sale securities, at fair value.............................. 71,134 116,891
--------- ---------
Loans..................................................................... 397,277 281,965
Allowance for loan losses................................................ (4,510) (3,410)
--------- ---------
Net loans................................................................ 392,767 278,555
--------- ---------
Goodwill.................................................................. -- --
Bank premises and equipment, net.......................................... 2,028 1,588
--------- ---------
Accrued interest receivable............................................... 2,870 2,264
--------- ---------
Other assets.............................................................. 5,715 1,496
--------- ---------
Total assets.......................................................... $ 518,697 $ 416,308
========= =========
Liabilities and Stockholders' Equity:
Demand Deposits:
Noninterest-bearing...................................................... $ 36,771 $ 39,490
Interest-bearing......................................................... 33,400 26,508
Savings and money market deposit accounts................................. 204,068 170,713
Brokered Deposits......................................................... 21,696 --
Other time deposits....................................................... 157,157 128,282
--------- ---------
Total deposits........................................................ 453,092 364,994
Accrued interest payable.................................................. 1,056 721
Funds borrowed............................................................ 15,000 20,000
Other liabilities......................................................... 2,469 1,320
--------- ---------
Total liabilities..................................................... 471,617 387,034
--------- ---------
Stockholders' Equity:
Preferred stock, 1,000,000 shares authorized............................. $ -- $ --
--------- ---------
Common stock, without par value, $1 stated value; 12,000,000 shares
authorized; 4,623,532, 4,590,332, and 3,431,424 shares issued and
outstanding in 2000, 1999 and 1998, respectively...................... 4,590 3,431
Surplus.................................................................. 39,761 22,274
Retained earnings........................................................ 7,425 4,912
Accumulated other comprehensive income................................... (2,812) 149
Deferred compensation.................................................... (759) (544)
--------- ---------
Loan to officers......................................................... (1,125) (950)
--------- ---------
Total stockholders' equity............................................ 47,080 29,274
--------- ---------
Total liabilities and stockholders' equity............................ $ 518,697 $ 416,308
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-13
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Interest Income:
Loans, including fees..................................... $ 26,597 $ 19,619 $ 16,729
Federal funds sold and interest-bearing deposits.......... 330 2,181 875
Securities................................................ 5,141 3,492 2,519
-------- -------- --------
Total interest income.................................. 32,068 25,292 20,123
-------- -------- --------
Interest Expense:
Deposits:
Interest-bearing demand................................... $ 604 $ 487 $ 377
Savings and money market deposit accounts................. 7,671 6,651 5,880
Other time................................................ 7,399 6,154 3,821
Funds borrowed............................................. 931 19 3
-------- -------- --------
Total interest expense................................. 16,605 13,312 10,081
-------- -------- --------
Net interest income.................................... 15,463 11,980 10,042
Provision for Loan Losses.................................. 1,208 362 603
-------- -------- --------
Net interest income after provision for loan losses....... 14,255 11,618 9,439
-------- -------- --------
Non-Interest Income:
Banking and trust services................................ $ 1,947 $ 1,280 $ 1,210
Securities gains.......................................... 57 40 --
-------- -------- --------
Total non-interest income.............................. 2,004 1,320 1,210
-------- -------- --------
Non-Interest Expense:
Salaries and employee benefits............................ $ 5,156 $ 4,077 $ 3,902
Severance charge.......................................... -- -- --
Goodwill amortization..................................... -- -- --
Occupancy expense, net.................................... 1,563 1,379 1,274
Towne Square acquisition.................................. 1,300 -- --
Data processing........................................... 478 508 396
Marketing................................................. 692 567 501
Professional fees......................................... 1,295 561 448
Insurance................................................. 214 134 115
Other non-interest expense................................ 1,389 863 626
-------- -------- --------
Total non-interest expense............................. 12,087 8,089 7,262
-------- -------- --------
Income before income taxes............................. 4,172 4,849 3,387
Income Tax Provision...................................... 1,257 1,839 1,242
-------- -------- --------
Net income............................................. $ 2,915 $ 3,010 $ 2,145
======== ======== ========
Basic Earnings Per Share.................................. $.73 $.91 $.69
==== ==== ====
Diluted Earnings Per Share................................ $.69 $.86 $.65
==== ==== ====
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-14
<PAGE>
PRIVATEBANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1997, 1998 and 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Deferred Total
Common Retained hensive Compen- Loans to Stockholders'
Stock Surplus Earnings Income sation Officers Equity
------ ------- -------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997............. $2,958 $ 17,301 $ 237 $ (57) $ (217) $ -- $ 20,222
Net income......................... -- -- 2,145 -- -- -- 2,145
Net increase in fair value of
securities classified as
available-for-sale, net of
income taxes and
reclassification adjustments....... -- -- -- 86 -- -- 86
------ ---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income........... -- -- 2,145 86 -- -- 2,231
------ ---------- ---------- ---------- ---------- ---------- ----------
Cash dividends declared
($0.07 per share).................. -- -- (217) -- -- -- (217)
Issuance of common stock............. 259 2,482 -- -- -- -- 2,741
Awards granted....................... -- -- -- -- (403) -- (403)
Amortization of deferred
compensation....................... -- -- -- -- 114 -- 114
Loan to chief executive officer...... -- -- -- -- -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997........... $3,217 $ 19,783 $ 2,165 $ 29 $ (506) $ -- $ 24,688
====== ========== ========== ========== ========== ========== ==========
Balance, January 1, 1998............. $3,217 $ 19,783 $ 2,165 $ 29 $ (506) $ -- $ 24,688
Net income......................... -- -- 3,010 -- -- -- 3,010
Net increase in fair value of
securities classified as
available-for-sale, net of
income taxes and
reclassification adjustments....... -- -- -- 121 -- -- 121
------ ---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income........... -- -- 3,010 121 -- -- 3,131
------ ---------- ---------- ---------- ---------- ---------- ----------
Cash dividends declared
($0.08 per share).................. -- -- (263) -- -- -- (263)
Issuance of common stock............. 214 2,491 -- -- -- -- 2,705
Awards granted....................... -- -- -- -- (187) -- (187)
Amortization of deferred
compensation....................... -- -- -- -- 150 -- 150
Loan to chief executive officer...... -- -- -- -- -- (950) (950)
------ ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998........... $3,431 $ 22,274 $ 4,913 $ 150 $ (544) $ (950) $ 29,274
====== ========== ========== ========== ========== ========== ==========
Balance, January 1, 1999............. $3,431 $ 22,274 $ 4,913 $ 150 $ (544) $ (950) $ 29,274
Net income......................... -- -- 2,915 -- -- -- 2,915
Net decrease in fair value of
securities classified as
available-for-sale, net of
income taxes and
reclassification adjustments....... -- -- -- (2,962) -- -- (2,962)
------ ---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income........... -- -- 2,915 (2,962) -- -- (47)
------ ---------- ---------- ---------- ---------- ---------- ----------
Cash dividends declared ($0.10
per share)......................... -- -- (403) -- -- -- (403)
Issuance of common stock............. 1,159 17,487 -- -- -- -- 18,646
Awards granted....................... -- -- -- -- (448) -- (448)
Amortization of deferred
compensation....................... -- -- -- -- 233 -- 233
Loans to officers.................... -- -- -- -- -- (175) (175)
------ ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999........... $4,590 $ 39,761 $ 7,425 $ (2,812) $ (759) $ (1,125) $ 47,080
====== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-15
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income...................................................... $ 2,915 $ 3,010 $ 2,145
----------- ----------- -----------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization................................... 498 508 473
Amortization of deferred compensation........................... 233 150 99
Provision for loan losses....................................... 1,208 362 (603)
Gain on sales of securities..................................... (56) (40) --
Increase (Decrease) in deferred loan fees....................... 51 348 86
Increase (Decrease) in deferred income taxes.................... (2,514) (291) (440)
Increase (Decrease) in accrued interest receivable.............. (606) (683) (146)
Increase (Decrease) in accrued interest payable................. (324) 268 61
Increase (Decrease) in other assets............................. (56) 70 77
Increase in other liabilities................................... 1,808 570 415
----------- ----------- -----------
Total adjustments............................................ 241 1,262 1,227
----------- ----------- -----------
Net cash provided by operating activities.................... 3,156 4,272 3,372
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from maturities, pay downs, and sales of securities.... $ 55,930 $ 85,391 $ 11,255
Purchase of securities available-for-sale....................... (14,725) (136,661) (31,888)
Net loan principal advanced..................................... (115,646) (63,820) (47,240)
Bank premises and equipment expenditures........................ (939) (191) (659)
Towne Square acquisition........................................ 1,300 -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities.......... (74,080) (115,281) (68,532)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net increase in total deposits.................................. $ 88,098 $ 79,220 $ 63,202
Net (decrease) increase in funds borrowed....................... (5,000) 20,000 (3,000)
Issuance of common stock........................................ 16,898 1,361 2,348
Dividends paid.................................................. (403) (263) (217)
----------- ----------- -----------
Net cash provided by financing activities.................... 99,593 100,318 62,333
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents.............. 28,669 (10,692) (2,827)
Cash and Cash Equivalents at Beginning of Year.................... 15,514 26,206 29,033
----------- ----------- -----------
Cash and Cash Equivalents at End of Year/ Period.................. $ 44,183 $ 15,514 $ 26,206
=========== =========== ===========
Cash Paid During Year for:
Interest........................................................ $ 16,929 $ 13,044 $ 10,004
Income taxes.................................................... $ 2,280 $ 1,827 $ 1,563
Non-Cash Transactions:
Loan (repayment) to executive officer for purchase of common
stock......................................................... $ 175 $ 950 $ --
Issuance of stock to purchase Towne Square...................... $ 1,300 $ -- $ --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-16
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
a. Nature of Operations
The Company was incorporated under the laws of the State of Delaware on
November 7, 1989. The Company is a bank holding company with one bank
subsidiary, The PrivateBank and Trust Company, which was formed as a de novo, or
start up bank, on February 6, 1991. PrivateBank provides private banking and
trust services primarily to affluent individuals professionals, entrepreneurs
and their business interests. PrivateBank focuses on the personal financial
services needs of its clients as well as the banking needs of its clients'
various business and investment interests.
b. 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.
c. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and other short-term
investments. Generally, federal funds are sold for one-day periods, but not
longer than 30 days. Short-term investments mature in less than 30 days.
d. 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, 1999 and 1998, 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.
e. 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 collectability 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
considered by management in its
F-17
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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.
f. 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.
g. 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.
h. Income Taxes
The Company accounts for income taxes under an asset and liability approach
pursuant to SFAS No. 109 "Accounting for Income Taxes," 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 on its effective date as of January 1, 1997 and
January 1, 1998 as appropriate. Upon adoption of these statements, there was no
effect on the Company's reported consolidated financial position and the results
of operations.
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.
F-18
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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 on the effective date, 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 consolidated financial statements have been restated to
conform to the SFAS No. 130 principles.
l. 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.
m. 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.
n. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", allows mortgage loans that are
securitized to be classified as trading, available for sale, or in certain
circumstances, held to maturity. Currently, these must be classified as trading.
Since the Company has not securitized loans, this Statement does not impact the
Company.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Related Hedging Activities", amended by SFAS No. 137
"Accounting for Derivative Instrument and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133--an Amendment of SFAS No. 133," will, on January
1, 2001, require all derivatives to be recorded at fair value in the balance
sheet, with changes in fair value recorded in the income statement. If
derivatives are documented and effective as hedges, the change in the derivative
fair value will be offset by an equal change in the fair value of the hedged
item. All hedge ineffectiveness will be recognized immediately in earnings. The
Statement may be adopted early at the start of a calendar quarter. The Company
does not plan to adopt the Statement early and adoption is not expected to have
a material impact since the Company does not have derivative instruments or
hedging activity.
NOTE 2 - OPERATING SEGMENTS
The Company has aligned its operations into three major lines of business:
Private Banking Services, Trust Services and Holding Company Activities. For
purposes of making operating decisions and assessing performance, management
treats the Bank, the Trust Department and the Holding Company as three operating
segments. The Company's major business segments are analyzed on an internal
management reporting basis. The Company's investment portfolio is included in
total assets of the Bank. The business segments summarized below and in the
following tables are primarily managed with a focus on various performance
objectives including total assets, total deposits, borrowings, gross loans,
total capital and net income. Indirect costs are allocated to the Trust Business
from the Bank based on Trust full time equivalent employees as a percentage of
total bank employees.
F-19
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
Private Banking Services
------------------------
The Bank, through its downtown Chicago main office as well as five
suburban branches and a loan production office located in St. Louis, Missouri,
provides personal and commercial banking services primarily to affluent
individuals, professionals, entrepreneurs and their business interests.
PrivateBank's commercial lending products include lines of credit for working
capital, term loans for equipment and letters of credit to support the
commitments made by its clients. Non-credit products include lock-box, cash
concentration accounts, merchant credit card processing, electronic funds
transfer, other cash management products and insurance. PrivateBank offers a
full range of lending products including fixed and floating rate permanent and
mini-permanent mortgages and construction loans. Personal loans include
installment loans and lines of credit, home equity loans and a wide variety of
home mortgage loans.
Individual banking services include interest bearing checking, money
market deposit accounts, certificates of deposit, ATM/debit cards and brokerage
accounts. Additionally, PrivateBank offers secured and unsecured personal loans
and lines of credit. Through PrivateBank's affiliation with Mesirow and
Sterling, clients have access to insurance products and securities brokerage
services. PrivateBank also offers domestic and international wire transfers and
foreign currency exchange.
Private Banking Services
--------------------------
1999 1998 1997
------ ------ ------
(in millions)
Total assets................... $518.2 $416.4 $312.2
Total deposits................. 462.2 365.7 287.5
Total borrowings............... 15.0 20.0 --
Total gross loans.............. 397.3 282.3 218.7
Total capital.................. 38.3 28.1 22.9
Net income..................... 4.9 3.4 2.4
Trust Services
--------------
PrivateBank's trust services include investment management, personal
trust and estate services, custodial services, retirement accounts and brokerage
and investment services. Investment management professionals work with trust
clients to define objectives, goals and strategies of the clients' investment
portfolios. PrivateBank assists its clients with the selection of an investment
manager. Trust and estate account administrators work with clients and their
attorneys to establish estate plans. Consistent with the PrivateBank approach,
Trust Services emphasizes a high level of personal service, including prompt
collection and reinvestment of interest and dividend income, daily valuation of
equities, tracking of tax information, customized reporting and ease of security
settlement.
Trust Services
--------------------
1999 1998 1997
---- ---- ----
(in millions)
Trust assets under administration..... $730.0 $611.6 $470.0
Net income (loss)..................... 0.1 (0.2) (0.2)
Holding Company Activities
--------------------------
Holding Company Activities consist of parent company only matters. The
holding company's most significant asset represents its net investment in
PrivateBank. Holding Company Activities are reflected primarily in operating
expenses. Recurring holding company operating expenses consist of amortization
of restricted stock
F-20
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
awards, other salary expense and miscellaneous professional fees. During 1999,
Holding Company Activities reflect the Towne Square Financial Corporation
acquisition charge of $1.3 million.
Holding Company Activities
--------------------------
1999 1998 1997
----- ----- -----
(in millions)
Total assets.................. $47.1 $29.3 $24.7
Total capital................. 47.1 29.3 24.7
Net loss...................... (2.1) (0.2) (0.1)
The following table identifies the significant differences between the
sum of the reportable segments and the reported consolidated results for total
assets:
Total Assets
------------------
1999 1998
------ ------
(in millions)
Sum of reportable segments........... $565.3 $445.7
Adjustments.......................... (46.6) (29.4)
------ ------
Consolidated PrivateBancorp, Inc..... $518.7 $416.3
====== ======
The adjustments to total assets presented in the table above represent
the elimination of the net investment in PrivateBank in consolidation, the
elimination of the Company's cash that is maintained in an account at
PrivateBank, the reclassification of the unearned discount of loans and the
reclassification related to deferred taxes.
NOTE 3 - EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings
per share (in thousands except per share data):
<TABLE>
<CAPTION>
Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1999
Basic Earnings Per Share -
Income available to common stockholders.............. $2,915 $3,988 $.73
====
Effect of Dilutive Stock Options........................ -- 242
------ ------
Diluted Earnings Per Share -
Income available to common stockholders.............. $2,915 $4,230 $.69
====== ====== ====
Year Ended December 31, 1998
Basic Earnings Per Share -
Income available to common stockholders.............. $3,010 $3,313 $.91
====
Effect of Dilutive Stock Options........................ -- 202
------ ------
Diluted Earnings Per Share -
Income available to common stockholders.............. $3,010 $3,515 $.86
====== ====== ====
Year Ended December 31, 1997
Basic Earnings Per Share -
Income available to common stockholders.............. $2,145 $3,125 $.69
====
</TABLE>
F-21
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
<TABLE>
<CAPTION>
<S> <C> <C>
Effect of Dilutive Stock Options......................... -- 161
------- ------
Diluted Earnings Per Share -
Income available to common stockholders................. $2,145 $3,286 $.65
======= ====== ====
</TABLE>
The year to date earnings per share calculation as of December 31, 1999
does not equal the sum of the individual quarter earnings per share amounts.
Based upon the application of FASB Statement No. 128, "Earnings per Share," a
difference arises that is attributable to the impact of the Company's initial
public offering which closed in July, 1999, and the acquisition of Towne Square
Financial Corporation during the third quarter 1999.
The 1999 diluted earnings per share calculation excludes 179,740 option
shares which were granted in 1999 and 1998, as the options are anti-dilutive.
The exercise prices for the 1999 and 1998 stock option grants are $18.00 and
$17.19, respectively.
NOTE 4 - SECURITIES
The amortized cost and the estimated fair value of securities as of
December 31, 1999 and December 31, 1998, were as follows (in thousands):
<TABLE>
<CAPTION>
Investment Securities - Available for Sale
-----------------------------------------------------------
December 31, 1999
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations......... $26,695 $ -- $ (708) $25,987
Municipals................................. 37,116 9 (3,511) 33,614
Other/(1)/................................. 11,933 -- (400) 11,533
-------- ---- --------- --------
$75,744 $ 9 $(4,619) $71,134
======== ==== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Investment Securities - Available for Sale
--------------------------------------------------------
December 31, 1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $ 6,021 $ 73 $ -- $ 6,094
U.S. Government Agency Obligations..... 61,358 118 (61) 61,415
Municipals............................. 37,709 227 (132) 37,804
Other/1)/.............................. 11,558 20 -- 11,578
------------- ---- ------ ---------
$116,646 $438 $(193) $116,891
============= ==== ====== =========
</TABLE>
/(1)/ Represents corporate and equity securities.
The amortized cost and estimated fair value of securities at December
31, 1999, by contractual maturity, are shown below (in thousands). 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.
Amortized Estimated
Cost Fair Value
--------- ----------
Due within one year.................. $ 71 $ 71
F-22
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
Due after one year through five years.. 1,631 1,639
Due after five years through ten years. 8,462 8,004
Due after ten years.................... 63,843 59,683
Equity securities...................... 1,737 1,737
------- -------
$75,744 $71,134
======= =======
During 1999 and 1998, securities were sold for total proceeds of
$8,827,770 and 13,886,279, resulting in net gains of $56,926 and $39,894
respectively. No securities were sold in 1997.
At December 31, 1999, securities carried at $35.8 million 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. During 1999, the Company
invested $105,000 in a small business investment company ("SBIC"). This
investment qualifies for CRA credit. These securities do not have a readily
determinable fair value for purposes of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," 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, 1999, which constituted an unusual credit risk for the Company.
Change in fair value of securities available for sale is presented on a
net basis on the Consolidated Statement of Changes in Stockholders' Equity. The
following table discloses the changes in other comprehensive income as of
December 31, 1999 and 1998 on a gross basis (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------
Before Tax
Tax (Benefit) Net of Tax
Amount Expense Amount
----------------- -------------- ---------------
<S> <C> <C> <C>
Unrealized (losses) on securities available for sale--
Unrealized holding losses.................................. ($4,713) ($1,786) ($2,927)
Less: reclassification adjustment for gain included in
net income............................................... 57 22 35
-------- -------- --------
Net unrealized (losses).................................... ($4,770) ($1,808) ($2,962)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------
Before Tax
Tax (Benefit) Net of Tax
Amount Expense Amount
----------------- -------------- ---------------
<S> <C> <C> <C>
Unrealized gains on securities available for sale--
Unrealized holding gains................................... $237 $92 $145
Less: reclassification adjustment for gain included in
net income................................................ 40 16 24
----- --- -----
Net unrealized (gains)..................................... $197 $76 $121
===== === =====
</TABLE>
F-23
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 5-LOANS
Amounts outstanding by selected loan categories at December 31, 1999
and 1998, were as follows (in thousands):
1999 1998
---- ----
Real estate--
Residential................ $ 71,332 $ 47,746
Commercial................. 146,368 94,393
Construction............... 29,018 22,408
Commercial................... 67,026 46,800
Personal..................... 81,893 64,194
Held for sale................ 1,640 6,424
----------- -----------
$397,277 $281,965
=========== ===========
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, 1999 or 1998.
As of December 31, 1999, $600,367 of loans were designated as
nonaccrual loans. There were no loans on which the accrual of interest has been
discontinued (impaired loans) at December 31, 1998 or 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 $260,585 and $0 in 1999
and $2,272 and $0 in 1998.
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the three years ended
December 31 were as follows (in thousands):
1999 1998 1997
---- ---- ----
Beginning balance.............. $3,410 $3,050 $2,450
Loans charged off ............ (108) (2) (3)
Provision for loan losses...... 1,208 362 603
------- -------- --------
Ending balance................. $4,510 $3,410 $3,050
======= ======== ========
NOTE 7 - PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998, consisted of
the following (in thousands):
1999 1998
---- ----
Furniture, fixtures and equipment....... $2,817 $2,408
Leasehold improvements.................. 1,874 1,345
------- -------
4,691 3,753
Accumulated depreciation and
amortization......................... 2,663 2,165
------- -------
$2,028 $1,588
======= =======
Included in occupancy expense in the consolidated statements of income
is depreciation and amortization expense of $498,115, $507,853 and $472,669 for
1999, 1998 and 1997, respectively.
F-24
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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, 1999, are as follows:
2000........................... $ 760,607
2001........................... 817,072
2002........................... 739,871
2003........................... 759,338
2004........................... 735,124
2005 and thereafter............ 2,390,718
------------
$ 6,202,730
============
Total rent expense included in the consolidated statements of income
was $750,973, $635,761 and $601,461 for 1999, 1998, and 1997, respectively.
NOTE 8 - INCOME TAXES
The components of total income tax provision in the consolidated
statements of income for the years ended December 31, 1999, 1998, and 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax provision-
Current--
Federal............................................ $1,886 $1,759 $1,610
State.............................................. -- 371 73
------- ------ ------
$1,886 2,130 1,683
------- ------ ------
Deferred--
Federal.............................................. (373) (255) (298)
State................................................ (256) (36) (143)
------- ------ ------
(629) (291) (441)
======= ====== ======
Total.............................................. $1,257 $1,839 $1,242
======= ====== ======
</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 $(1,785,788), $76,523 and $47,698 in
1999, 1998 and 1997, 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, 1999, 1998 and 1997 is as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax provision at statutory federal
income tax rate............................. $1,418 $1,649 $1,152
Increase (decrease) in taxes resulting from:
Tax exempt income........................... (608) (67) --
State income taxes.......................... (170) 221 6
Towne Square Financial Corp.
acquisition.............................. 442 -- --
Other....................................... 175 36 84
------- --------- ---------
Total.................................... $1,257 $1,839 $1,242
======= ========= =========
</TABLE>
F-25
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Gross deferred tax assets--
Allowance for loan losses............................ $1,650 $1,182
Leasehold improvements............................... 294 231
Amortization of restricted stock..................... 199 109
Unrealized loss (gain) on securities available
for sale........................................... 1,786 (95)
Other................................................ 118 148
-------- --------
$4,047 $1,575
Gross deferred tax assets.............................. 4,047 1,575
Gross deferred tax liabilities......................... (177) (215)
-------- --------
Net deferred tax asset................................. $3,870 $1,360
======== ========
</TABLE>
NOTE 9 - FUNDS BORROWED
As of December 31, 1999, funds borrowed consisted of a $15 million
Federal Home Loan Bank term note with an interest rate of 6.03%. The term note
matured on January 20, 2000. As of December 31, 1998, funds borrowed consisted
of a $20 million Federal Home Loan Bank term note, with an interest rate of
5.20%. The term note matured on January 7, 1999.
NOTE 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 $67,200, $61,462 and $47,001 in 1999, 1998 and 1997, respectively.
b. Stock Options
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, 1999, the Stock Incentive Plan allows
673,023 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 other than those granted in 1998 are first
exercisable beginning at least two years following the date of grant. Options
granted 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.
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.
F-26
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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, 1999 and 1998, and
changes during the years then ended:
<TABLE>
<CAPTION>
1999 1998
---------------------------- -------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.......... 542,208 $ 9.09 543,168 $ 7.57
Granted................................... 99,600 18.00 80,960 17.19
Exercised................................. (6,240) 7.35 (81,920) 7.02
Forfeited................................. (820) 18.00 -- --
--------- -------- -------- --------
Outstanding at end of year................ 634,748 $ 10.54 542,208 $ 9.09
========= ======== ======== ========
Options exercisable at year-end........... 462,568 433,808
========= ========
Weighted average fair value of options
granted during the year................. $ 18.00 $ 17.19
</TABLE>
The range of exercise prices and weighted average remaining contractual
life for stock options outstanding as of December 31, 1999, was $6.25--$18.00
and five 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>
1999 1998 1997
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Net income--
As reported...................... $2,915 $3,010 $2,145
Pro forma........................ 2,590 2,870 1,996
====== ====== ======
Basic earnings per share--
As reported...................... $ .73 $ .91 $ .69
Pro forma........................ .65 .87 .64
Diluted earnings per share--
As reported...................... .69 .86 .65
Pro forma........................ $ .61 $ .82 $ .61
====== ====== ======
</TABLE>
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 1999 and 1998, respectively: dividend yield
of .70% and .60% for 1999 and 1998 respectively; risk-free interest rate of 6.5%
and 6.0% for 1999 and 1998, respectively; 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.
F-27
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
c. Restricted Stock
In 1999 and 1998, the Company issued 26,000 and 13,600 shares,
respectively, of restricted stock under the Stock Incentive Plan. These shares
had a fair value of $18 and $13.75 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 $233,000, $149,566, and
$98,917 for 1999, 1998, and 1997, respectively.
NOTE 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, 1998..................... $ 10,743,883
Additions.................................... 9,181,200
Collections.................................. (3,863,890)
------------
Balance, December 31, 1999..................... $ 16,061,193
============
</TABLE>
Directors and executive officers of the Company and the 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 collectability or other unfavorable features.
On July 6, 1999, the Company loaned $175,000 to a managing director of
PrivateBank, for the purpose of purchasing common stock of the Company in the
IPO. The shares purchased serve as collateral for such loan. The loan accrues no
interest and is payable upon receipt of certain bonus payments, but not later
than December 31, 2000. In June 1998, the Company made a $949,741 loan to the
chief executive officer of the Company and PrivateBank, 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 PrivateBank, the loan agreement calls for forgiveness of 0%
up to 100% of the interest based on how many years the loan remains outstanding.
The loans are 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 services firm
serves as an insurance agency in coordinating certain insurance coverage for the
Company and the Bank during 1999. During 1999, the Bank earned commission
revenue of $33,125 for referred business and paid $533,544 in fees to this
financial services firm for insurance and related services related to a
three-year insurance contract. 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.
F-28
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
During 1999, 1998 and 1997, the Bank acquired selected furniture with a
total cost of $28,402, $2,655 and $71,875, respectively, through related
parties.
The Bank incurred professional fees in 1999, 1998 and 1997 for services
provided by one law firm, whose partner is a director of the Company and the
Bank.
In connection with Company's acquisition of Towne Square Financial
Corporation, one individual who subsequently became a director of the Company,
received 15,278 shares of common stock of the Company as consideration for his
16.667% ownership interest of Towne Square Financial Corporation. The same
director is currently a 16.667% owner of Towne Square Realty, LLC, from which
the Bank leases approximately 6,700 square feet in a building located in St.
Charles, IL. This lease became effective August 1, 1999. In 1999, the Company
paid rent in the amount of $44,500 to Towne Square Realty, LLC under such lease.
NOTE 12 - CREDIT-RELATED INSTRUMENTS
The Company has, through its subsidiary PrivateBank, entered into
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.
PrivateBank'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, 1999 and 1998, the Bank had the following
categories of credit-related financial instruments (at contract amount):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commitments to extend credit.......... $111,928,927 $97,487,444
Standby letters of credit............. 10,452,000 10,147,140
</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 case-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.
F-29
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 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 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.
NOTE 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 PrivateBank, at December 31, 1999 and 1998. This
information is presented solely for compliance with SFAS No. 107 "Disclosures
about Fair Value of Financial Instruments," 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>
December 31, 1999 December 31, 1998
-------------------------------- -------------------------------
Estimated Fair Estimated Fair
Carrying Value Value Carrying Value Value
--------------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Assets--
Cash and cash equivalents........ $ 44,183 $ 44,183 $ 15,514 $ 15,514
Securities....................... 71,134 71,134 116,891 116,891
Net loans........................ 392,767 393,423 278,555 281,548
Accrued interest receivable...... 2,870 2,870 2,264 2,264
Liabilities--
Deposits with no stated
maturity...................... 274,239 274,239 236,711 236,711
Time deposits.................... 178,853 178,839 128,282 128,506
Total deposits................... 453,092 453,078 364,994 365,218
Accrued interest payable.......... 1,056 1,056 721 721
Funds borrowed.................... 15,000 15,000 20,000 20,000
</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.
F-30
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
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.
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 and brokered deposits are
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 the Bank for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.
f. Off-Balance Sheet Financial Instruments
The fair value of off-balance sheet financial instruments, including
commitments to extend credit, standby letters of credit and financial
guarantees, is insignificant and, therefore, not presented.
NOTE 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,
2000, the Bank could have declared approximately $10,480,106 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 1999
and 1998, the average balances maintained to meet the requirement were
$1,664,741 and $829,000, respectively.
F-31
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
The Company and the 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 the Bank must meet
specific capital guidelines that 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 the 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 the 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, 1999, the Company and the 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 the Bank as of December 31, 1999 and 1998 (dollars in
thousands):
<TABLE>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999--
Total risk- based capital--
Consolidated........................ $56,286 13.96% $32,260 8.00%
PrivateBank......................... 45,578 11.32 32,208 8.00 $40,260 10.00%
Tier 1 risk-based capital--
Consolidated........................ 51,776 12.84 16,130 4.00
PrivateBank......................... 41,068 10.20 16,104 4.00 24,156 6.00
Tier 1 (leverage) capital--
Consolidated........................ 51,776 10.77 19,228 4.00
PrivateBank......................... 41,068 8.55 19,205 4.00 25,006 5.00
As of December 31, 1998--
Total risk-based capital--
Consolidated........................ $34,978 11.53% $24,274 8.00%
PrivateBank......................... 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
PrivateBank......................... 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
PrivateBank......................... 28,063 7.27 15,456 4.00 19,320 5.00
</TABLE>
F-32
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 16 - 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 with 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.
F-33
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 17 - PRIVATEBANCORP, INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL
STATEMENTS
CONDENSED BALANCE SHEETS
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Assets
Cash and due from banks--bank subsidiary.................. $ 8,213 $ 669
Investment in bank subsidiary............................. 38,256 28,269
Other assets.............................................. 646 353
-------- --------
Total assets......................................... $ 47,115 $ 29,291
======== ========
Liabilities and Stockholders' Equity
Other liabilities......................................... $ 35 $ 18
Total liabilities......................................... 35 18
Stockholders' equity...................................... 47,080 29,274
-------- --------
Total liabilities and stockholders' equity........... $ 47,115 $ 29,291
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Operating income:
Interest income--other......................................... $ -- $ 32 $ --
Total....................................................... -- 32 --
--------- --------- ---------
Operating expense:
Amortization of deferred compensation.......................... 233 150 99
Towne Square Financial Corporation acquisition................. 1,300 -- --
Other.......................................................... 1,014 226 68
--------- --------- ---------
Total....................................................... 2,547 376 167
--------- --------- ---------
(Loss) before income taxes and equity in undistributed net
income of bank subsidiary................................ (2,547) (344) (167)
Income tax (benefit) (457) (134) (57)
--------- --------- ---------
(Loss) before equity in undistributed net income of bank
subsidiary............................................... (2,090) (210) (110)
--------- --------- ---------
Equity in undistributed net income of bank subsidiary 5,005 3,220 2,255
--------- --------- ---------
Net income.................................................. $ 2,915 $ 3,010 $ 2,145
========= ========= =========
</TABLE>
The Parent Company Only Statements of Changes in Stockholders' Equity
are the same as the Consolidated Statements of Changes in Stockholders' Equity.
F-34
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 2,915 $ 3,010 $ 2,145
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities--
Equity in net income of bank subsidiary............................. (5,005) (3,220) (2,255)
Amortization of deferred compensation............................... 233 150 99
Increase in other assets............................................ (236) (135) (58)
Decrease (increase) in other liabilities............................ (158) -- 50
---------- ---------- ----------
Total adjustments................................................ (5,166) (3,205) (2,165)
---------- ---------- ----------
Net cash (used in) operating activities.......................... (2,251) (195) (19)
---------- ---------- ----------
Cash flows from investing activities:
Net (increase) in capital investments in bank subsidiary............... (8,000) (2,000) (2,000)
Purchase of Towne Square Financial Corporation......................... 1,300 -- --
---------- ---------- ----------
Net cash (used in) investing activities................................ (6,700) (2,000) (2,000)
---------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock............................................... 16,898 1,361 2,348
Dividends paid......................................................... (403) (263) (217)
---------- ---------- ----------
Net cash provided by financing activities........................... 16,495 1,098 2,131
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..................... 7,544 (1,097) 111
Cash and cash equivalents at beginning of year........................... 669 1,766 1,655
---------- ---------- ----------
Cash and cash equivalents at end of year................................. $ 8,213 $ 669 $ 1,766
========== ========== ==========
Other cash flow disclosures:
Income taxes paid...................................................... $ 2,623 $ 1,827 $ 1,563
========== ========== ==========
Non-cash transactions:
Loan to executive officer for purchase of common stock................. $ 175 $ 950 $ --
Issuance of stock to purchase Towne Square Financial Corporation....... $ 1,300 $ -- $ --
</TABLE>
NOTE 18 - CAPITAL TRANSACTIONS
During the third quarter of 1999, the Company completed its initial
public offering of 1,035,000 shares. The initial public offering price was
$18.00 per share, and the Company received aggregate net proceeds of
approximately $16.7 million after deducting underwriting commissions and
offering expenses and including the underwriters' over-allotment shares.
During March and April, 1999, the Company's board of directors and
stockholders approved an increase in the number of authorized shares to
12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
board also approved a change in the per share stated value of the common stock
from $2.50 to $1.00 per share. Such change in authorized shares and change in
stated value became effective prior to the effectiveness of the registration
statement relating to the Company's initial public offering. On June 24, 1999,
to effect a two-for-one stock split, the Company's board of directors declared a
one-for-one stock dividend on its common stock payable on June 28, 1999 to
stockholders of record as of the close of business on June 25, 1999. All
references to number of shares, per share amounts and stock option data in the
consolidated financial statements have been adjusted to reflect the stock split
on a retroactive basis.
F-35
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 19 - ACQUISITIONS
The Company completed its acquisition of Towne Square Financial
Corporation (a company in the process of forming a de novo bank) on August 3,
1999, in a stock for stock transaction. At closing, the Company issued 91,668
shares of common stock and recorded a one-time $1.3 million charge that is
non-deductible for tax purposes.
On November 18, 1999, the Company announced that it had filed an
application to charter a federal savings bank, to be known as The PrivateBank
(St. Louis). Pending regulatory approval of this new subsidiary, the Bank has
opened a loan production office in St. Louis in order to develop credit
business.
NOTE 20 - SUBSEQUENT EVENTS
On February 11, 2000, the Company completed its acquisition of Johnson
Bank Illinois, a unit of Johnson International, Inc., Racine, Wisconsin. At
January 31, 2000, Johnson Bank Illinois had total assets of approximately $113
million and total deposits of approximately $77 million. The purchase price was
$20 million. $15 million was paid in cash and the remainder was paid in the form
of a LIBOR-based, floating rate subordinated note issued to Johnson
International in the principal amount of $5 million. The interest rate on the
subordinated note is set each quarter based on the 90-day LIBOR rate. The note
is payable in full on or before February 11, 2007, and provides for certain rate
escalation beginning after two years.
The cash portion of the purchase price was funded $7.5 million out of
the remaining proceeds of the Company's initial public offering and $7.5 million
from the borrowings under a new, two-year, $18 million revolving credit facility
entered into at closing with a commercial bank. The interest rate on borrowings
under this revolving line is based on, at the borrower's option, either the
lender's prime rate or a Eurodollar-based rate. The initial rate of interest on
the subordinated note is 6.60% and on the bank borrowings is 7.20%.
At closing, Johnson Bank Illinois was merged into the Bank. The two
acquired offices, located on Chicago's North Shore in Lake Forest and Winnetka,
became additional offices of the Bank. With the completion of the acquisition,
the Bank now operates six banking offices in the greater Chicago area.
The Company has recorded approximately $12.2 million in intangible
assets and goodwill in connection with the acquisition. The intangible assets
and the goodwill will be amortized over an estimated useful life ranging between
5 and 15 years. The allocation of the purchase price is based on preliminary
estimates of fair values, pending the completion of the Johnson Bank Illinois
acquisition audit and the completion of the purchase accounting entries. The
allocation may change, as the preliminary estimates of fair value are not yet
final.
F-36
<PAGE>
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................... 1
Summary Consolidated Financial Data......................................... 7
Risk Factors................................................................ 9
Special Note Regarding Forward-Looking Statements........................... 16
Use of Proceeds............................................................. 17
Capitalization.............................................................. 18
Accounting and Regulatory Treatment......................................... 19
Selected Consolidated Financial Data........................................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................. 22
Quantitative and Qualitative Disclosures About Market Risk.................. 45
Business.................................................................... 49
Management.................................................................. 61
Transactions with Related Persons........................................... 68
Principal Stockholders...................................................... 70
Supervision and Regulation.................................................. 71
Description of the Trust.................................................... 78
Description of the Preferred Securities..................................... 79
Description of the Debentures............................................... 91
Book-Entry Issuance......................................................... 99
Description of the Guarantee................................................ 101
Relationship among the Preferred Securities, the Debentures and the
Guarantee.............................................................. 103
Material Federal Income Tax Consequences.................................... 104
ERISA Considerations........................................................ 108
Underwriting................................................................ 109
Legal Matters............................................................... 111
Experts..................................................................... 111
Where You Can Get More Information.......................................... 111
Index to Consolidated Financial Statements.................................. F-1
</TABLE>
. You should only rely on the information contained or incorporated by
reference in this prospectus. We have not, and our underwriters have not,
authorized any person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not
rely on it.
. We are not, and our underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
. You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only.
. This prospectus does not constitute an offer to sell, or the solicitation
of an offer to buy, any securities other than the securities to which it
relates.
1,800,000 Preferred Securities
PRIVATEBANCORP
CAPITAL TRUST I
% Cumulative Trust
Preferred Securities
(Liquidation Amount $10 per
Preferred Security)
Fully, irrevocably and unconditionally
guaranteed on a subordinated basis, as
described in this prospectus, by
PRIVATEBANCORP, INC.
________________
$18,000,000
% Junior Subordinated Debentures
of
PRIVATEBANCORP, INC.
________________
Prospectus
_______, 2000
________________
Stifel, Nicolaus & Company
Incorporated
Legg Mason Wood Walker
Incorporated
================================================================================
<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 PrivateBancorp in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee and the NASD and the Nasdaq National Market filing fees.
Amount
SEC registration fee...................................... $ 5,000
NASD filing fee........................................... 2,500
Nasdaq listing fee........................................ 38,750
Printing expenses......................................... 50,000
Accounting fees and expenses.............................. 20,000
Legal fees and expenses................................... 160,000
Blue Sky fees and expenses................................ 2,500
Trustees' fees and expenses............................... 17,500
Postage and other miscellaneous costs..................... 53,750
--------
Total.................................................. $350,000
========
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 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
II-1
<PAGE>
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.
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
II-2
<PAGE>
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 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.
II-3
<PAGE>
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.
The Amended and Restated Trust Agreement will provide for
indemnification of the Delaware Trustee and each of the administrative trustees
by PrivateBancorp against any loss, damage, claims, liability, penalty or
expense of any kind incurred by the trustees in connection with the performance
of their duties or powers under the agreement in a manner reasonably believed by
the trustee to be within the scope of its authority under the agreement, except
that none of these trustees will be so indemnified for any loss, damage or claim
incurred by reason of such trustee's gross negligence, bad faith or willful
misconduct. Similarly, the agreement provides for indemnification of the
Property Trustee except that the Property Trustee is not indemnified from
liability for its own negligent action, negligent failure to act or willful
misconduct. Under the agreement, PrivateBancorp agrees to advance those expenses
incurred by any trustee in defending any such claim, demand, action, suit or
proceeding.
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 October 1, 1997, we have sold the following unregistered
securities:
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 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.
In August 1999, the Company issued 3,000 shares of common stock in a
restricted stock grant and granted options to purchase 7,000 shares of common
stock to one of its managing directors in connection with its acquisition of
Towne Square Financial Corporation.
From time to time, the Company has granted options to certain employees
and directors. From October 1, 1997 until the registration of the Company's
common stock under the Securities Exchange Act of 1934, options to purchase an
aggregate of 170,350 shares of the Company's common stock were granted pursuant
to the Company's Stock Plans and a total of 97,376 shares of the Company's
common stock were purchased pursuant to option exercises.
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:
1.1 Form of Underwriting Agreement for Preferred Securities.+
3.1 Amended and Restated Certificate of Incorporation of
PrivateBancorp, Inc./(1)/
3.2 [Intentionally left blank.]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc./(1)/
4.1 Subordinated Note of PrivateBancorp, Inc., dated February
11, 2000, principal amount of $5 million due February 11,
2007, issued to Johnson International, Inc./(3)/
4.2 Form of Indenture for Junior Subordinated Debentures.*
4.3 Form of Junior Subordinated Debenture (included as Exhibit A
to Exhibit 4.2).*
4.4 Certificate of Trust of PrivateBancorp Capital Trust I.*
4.5 Trust Agreement of PrivateBancorp Capital Trust I.*
4.6 Form of Amended and Restated Trust Agreement of
PrivateBancorp Capital Trust I.*
4.7 Form of Preferred Securities Certificate of PrivateBancorp
Capital Trust I (included as Exhibit D to Exhibit 4.6).*
4.8 Form of Preferred Securities Guarantee Agreement of
PrivateBancorp Capital Trust I.*
4.9 Form of Agreement as to Expenses and Liabilities of
PrivateBancorp Capital Trust I (included as Exhibit C to
Exhibit 4.6).*
5.1 Opinion of Vedder, Price, Kaufman & Kammholz re: legality.*
5.2 Opinion of Richards, Layton & Finger, P.A.*
8.1 Opinion of Vedder, Price, Kaufman & Kammholz as to certain
tax matters.*
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./(1)/
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./(1)/
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./(1)/
II-5
<PAGE>
10.4 Building Lease by and between Towne Square Realty, L.L.C.
and The PrivateBank and Trust Company dated August 6,
1999./(3)/
10.5 Sublease Agreement for banking facility located at 1401
South Brentwood Blvd., St. Louis, Missouri, dated as of
December 13, 1999, by and between Union Planters Bank,
National Association, St. Louis Brentwood Associates, L.P.
and PrivateBancorp./(4)/
10.6 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./(1)/
10.7 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 filed as Exhibit 10.6)./(1)/
10.8 PrivateBancorp, Inc. Amended and Restated Stock Incentive
Plan (filed as Appendix A to the Company's Proxy Statement
for its 2000 Annual Meeting of Stockholders and incorporated
herein by reference).
10.9 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. dated July 1, 1999./(1)/
10.10 Employment Agreement by and between Donald A. Roubitchek and
PrivateBancorp, Inc. dated July 1, 1999./(1)/
10.11 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./(1)/
10.12 Form of Indemnification Agreement by and between
PrivateBancorp, Inc. and its directors and executive
officers./(1)/
10.13 Agreement and Plan of Reorganization by and between
PrivateBancorp, Inc. and Towne Square Financial Corporation
dated as of June 24, 1999./(1)/
10.14 Stock Purchase Agreement dated as of October 4, 1999 by and
among PrivateBancorp, Inc., Johnson International, Inc. and
Johnson Bank Illinois./(2)/
10.15 Loan Agreement dated as of February 11, 2000, between
PrivateBancorp, Inc. and LaSalle Bank National
Association./(3)/
10.16 Letter Agreement dated September 26, 2000 by and between
PrivateBancorp, Inc., The PrivateBank and Trust Company and
Donald A. Roubitchek./(5)/
10.17 Employment Agreement by and between Richard C. Jensen and
PrivateBancorp, Inc. dated as of July 27, 2000.+
12.1 Calculation of ratios of earnings to fixed charges.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in
Exhibits 5.1 and 8.1).*
II-6
<PAGE>
23.3 Consent of Richards, Layton & Finger, P.A. (included in
opinion filed as Exhibit 5.2).*
24.1 Powers of Attorney (set forth on signature page to
Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee under the Indenture for Junior Subordinated
Debentures.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
property trustee under the Amended and Restated Trust
Agreement for PrivateBancorp Capital Trust I.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee under the Guarantee Agreement relating to
PrivateBancorp Capital Trust I.*
-------------------
* Filed herewith.
+ To be filed by amendment.
(1) Filed as an exhibit to the Company's Form S-1 Registration Statement (File
No. 333-77147) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 and incorporated herein by reference.
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.
II-7
<PAGE>
(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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on December 22, 2000.
PRIVATEBANCORP, INC.
By: /s/ Ralph B. Mandell
-------------------------------------------
Ralph B. Mandell, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to the signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois on December 22, 2000.
PRIVATEBANCORP CAPITAL TRUST I
By: PrivateBancorp, Inc.
as Depositor
By: /s/ Ralph B. Mandell
--------------------------------------------
Ralph B. Mandell, Chairman, President and
Chief Executive Officer
S-1
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ralph B. Mandell and Gary L. Svec and
each of them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
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, December 22, 2000
--------------------------------- Chief Executive Officer and Director
Ralph B. Mandell
/s/ Caren L. Reed Vice Chairman and Director December 22, 2000
---------------------------------
Caren L. Reed
/s/ Gary L. Svec Chief Financial Officer December 22, 2000
---------------------------------
Gary L. Svec
December 22, 2000
/s/ Lisa M. O'Neill Controller
---------------------------------
Lisa M. O'Neill
/s/ Donald L. Beal Director December 22, 2000
---------------------------------
Donald L. Beal
/s/ Naomi T. Borwell Director December 22, 2000
----------------------------------
Naomi T. Borwell
Director December 22, 2000
-----------------------------------
William A. Castellano
/s/ Robert F. Coleman
----------------------------------- Director December 22, 2000
Robert F. Coleman
Director December 22, 2000
-----------------------------------
John E. Gorman
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
------ ------- ------
<S> <C> <C>
Director December 22, 2000
-----------------------------------
Alvin J. Gottlieb
Director December 22, 2000
-----------------------------------
James M. Guyette
/s/ Richard C. Jensen
----------------------------------- Director December 22, 2000
Richard C. Jensen
/s/ Philip M. Kayman Director December 22, 2000
-----------------------------------
Philip M. Kayman
Director December 22, 2000
-----------------------------------
William R. Langley
Director December 22, 2000
-----------------------------------
Thomas F. Meagher
/s/ William J. Podl Director December 22, 2000
-----------------------------------
William J. Podl
/s/ Michael B. Susman Director December 22, 2000
-----------------------------------
Michael B. Susman
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
Exhibit
-------
1.1 Form of Underwriting Agreement for Preferred Securities.+
3.1 Amended and Restated Certificate of Incorporation of
PrivateBancorp, Inc./(1)/
3.2 [Intentionally left blank.]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc./(1)/
4.1 Subordinated Note of PrivateBancorp, Inc., dated February 11, 2000,
principal amount of $5 million due February 11, 2007, issued to
Johnson International, Inc./(3)/
4.2 Form of Indenture for Junior Subordinated Debentures.*
4.3 Form of Junior Subordinated Debenture
(included as Exhibit A to Exhibit 4.2).*
4.4 Certificate of Trust of PrivateBancorp Capital Trust I.*
4.5 Trust Agreement of PrivateBancorp Capital Trust I.*
4.6 Form of Amended and Restated Trust Agreement of PrivateBancorp
Capital Trust I.*
4.7 Form of Preferred Securities Certificate of PrivateBancorp Capital
Trust I (included as Exhibit D to Exhibit 4.6).*
4.8 Form of Preferred Securities Guarantee Agreement of PrivateBancorp
Capital Trust I.*
4.9 Form of Agreement as to Expenses and Liabilities of PrivateBancorp
Capital Trust I (included as Exhibit C to Exhibit 4.6).*
5.1 Opinion of Vedder, Price, Kaufman & Kammholz re: legality.*
5.2 Opinion of Richards, Layton & Finger, P.A.*
8.1 Opinion of Vedder, Price, Kaufman & Kammholz as to certain tax
matters.*
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./(1)/
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./(1)/
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./(1)/
<PAGE>
Exhibit
-------
10.4 Building Lease by and between Towne Square Realty, L.L.C. and The
PrivateBank and Trust Company dated August 6, 1999./(3)/
10.5 Sublease Agreement for banking facility located at 1401 South
Brentwood Blvd., St. Louis, Missouri, dated as of December 13, 1999,
by and between Union Planters Bank, National Association, St. Louis
Brentwood Associates, L.P. and PrivateBancorp./(4)/
10.6 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./(1)/
10.7 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 filed as
Exhibit 10.6)./(1)/
10.8 PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan
(filed as Appendix A to the Company's Proxy Statement for its 2000
Annual Meeting of Stockholders and incorporated herein by
reference).
10.9 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. dated July 1, 1999./(1)/
10.10 Employment Agreement by and between Donald A. Roubitchek and
PrivateBancorp, Inc. dated July 1, 1999./(1)/
10.11 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./(1)/
10.12 Form of Indemnification Agreement by and between PrivateBancorp, Inc.
and its directors and executive officers./(1)/
10.13 Agreement and Plan of Reorganization by and between PrivateBancorp,
Inc. and Towne Square Financial Corporation dated as of June 24,
1999./(1)/
10.14 Stock Purchase Agreement dated as of October 4, 1999 by and among
PrivateBancorp, Inc., Johnson International, Inc. and Johnson Bank
Illinois./(2)/
10.15 Loan Agreement dated as of February 11, 2000, between PrivateBancorp,
Inc. and LaSalle Bank National Association./(3)/
10.16 Letter Agreement dated September 26, 2000 by and between
PrivateBancorp, Inc., The PrivateBank and Trust Company and Donald A.
Roubitchek./(5)/
10.17 Employment Agreement by and between Richard C. Jensen and
PrivateBancorp, Inc. dated as of July 27, 2000.+
12.1 Calculation of ratios of earnings to fixed charges.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in Exhibits
5.1 and 8.1).*
23.3 Consent of Richards, Layton & Finger, P.A. (included in opinion filed
as Exhibit 5.2).*
<PAGE>
Exhibit
-------
24.1 Powers of Attorney (set forth on signature page to Registration
Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as trustee under the
Indenture for Junior Subordinated Debentures.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as property trustee
under the Amended and Restated Trust Agreement for PrivateBancorp
Capital Trust I.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as trustee under the
Guarantee Agreement relating to PrivateBancorp Capital Trust I.*
----------------
* Filed herewith.
+ To be filed by amendment.
(1) Filed as an exhibit to the Company's Form S-1 Registration Statement (File
No. 333-77147) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 and incorporated herein by reference.
