UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 11, 2000
PRIVATEBANCORP, INC.
(Exact name of Registrant as specified in its charter)
-----------------------------
DELAWARE 000-25887 36-3681151
(State or other jurisdiction (Commission file number) (I.R.S. employer
of incorporation) identification no.)
TEN NORTH DEARBORN 60602
CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (312) 683-7100
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
As previously reported on a Current Report on Form 8-K dated February 11,
2000 and filed with the SEC on February 17, 2000, PrivateBancorp, Inc. completed
its acquisition of Johnson Bank Illinois, a unit of Johnson International, Inc.,
Racine, Wisconsin, on February 11, 2000. At closing, Johnson Bank Illinois was
merged into The PrivateBank and Trust Company, a wholly owned subsidiary of
PrivateBancorp, Inc. The transaction is being accounted for using the purchase
method of accounting. The purchase price was $20 million, of which $15 million
was paid in cash and the remainder was paid in the form of a LIBOR-based,
floating rate subordinated note issued to Johnson International, Inc. in the
principal amount of $5 million.
This Form 8-K/A is being filed to amend the prior Form 8-K Current Report
in accordance with the SEC's rules to include (i) audited financial statements
of Johnson Bank Illinois for the year ended December 31, 1999, and (ii) the
required pro forma financial information relating to the merger transaction.
This financial information was not available at the time of the initial filing
of the Form 8-K.
a. FINANCIAL STATEMENTS - JOHNSON BANK ILLINOIS
--------------------------------------------
The following financial statements of Johnson Bank Illinois as of and for
the year ended December 31, 1999, which have been audited by Arthur Andersen
LLP, Milwaukee, Wisconsin, are included in this filing on the pages shown:
Page
----
Report of Independent Public Accountants.......................................3
Balance Sheet as of December 31, 1999..........................................4
Statement of Income for the Year Ended December 31, 1999.......................5
Statement of Changes in Stockholder's Equity for the Year
Ended December 31, 1999........................................................6
Statement of Cash Flows for the Year Ended December 31, 1999...................7
Notes to Financial Statements..................................................8
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Johnson Bank Illinois:
We have audited the accompanying balance sheet of Johnson Bank Illinois (an
Illinois banking association and wholly-owned subsidiary of Johnson
International, Inc.) as of December 31, 1999, and the related statement of
income, changes in stockholder's equity and cash flows for the year 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Johnson Bank Illinois as of
December 31, 1999, and the results of its operations and cash flows for the year
ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 25, 2000
3
<PAGE>
JOHNSON BANK ILLINOIS
BALANCE SHEET
AS OF DECEMBER 31, 1999
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and due from banks.............................................................. $ 2,301
Federal funds sold................................................................... 63
--------
TOTAL CASH AND CASH EQUIVALENTS.................................................. 2,364
SECURITIES (NOTE 3)
Available for sale................................................................... 7,912
Held to maturity..................................................................... 13,142
--------
TOTAL SECURITIES.................................................................. 21,054
Loans (Note 4)....................................................................... 89,033
Less - Allowance for loan losses (Note 5)............................................ (868)
--------
Net loans............................................................................ 88,165
Bank premises and equipment, net (Note 6)............................................ 1,184
Accrued interest receivable.......................................................... 710
Other assets......................................................................... 227
--------
TOTAL ASSETS...................................................................... $113,704
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest bearing.................................................................. $ 11,091
Interest bearing..................................................................... 67,251
--------
TOTAL DEPOSITS.................................................................... 78,342
Accrued interest payable............................................................. 621
Funds borrowed (Note 8).............................................................. 24,299
Other liabilities.................................................................... 341
--------
TOTAL LIABILITIES................................................................. 103,603
STOCKHOLDER'S EQUITY
Common stock, $25 par; 8,000 shares authorized; 8,000 shares issued and
outstanding....................................................................... 200
Surplus.............................................................................. 10,550
Accumulated deficit.................................................................. (547)
Accumulated other comprehensive income, net of tax effect............................ (102)
--------
TOTAL STOCKHOLDER'S EQUITY........................................................ 10,101
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $113,704
========
The accompanying notes to Financial Statements are an integral part of this statement.
</TABLE>
4
<PAGE>
JOHNSON BANK ILLINOIS
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME
Loans, including fees.......................................................... $ 6,946
Taxable investment income...................................................... 934
Nontaxable investment income................................................... 481
-------
Interest income............................................................. 8,361
INTEREST EXPENSE
Deposits....................................................................... 3,201
Funds borrowed................................................................. 1,126
------
Interest expense............................................................ 4,327
Net interest income............................................................ 4,034
Provision for loan losses (Note 5)............................................. 93
-------
Net interest income after provision for loan losses......................... 3,941
OTHER INCOME
Banking and trust services..................................................... 1,239
Securities gains............................................................... 2
Other.......................................................................... 11
-------
TOTAL OTHER INCOME.......................................................... 1,252
OTHER EXPENSE
Salaries and employee benefits................................................. 1,721
Occupancy (Note 6)............................................................. 797
Data processing and management fees............................................ 1,117
Professional fees.............................................................. 204
Marketing...................................................................... 40
Other expense.................................................................. 565
-------
TOTAL OTHER EXPENSE......................................................... 4,444
-------
Income before income taxes.................................................. 749
Income tax provision (Note 7)..................................................... 199
-------
Net income..................................................................... $ 550
=======
Basic earnings per share (Note 2)................................................. $ 68.74
=======
Diluted earnings per share (Note 2)............................................... $ 68.74
=======
The accompanying notes to Financial Statements are an integral part of this statement.
</TABLE>
5
<PAGE>
JOHNSON BANK ILLINOIS
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
COMPREHENSIVE
TOTAL INCOME
-------- -------------
<S> <C> <C>
COMMON STOCK
Balance at Beginning and End of Year.................................... $ 200
========
SURPLUS
Balance at Beginning and End of Year.................................... $ 10,550
========
ACCUMULATED DEFICIT
Balance at Beginning of Year............................................ (1,097)
Net Income.............................................................. 550 $ 550
--------
Balance at End of Year............................................. (547)
--------
ACCUMULATED OTHER COMPREHENSIVE INCOME-UNREALIZED GAINS
(LOSSES) ON SECURITIES AVAILABLE FOR SALE
Balance at Beginning of Year............................................ 44
Other Comprehensive Income-Unrealized Losses on Securities
Available for Sale, Net of Tax Benefit of $66........................ (146) (146)
--------
Accumulated Comprehensive Income........................................ (102)
--------
Comprehensive Income................................................. $ 404
=======
TOTAL STOCKHOLDER'S EQUITY AT END OF YEAR.......................... $ 10,101
========
The accompanying notes to financial statements are an integral part of this statement.
</TABLE>
6
<PAGE>
JOHNSON BANK ILLINOIS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 550
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization................................................... 184
Amortization of premium on investments.......................................... 33
Accretion of discount on investments............................................ (15)
Provision for loan losses....................................................... 93
Gain on sales of securities..................................................... (2)
(Increase) in accrued interest receivable....................................... (22)
(Decrease) in accrued interest payable.......................................... (304)
Decrease in other assets........................................................ 414
Increase in other liabilities................................................... 68
-------
Total adjustments............................................................. 449
-------
Net cash provided by operating activities..................................... 999
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, pay downs, and sales of securities....................... 15,553
Purchase of securities available for sale.......................................... (13,266)
Decrease in loans.................................................................. (8,220)
Bank premises and equipment expenditures........................................... (61)
Recoveries of loans charged off.................................................... 2
-------
Net cash used in investing activities........................................... (5,992)
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in total deposits..................................................... (5,180)
Proceeds from funds borrowed....................................................... 4,465
-------
Net cash used in financing activities......................................... (715)
-------
Net (decrease) in cash and cash equivalents........................................... (5,708)
Cash and cash equivalents at beginning of year........................................ 8,072
-------
Cash and cash equivalents at end of year.............................................. $ 2,364
=======
CASH PAID DURING YEAR FOR
Interest........................................................................... $ 4,631
Income taxes....................................................................... $ 33
The accompanying notes to financial statements are an integral part of this statement.
</TABLE>
7
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Dollars in thousands, except share data)
(1) Accounting Policies
Johnson Bank Illinois (the "Bank") was purchased in 1990 and is a
wholly-owned subsidiary of Johnson International, Inc., a multi-bank holding
company which is privately held. As discussed in Note 15, in February 2000, the
stock of the Bank was sold to PrivateBancorp, Inc. The Bank serves retail and
commercial customers primarily in metropolitan Chicago. The financial statements
of Johnson Bank Illinois have been prepared in conformity with generally
accepted accounting principles and reporting practices prescribed for the
banking industry. A description of the significant accounting policies follows:
(a) Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold, all of
which have initial maturities of generally three months or less. Cash and Due
From Banks totaling $355 are restricted at December 31, 1999, to meet the
reserve requirements of the Federal Reserve System.
(b) 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 as calculated under the level yield method. 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 stockholder's equity.
Investment security transactions are recorded as of the settlement
date, the result of which is not materially different from the trade
date results. The specific identification method is used in determining the cost
and related gains and losses on securities sold.
(c) Loans
Loans are generally reported at the principal amount outstanding, with
interest accrued daily using the level yield method.
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 Bank is generally amortizing these
amounts over the contractual life of the related loans.
Loans are placed on nonaccrual status when principal or interest is
past due 90 days or more. 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 their overall assessment of the adequacy of the allowance for loan
losses. Interest previously accrued but not collected is reversed and charged
against interest income at the time the related loan is placed on nonaccrual
status. A nonaccrual loan may be restored to an accrual basis when interest and
principal payments are brought current and when collectibility is not in doubt.
(d) 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
8
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
allowance at a level commensurate with the risks in the loan portfolio. Loans
are charged off when deemed to be uncollectible by management.
(e) 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.
(f) Income Taxes
The Bank accounts for income taxes under an asset and liability
approach for 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 a 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.
(g) Earnings Per Share
The Bank 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. There are no dilutive instruments.
(h) Derivatives
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivatives
Instruments and for Hedging Activities." It requires that all derivatives be
recognized as assets or liabilities on the balance sheet and be measured at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedging instrument. The statement is effective for fiscal
quarters beginning after June 15, 2000. As the Bank does not own any derivative
instruments, this statement is expected to have no effect on the Bank's reported
financial position and the results of operations.
(i) 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.
(2) Earnings Per Share
The following table contains a reconciliation of the numerators and
denominators used in the computation of basic and diluted earnings per share for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Net income................................ $ 550.00
Weighted Average Shares................... 8,000.00
-----------
Basic Earnings Per Share.................. $ 68.74
===========
Diluted Earnings Per Share................ $ 68.74
===========
</TABLE>
9
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
There were no common stock equivalents outstanding during 1999 or as of December
31, 1999.
(3) Securities
The amortized cost and the estimated fair value of securities as of
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and U.S. Government
Agencies.................................... $ 6,906 $ 2 $ 170 $ 6,738
Other.......................................... 1,174 -- -- 1,174
------- ------ ------- -------
Total Available for Sale Securities......... $ 8,080 $ 2 $ 170 $ 7,912
======= ====== ======= =======
HELD TO MATURITY
U.S. Treasury and U.S. Government
Agencies.................................... $13,142 $ -- $ 452 $12,690
======= ====== ========= =======
Total held to maturity securities...... $13,142 $ -- $ 452 $12,690
======= ====== ========= =======
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because obligors may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- ------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Due within one year............................. $ 2,077 $2,077 $ -- $ --
Due after one year through five years........... 865 854 12,642 12,197
Due after five years through ten years.......... 814 787 500 493
Due after ten years............................. 4,324 4,194 -- --
------ ------ ------- -------
$ 8,080 $7,912 $13,142 $12,690
======= ====== ======= =======
</TABLE>
During 1999, securities were sold or matured for total proceeds of $15,553,
resulting is a net gain of $2.
At December 31, 1999, securities carried at $18,030 were pledged to secure
public and trust deposits and for other purposes as required or permitted by
law.
(4) Loans
Amounts outstanding by loan categories at December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
REAL ESTATE
Residential ........................................... $ 26,858
Commercial............................................... 26,956
Commercial................................................ 29,719
Retail.................................................... 5,500
---------
$ 89,033
=========
</TABLE>
10
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
The Bank's lending activities are concentrated primarily in the Midwestern
portion of the United States. The Bank's loan portfolio consists of business
loans which extend across many industry types as well as loans to individuals.
At December 31, 1999, there were no significant concentrations of credits in any
one industry or group of related industries.
(5) Allowance for Loan Losses
The changes in the allowance for loan losses for the year ended December
31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Beginning Balance......................................... $ 1,420
Loans Charged Off......................................... (645)
Provision For Loan Losses................................. 93
-------
Ending Balance............................................ $ 868
=======
</TABLE>
At December 31, 1999, the Bank had approximately $1,754 of non- performing
loans which were earning below a market interest rate or were non-income
producing. The effect of interest foregone on these loans was not material in
1999.
At December 31, 1999, the Bank's recorded investment in impaired loans and
the related valuation allowance are as follows:
<TABLE>
<CAPTION>
RECORDED VALUATION
INVESTMENT ALLOWANCE
---------- ---------
<S> <C> <C>
Total impaired loans.................................. $1,754
Loans excluded from valuation under FAS 114........... 571
------
Impaired loans evaluated............................. $1,183
======
Valuation allowance required.......................... $ 123 $ 62
No valuation allowance required....................... 1,060 --
------ ------
Impaired loans evaluated............................. $1,183 $ 62
====== ======
</TABLE>
The recorded investment in impaired loans for which no allowance is
required is net of previous direct writedowns and applications of cash interest
payments against the loan balance outstanding. The required valuation allowance
is included in the allowance for loan losses in the statement of financial
position.
(6) Bank Premises and Equipment
Bank premises and equipment at December 31, 1999, consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment......................... $1,187
Leasehold improvements.................................... 1,066
------
2,253
Accumulated depreciation and amortization................. (1,069)
------
Total premises and equipment............................. $1,184
======
</TABLE>
Included in occupancy expense in the statement of income is depreciation
and amortization expense of $185 for 1999.
11
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
The Bank leases its main banking facilities under noncancellable operating
lease agreements. The minimum annual rental commitments under these leases, at
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000....................... $ 378
2001....................... 378
2002....................... 378
2003....................... 347
2004....................... 302
2005 and thereafter........ 755
------
$2,538
======
</TABLE>
Total rent expense included in the statement of income was $382 for 1999.
(7) Income Taxes
The Bank is part of a consolidated Federal tax return filed by its Parent.
The federal tax provision is allocated by the Parent to the Bank on a
stand-alone basis in accordance with a tax-sharing agreement. The components of
the total income tax provision in the statement of income for the year ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
INCOME TAX PROVISION
Current ...................... $ (5)
Deferred ...................... 204
-----
Total ............. $ 199
=====
</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
stockholder's equity. The net tax benefit recorded directly to other
comprehensive income amounted to $66 in 1999.
A reconciliation of the differences between the total income tax provision
and the amounts computed at the statutory Federal tax rate of 35% for the year
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income tax provision at statutory federal
income tax rate.................................. $ 262
Increase (decrease) in taxes resulting from:
Tax exempt income................................ 11
Section 482 repricing............................ (74)
-----
Total ............................... $ 199
=====
</TABLE>
12
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
A net deferred tax asset is included in other assets in the 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 are as follows:
<TABLE>
<CAPTION>
<S> <C>
GROSS DEFERRED TAX ASSETS
Allowance for loan losses................................ $ 345
State NOL carryforward................................... 213
Accrued expenses......................................... 40
Other.................................................... 11
Net unrealized depreciation on investment
securities available for sale......................... 65
Valuation allowance...................................... (219)
-----
Gross deferred tax assets............................. 455
Gross deferred tax liabilities............................ 45
-----
Net deferred tax asset................................ $ 410
=====
</TABLE>
Changes in the valuation allowance for the year ended December 31, 1999,
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year................................ $ 219
Adjustments to the valuation allowance.................... --
------
Balance, end of year...................................... $ 219
======
</TABLE>
The Bank has state NOL's of $4,878 in Illinois that begin expiring in the
year 2006.
(8) Funds Borrowed
Borrowings at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Repurchase agreements.......................... $ 11,611
Federal Home Loan bank borrowings.............. 11,500
U.S. Treasury demand notes..................... 208
Federal funds purchased........................ 980
---------
$ 24,299
=========
</TABLE>
Federal Home Loan Borrowings and the respective call or maturity dates are
as follows:
<TABLE>
<CAPTION>
MATURITY/
BORROWING CALLABLE DATE
--------- -------------
<S> <C>
$ 2,000 2/8/2000
1,500 2/29/2000
2,000 4/29/2000
2,000 5/22/2000
4,000 8/27/2000
-------
$11,500
=======
</TABLE>
All short-term borrowings were made at prevailing market rates. As of
December 31, 1999 all borrowings were due within one year.
At December 31, 1999, 84% of repurchase agreements were held with one
customer.
13
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
(9) Employee Benefit and Incentive Plans
The Bank participates in a noncontributory defined benefit plan sponsored
by its Parent which covers all vested employees. The Bank's funding policy is to
contribute annually the maximum amount that can be deducted for Federal income
tax purposes. Contributions are intended to fund benefits attributed to service
to date and benefits expected to be earned in the future. Employees of the Bank
comprise approximately 1% of the total vested participants in the Plan as of
December 31, 1999.
Plan assets are primarily invested in fixed income, equity and mutual
funds.
The Plan's funded status and amounts recognized in the Parent's
consolidated financial statements as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.................. $ 10,207
Service cost............................................. 861
Interest cost............................................ 738
Actuarial (gain)......................................... (19)
Benefits paid............................................ (290)
---------
Benefit obligation at end of year........................ 11,497
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year................ 8,529
Actual return on plan assets............................. 250
Company contributions.................................... 698
Benefits paid............................................ (290)
---------
Fair value of assets at end of year...................... 9,187
Funded status............................................ (2,310)
Unrecognized transition asset............................ (11)
Unrecognized prior service cost.......................... 69
Unrecognized net loss.................................... 1,195
---------
Accrued pension cost.................................. $ (1,057)
=========
</TABLE>
Net pension cost for 1999 included the following components:
<TABLE>
<CAPTION>
<S> <C>
Service cost.............................................. $ 861
Interest cost............................................. 739
Expected return on assets................................. (710)
Amortization of unrecognized net transition asset......... 36
Amortization of prior service cost........................ 12
Amortization of unrecognized (gain)....................... (11)
---------
Periodic pension cost.................................... $ 927
=========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% for 1999. The
expected long-term rate of return on assets was 9% for 1999. The rate of
compensation increase was 5% for 1999.
Under an allocation formula using actuarial estimates, the net pension cost
to the Bank was $47 for the year ended December 31, 1999. Distributions with
respect to vested employees is the liability of the Parent company.
14
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
All Bank employees participate in a profit sharing plan sponsored by its
Parent which provides cash payments to the employees according to a formula
which is subject to the approval of the Parent's Board of Directors. Profit
sharing expense under this plan amounted to approximately $141 in 1999.
The Bank participates in a 401(k) retirement and savings plan sponsored by
its Parent that enables all employees to defer a portion of their salary. The
Bank matches 50 cents of every dollar deferred by the employee on the first 6%
of salary deferred. Expense under this plan amounted to $37 in 1999.
(10) Related-Party Transactions
Loans made to directors and executive officers of the Bank for the year
ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1998.................................. $ 822
Additions.................................................. 525
Collections................................................ (121)
------
Balance, December 31, 1999.................................. $1,226
======
</TABLE>
Directors and executive officers of 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 collectibility or other unfavorable features.
During 1999, the Bank paid expenses in the amount of $969 to the Parent for
management and data processing services performed. Cash held in an account at an
affiliated bank totaled $1,215 at December 31, 1999.
The Bank sold approximately $977 of loans during 1999 to an affiliated bank
at book value. As part of the definitive agreement, $5.7 million in loans were
transferred to the Bank from an affiliate bank. In addition, $980 in Federal
funds were purchased from an affiliate bank as of December 31, 1999.
(11) Credit-Related Instruments
The Bank has 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 financial statements. Credit risk
represents the accounting loss that would be recognized at the reporting date if
counterparties failed to completely perform as contracted.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments, assuming that the amounts are fully advanced and that collateral or
other security is of no value. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. At December 31, 1999, the Bank had the following categories of
credit-related financial instruments (at contract amount):
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit................................. $ 45,727
Standby letters of credit.................................... 1,440
Commercial letters of credit................................. 2,210
---------
$ 49,377
=========
</TABLE>
15
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
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 public and private 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.
(12) 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 4.
(13) Estimated Fair Value of Financial Instruments
The following presents the carrying value and estimated fair value of the
various classes of financial instruments held by the Bank at December 31, 1999.
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 Bank's assets and liabilities
were sold nor does it represent the fair value of the Bank as an entity.
Where possible, the Bank 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 Bank'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.
16
<PAGE>
<TABLE>
<CAPTION>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 2,364 $ 2,364
Investment securities available for sale............. 7,912 7,912
Investment securities held to maturity............... 13,142 12,690
Net loans............................................ 88,165 87,196
Accrued interest receivable.......................... 710 710
LIABILITIES
Deposits with no stated maturity..................... 43,283 43,283
Time deposits........................................ 35,059 35,140
Accrued interest payable.............................. 621 621
Funds borrowed........................................ 24,299 24,272
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. These assumptions were based on
subjective estimates of market conditions and perceived risks of the financial
instruments at a certain point in time.
(a) Cash and Cash Equivalents, Accrued Interest Receivable and
Interest Payable
For these short-term instruments, the carrying value approximates fair
value because these instruments are short-term in nature and do not present
unanticipated credit concerns.
(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
Loans that reprice or mature within three months of December 31, are
assigned fair values based on their carrying values. The fair value of remaining
loans is calculated by discounting scheduled cash flows using current interest
rates at which similar loans would be made to borrowers of comparable credit
worthiness.
(d) Deposit Liabilities
The fair value of deposits with no stated maturity, such as
non-interest-bearing deposits, interest-bearing deposits, savings and money
market deposit accounts, is equal to the amount payable on demand as of
year-end. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
(e) Funds Borrowed
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
17
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, CONTINUTED
DECEMBER 31, 1999
(f) Unrecognized Financial Instruments
The fair value of unrecognized financial instruments, including
commitments to extend credit, standby letters of credit and financial
guarantees, is insignificant and, therefore, not presented.
(14) Regulatory Requirements
The Bank is subject to Federal and state laws, which restrict the payment
of dividends. Based on these restrictions, at December 31, 1999, the Bank could
have declared no dividends without requesting approval of the applicable Federal
or state regulatory agency.
18
<PAGE>
JOHNSON BANK ILLINOIS
NOTES TO FINANCIAL STATEMENTS, END
DECEMBER 31, 1999
The Bank is 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 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 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 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 Bank's financial statements. Management
believes that as of December 31, 1999, the Bank meets all minimum capital
adequacy requirements to which they are subject.
The following table presents selected capital information for the Bank as
of December 31, 1999:
<TABLE>
<CAPTION>
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>
Total risk-based capital............... $ 11,071 11.82% $ 7,502 >=8.0% $ 9,378 >=10.0%
Tier 1 risk-based capital.............. 10,203 10.89% 3,751 >=4.0% 5,627 >=6.0%
Tier 1 (Leverage) capital.............. 10,203 9.05% 4,512 >=4.0% 5,640 >=5.0%
</TABLE>
(15) Sale of Bank
On February 11, 2000, the Bank was sold by Johnson International, Inc. to
PrivateBancorp, Inc. In conjunction with this transaction, approximately $1,280
in loans were transferred to Johnson International, Inc. at book value.
19
<PAGE>
b. PRO FORMA FINANCIAL INFORMATION
-------------------------------
The following unaudited Pro Forma Combined Statement of Financial Condition
as of December 31, 1999 and unaudited Pro Forma Combined Statement of Income for
the year ended December 31, 1999, are based on the audited historical results of
each of PrivateBancorp, Inc. and Johnson Bank Illinois as of and for the year
ended as of such date, adjusted to give effect to the merger of Johnson Bank
Illinois with and into the wholly-owned bank subsidiary of PrivateBancorp, Inc.
as if the merger had occurred at the beginning of the period. The pro forma
combined financial information has been prepared using the purchase method of
accounting.
Pro forma adjustments and the assumptions on which they are based are
described below in the accompanying footnotes to the pro forma combined
financial statements. The pro forma information does not take into account
certain items which have impacted and will impact the financial condition,
consolidated results of operations and reported amounts of PrivateBancorp after
February 11, 2000, the effective date of the merger. The pro forma combined
financial statements are not necessarily indicative of the results that actually
would have occurred had the businesses been operated as a single consolidated
entity during the reported period, nor are they indicative of future results of
operations.
20
<PAGE>
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRIVATE JOHNSON BANK PRO FORMA PRO FORMA
BANCORP, INC. ILLINOIS ADJUSTMENTS COMBINED
------------- --------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks ....................... $ 14,940 $ 2,301 $ (161) (Note 2) $ 9,580
(7,500) (Note 2)
Short-term investments ........................ 29,243 63 29,306
--------- --------- --------- ---------
Total cash and cash equivalents ............... 44,183 2,364 (7,661) 38,886
Investment securities, at amortized cost ...... -- 13,142 (13,142) (Note 3) --
Available-for-sale securities, at fair value .. 71,134 7,912 13,142 (Note 3) 91,341
(847) (Note 3)
Loans ......................................... 397,277 89,033 (949) (Note 4) 485,361
Allowance for loan losses ..................... (4,510) (868) -- (5,378)
--------- --------- --------- ---------
Net loans ..................................... 392,767 88,165 (949) 479,983
Premises and equipment, net ................... 2,028 1,184 (466) (Note 5) 2,746
Goodwill ...................................... -- -- 12,325 (Note 6) 12,325
Accrued interest receivable ................... 2,870 710 -- 3,580
Other assets .................................. 5,715 227 59 (Note 7) 6,001
--------- --------- --------- ---------
Total assets .................................. $ 518,697 $ 113,704 $ 2,461 $ 634,862
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ...................................... $ 453,092 $ 78,342 $ 82 (Note 8) $ 531,516
Funds borrowed ................................ 15,000 24,299 (20) (Note 9) 51,779
7,500 (Note 9)
5,000 (Note 9)
Accrued interest payable ...................... 1,056 621 -- 1,677
Other liabilities ............................. 2,469 341 -- 2,810
--------- --------- --------- ---------
Total liabilities ............................. 471,617 103,603 12,562 587,782
--------- --------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock ............................... -- -- -- --
Common Stock .................................. 4,590 200 (200) 4,590
Surplus ....................................... 39,761 10,550 (10,550) 39,761
Retained earnings ............................. 7,425 (547) 547 7,425
Accumulated other comprehensive income ........ (2,812) (102) 102 (2,812)
Deferred compensation ......................... (759) -- -- (759)
Loans to officers ............................. (1,125) -- -- (1,125)
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY .................... 47,080 10,101 (10,101) (Note 10) 47,080
--------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 518,697 $ 113,704 $ 2,461 $ 634,862
========= ========= ========= =========
</TABLE>
21
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRIVATE JOHNSON BANK PRO FORMA PRO FORMA
BANCORP, INC. ILLINOIS ADJUSTMENTS COMBINED
------------- ---------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees ............................. $26,597 $ 6,946 $ 190 (Note 4) $33,733
Federal funds sold and interest bearing deposits .. 330 57 -- 387
Securities ........................................ 5,141 1,358 (450) (Note 2) 6,331
282 (Note 3)
------- ------- ------- -------
Total interest income ............................. 32,068 8,361 22 40,451
INTEREST EXPENSE
Deposits .......................................... 15,674 3,201 (12) (Note 8) 18,863
Funds borrowed .................................... 931 1,126 10 (Note 9) 2,870
803 (Note 9)
------- ------- ------- -------
Total interest expense ............................ 16,605 4,327 801 21,733
------- ------- ------- -------
Net interest income ............................... 15,463 4,034 (779) 18,718
Provision for loan losses ......................... 1,208 93 -- 1,301
------- ------- ------- -------
Net interest income after provision for loan losses 14,255 3,941 (779) 17,417
------- ------- ------- -------
NON-INTEREST INCOME
Banking and trust services ........................ 1,947 1,250 -- 3,197
Securities gains .................................. 57 2 -- 59
------- ------- ------- -------
Total non-interest income ......................... 2,004 1,252 -- 3,256
------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits .................... 5,156 1,721 -- 6,877
Occupancy expense, net ............................ 1,563 736 (89) (Note 5) 2,210
Towne Square acquisition .......................... 1,300 -- -- 1,300
Professional fees ................................. 1,295 844 -- 2,139
Marketing ......................................... 692 40 -- 732
Data processing ................................... 478 478 -- 956
Goodwill amortization ............................. -- -- 822 (Note 6) 822
Other non-interest expense ........................ 1,603 625 -- 2,228
------- ------- ------- -------
Total non-interest expense ........................ 12,087 4,444 733 17,264
------- ------- ------- -------
Income before income taxes ........................ 4,172 749 (1,512) 3,409
Income tax provision .............................. 1,257 199 (514) (Note 11) 942
------- ------- ------- -------
Net income ........................................ $ 2,915 $ 550 $ (998) $ 2,467
======= ======= ======= =======
Basic earnings per share .......................... $ 0.73 NM NM $ 0.62
Diluted earnings per share ........................ $ 0.69 NM NM $ 0.58
</TABLE>
22
<PAGE>
NOTES TO PRO FORMA
COMBINED FINANCIAL STATEMENTS
(unaudited)
Note 1: Basis of Presentation
---------------------
The merger is being accounted for by PrivateBancorp, Inc. using the
purchase method of accounting in accordance with Accounting Principles Board
Opinion ("APB") No. 16, and Statement of Financial Accounting Standards ("SFAS")
No. 72. Under this method, the aggregate cost of the consolidation is allocated
to assets acquired and liabilities assumed based on their estimated fair values
at the closing date. Estimates of the fair values of Johnson Bank Illinois'
assets and liabilities as of the February 11, 2000 acquisition date have been
used to adjust book values of Johnson Bank Illinois at December 31, 1999.
The unaudited Pro Forma Combined Statement of Financial Condition is
based on the combination of the audited statements of financial condition of
Johnson Bank Illinois, and of PrivateBancorp, Inc. and its subsidiary, adjusted
for the impact of APB No. 16, as well as the estimated impact of the financing
obtained to execute the transaction. The unaudited Pro Forma Combined Statement
of Income for the year ended December 31, 1999, is based on the combination of
the audited income statement of Johnson Bank Illinois and the audited
consolidated statement of income of PrivateBancorp, Inc. and subsidiary,
adjusted for the impact of APB No. 16, as well as the estimated impact of the
financing needed to execute the transaction.
Note 2: Cash and Due From Banks
-----------------------
In accordance with the Stock Purchase Agreement relating to the
merger, PrivateBancorp, Inc. paid $20 million to acquire all of the stock of
Johnson Bank Illinois. Of this amount, $15 million was paid in cash and the
balance was paid in the form of a $5 million subordinated note issued to Johnson
International, Inc., parent company of Johnson Bank Illinois. The cash portion
of the purchase price was funded $7.5 million out of remaining proceeds of
PrivateBancorp, Inc.'s June 1999 initial public offering and $7.5 million out of
borrowings under an $18 million line of credit with a commercial bank entered
into at closing. (See Note 9.)
In addition, PrivateBancorp, Inc. incurred approximately $161,000 of
capitalized transaction costs consisting of legal and accounting fees. (See Note
6.) In the pro forma combined statement of financial condition, cash and due
from banks at December 31, 1999 has been reduced to reflect the $7.5 million
cash payment and payment of the capitalized transaction costs.
The pro forma combined statement of income has been adjusted to
reflect the estimated loss of interest income attributable to the investment of
$7.5 million of funds for the entire year 1999. The average one-year US Treasury
rate of 6% for 1999 was used as the effective investment rate, resulting in a
reduction on the pro forma combined statement of income to interest income -
securities of approximately $450,000.
Note 3: Securities
----------
At the time of the merger, The PrivateBank and Trust Company elected
to re-classify the portion of Johnson Bank Illinois investment securities shown
at amortized cost ("held-to maturity"), as available-for-sale, at fair value.
The adjustment to fair value of the Johnson Bank Illinois investment portfolio
resulted in a net write-down to the bases of the portfolio securities in the
amount of approximately $847,000. This amount is scheduled to be accreted to
earnings on a straight-line basis over three years, the estimated average life
of the securities in the portfolio. The effect on earnings from using
straight-line basis versus effective interest method is immaterial. (See Note
6.)
Pro forma interest income on available-for-sale securities has been
adjusted to reflect this accretion for a full year.
23
<PAGE>
NOTES TO PRO FORMA
COMBINED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
Note 4: Loans
-----
The basis of the Johnson Bank Illinois loan portfolio was adjusted to
fair value. The write-down of the Johnson Bank Illinois loan portfolio of
approximately $949,000 is scheduled to be accreted to earnings on a
straight-line basis over five years, the estimated life of the portfolio. The
effect on earnings from using straight-line basis versus effective interest
method is immaterial. (See Note 6.)
Pro forma interest income on loans has been adjusted to reflect this
accretion for a full year.
Note 5: Premises and Equipment
----------------------
The basis of premises and equipment, net of depreciation and
amortization, was adjusted to fair value. The write-down of the Johnson Bank
Illinois premises and equipment of approximately $466,000 is scheduled to be
amortized to earnings on a straight-line basis over a range of 5-6 years, the
estimated useful lives of the related assets. (See Note 6.)
Pro forma occupancy expense, net, has been reduced to give effect to
this amortization into income as if the property was owned for the entire year
1999.
Note 6: Allocation of Purchase Accounting Adjustments (Goodwill)
--------------------------------------------------------
In connection with the purchase price, no separately identifiable
intangibles were noted. As a result, all excess purchase price was assigned to
goodwill, which is amortized on a straight-line basis over 15 years. The pro
forma combined statement of income has been adjusted to reflect the goodwill
amortization expense for a full year, based on $12,325,000 of goodwill being
recorded in connection with the transaction.
The following table provides a reconciliation of the goodwill amount
to the cost of the merger to PrivateBancorp, Inc. in excess of the fair value as
of the acquisition date of the net assets acquired from Johnson Bank Illinois:
<TABLE>
<CAPTION>
Estimated
Amount Life
----------- -----------
<S> <C> <C>
FAIR VALUE ADJUSTMENTS TO:
Securities................................. $ 847,000 3 years (Note 3)
Loans...................................... 949,000 5 years (Note 4)
Premises and equipment..................... 466,000 5-6 years (Note 5)
Deposits................................... 82,000 7 years (Note 8)
Funds borrowed............................. (20,000) 2 years (Note 9)
-----------
Book value in excess of net fair value.. $ 2,324,000
Cost to acquire Johnson Bank Illinois......... $20,000,000 (Note 2)
Stockholder's equity of JBI................... 10,101,000 (Note 10)
-----------
Net acquisition cost in excess of book value.. 9,899,000
Transaction costs............................. 161,000 (Note 2)
Adjustment for earnings in 2000............... (59,000)(Note 7)
-----------
Net cost in excess of book value.............. $10,001,000
Cost in excess of fair value of net assets
acquired................................... $12,325,000
===========
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA
COMBINED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
Note 7: Other Assets
------------
On the acquisition date, the total capital of Johnson Bank Illinois
had increased by $59,000 representing net income of Johnson Bank Illinois for
the period January 1, 2000 through February 11, 2000. The pro forma combined
statement of financial condition has been adjusted to give effect to this
increase in the value of net assets acquired, with the effect of reducing the
pro forma cost in excess of fair value of net assets acquired calculated as of
December 31, 1999. (See Note 6.)
Note 8: Deposits
--------
The basis of the Johnson Bank Illinois deposit portfolio was adjusted
to fair value. The write-up of Johnson Bank Illinois deposits of approximately
$82,000 is scheduled to be accreted to earnings on a straight-line basis over
seven years, the estimated life of the portfolio. (See Note 6.)
Pro forma interest expense on deposits has been reduced to give effect
to this accretion for a full year.
Note 9: Funds Borrowed
--------------
Of the proceeds paid by PrivateBancorp, Inc. to purchase Johnson Bank
Illinois, $12.5 million was in the form of debt. The pro forma combined
statement of financial condition was adjusted to reflect the aforementioned
debt. The pro forma combined statement of income reflects the estimated cost of
interest on that debt as if that debt was in place for the entire year 1999:
1999 1999
Debt Type Amount Contractual Rate Nominal Rate Interest Cost
- -------------------- -------- -------------------- -------------- --------------
Subordinated debt... $5.0mm 3 mo. LIBOR + 50bp 6.00% $ 300,000
Bank debt........... 7.5mm 3 mo. LIBOR + 120bp 6.70% 503,000
The basis of the Johnson Bank Illinois funds borrowed portfolio was adjusted to
fair value. The write-down of Johnson Bank Illinois funds borrowed of
approximately $20,000 is scheduled to be amortized against earnings on a
straight-line basis over 2 years, the estimated life of the portfolio. (See Note
6.)
Pro forma interest expense on funds borrowed has been adjusted to
reflect this amortization.
Note 10: Stockholders' Equity
--------------------
In purchase accounting, stockholder's equity of the acquiree is offset
by proceeds paid by the acquiror, plus or minus the difference between proceeds
paid by the acquiror and net book value of the acquiree. At December 31, 1999,
stockholder's equity of Johnson Bank Illinois of approximately $10,101,000 was
purchased by PrivateBancorp, Inc. for $20 million, resulting in net acquisition
cost in excess of book value of approximately $9,899,000. (See Note 6.)
25
<PAGE>
NOTES TO PRO FORMA
COMBINED FINANCIAL STATEMENTS, END
(unaudited)
Note 11: Income Tax Provision
--------------------
The calculation of income tax, assuming a 34% effective tax rate, on
the pro forma adjustments to the pro forma combined statement of income follows:
<TABLE>
<CAPTION>
1999 Accretion/
Category Amount Amortization
- --------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Loan fair value adjustment (Note 4)............................ $ 949,000 $ 190,000
Securities fair value adjustment (Note 3)...................... 847,000 282,000
Deposits fair value adjustment (Note 8)........................ 82,000 12,000
Funds borrowed fair value adjustment (Note 9).................. 20,000 (10,000)
Premises and equipment fair value adjustment (Note 5).......... 466,000 89,000
Goodwill (Note 6).............................................. 12,325,000 (822,000)
-------------
Effect of fair value accretion/amortization on 1999 pro forma $ (259,000)
combined statement of operations.............................. =============
1999
Interest Income
---------------
Loss of securities income adjustment (Note 2).................. $ (450,000)
Funds borrowed adjustment (Note 9)............................. (803,000)
-------------
Effect of adjustments to net interest margin on 1999 pro forma
combined statement of operations.............................. $ (1,253,000)
=============
Pre-tax effect of pro forma adjustments........................ $ (1,512,000)
Effective tax rate............................................. x .34
-------------
Income tax provision applied to pro forma adjustments.......... $ (514,000)
=============
</TABLE>
26
<PAGE>
c. EXHIBITS
--------
23.1 Consent of Arthur Andersen LLP.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRIVATEBANCORP, INC.
Date: April 26, 2000 By: /s/ RALPH B. MANDELL
-------------------------------
Ralph B. Mandell
Chairman of the Board and Chief
Executive Officer
27
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of Arthur Andersen LLP.
28
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report covering the financial statements of Johnson Bank Illinois included in
this Form 8-K/A, into PrivateBancorp, Inc.'s previously filed Form S-8
Registration Statement File No. 333-88289.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 26, 2000
