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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-25887
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PRIVATEBANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3681151
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Ten North Dearborn Street Chicago, Illinois 60602
(Address of principal executive offices)
(312) 683-7100
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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Indicate by checkmark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting common equity of the Registrant
held by non-affiliates of the Registrant was approximately $42,974,725 based
on the closing price of the common stock on March 13, 2000, as reported by
Nasdaq National Market.
As of March 13, 2000, the Registrant had outstanding 4,590,332 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III.
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PRIVATEBANCORP, INC.
FORM 10-K
Table of Contents
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Page
Number
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 21
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.. 39
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
Item 10. Directors and Executive Officers............................ 41
Item 11. Executive Compensation...................................... 41
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 42
Item 13. Certain Relationships and Related Transactions.............. 42
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K......................................................... 42
Index to Consolidated Financial Statements............................ F-1
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PART I
ITEM 1. BUSINESS
Overview
PrivateBancorp, Inc. (the "Company") was organized as a Delaware corporation
in 1989 to provide highly personalized financial services primarily to
affluent individuals, professionals, entrepreneurs and their business
interests. The Company was one of the first banks newly formed in the Chicago
area in recent years. The organizers had significant senior level banking
experience and many potential client contacts from prior banking positions.
Through the Company's banking subsidiary, The PrivateBank and Trust Company
("PrivateBank"), the Company provides its clients with traditional personal
and commercial banking services, lending programs, and trust and asset
management services. Using the European tradition of "private banking" as the
model, PrivateBank strives to develop a unique relationship with clients,
utilizing a team of managing directors to serve the client's individual and
corporate banking needs, and tailoring products and services to meet such
needs. PrivateBank's managing directors are strategically located in seven
Midwestern United States locations. Currently, the Company has six Chicago-
area offices: Downtown Chicago, Wilmette, Illinois, Oak Brook, Illinois,
St.Charles, Illinois, Lake Forest, Illinois, and Winnetka, Illinois. The
Company also recently opened a loan production office in St. Louis, Missouri.
The flagship downtown Chicago location opened in 1991. The Company expanded
to Wilmette in north suburban Cook County in 1994 after identifying a senior
banking officer with existing relationships and client contacts in this North
Shore area. The Oak Brook facility in west suburban DuPage County was
established in 1997 with the addition of a managing director who has extensive
relationships in that market. The Company established the St. Charles office
in January 2000, in connection with its purchase of Towne Square Financial
Corporation (a company in the process of forming a de novo bank) on August 3,
1999. On November 18, 1999, the Company announced that it had filed an
application to charter a new federal savings bank, to be known as The
PrivateBank (St. Louis). Pending regulatory approval of this new subsidiary,
the Company has opened a loan production office of PrivateBank in order to
develop credit business in St. Louis. On February 11, 2000, the Company
consummated its acquisition of Johnson Bank Illinois, adding additional
locations of PrivateBank in Lake Forest and Winnetka, Illinois on Chicago's
North Shore.
Since the Company's start of banking operations in 1991, the Company has
experienced rapid internal growth. From year-end 1995 to December 31, 1999,
the compound annual growth rate in loans was 33.3%, in assets was 27.5%, in
deposits was 26.5% and in trust assets under administration was 36.8%. At
December 31, 1999, the Company had total loans of $397.2 million, total assets
of $518.7 million, total deposits of $453.1 million, total stockholders'
equity of $47.1 million and total trust assets under administration of $730.0
million.
For financial information regarding the Company's three separate lines of
business, Private Banking Services, Trust Services and Holding Company
Activities, see "Note 2--Operating Segments" to the audited consolidated
financial statements of the Company included in this report.
Market Focus
In response to the need for personalized banking services, PrivateBank was
created as the first Chicago-based institution dedicated primarily to
providing banking services to affluent individuals, professionals,
entrepreneurs and their business interests. The Company targets the affluent
segment of the market in the belief that there is significant unmet demand for
personalized services within this segment, and also because of the recognition
of its significant growth potential.
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The PrivateBank and Trust Approach
The Company emphasizes personalized client relationships and custom-tailored
financial services, complemented by the convenience of technology. The key
aspects of the Company's private banking approach are:
Personal Relationships. The Company's approach begins with the
development of strong, dedicated relationships with clients. Each client of
PrivateBank is matched with a team of individuals headed by a managing
director. This managing director becomes the client's central point of
contact with PrivateBank. The Company's managing directors, who are senior
financial professionals, act as the financial partners of the clients,
working with them to identify and service their banking needs. By
dedicating a team of executives to each client, the Company is able to
build ongoing relationships which allow the managing directors to use their
increasing knowledge of the client's financial history and goals to quickly
adapt the Company's services to the client's individual needs. Clients
interact with the same persons at PrivateBank for all types of banking
services, enabling them to gain a sense of security and continuity of
personal service in their banking relationship. On the basis of this trust
and confidence, the Company seeks to expand the scope of services provided
to each client, often including banking needs related to the business
affairs of clients. Satisfied clients provide the Company's most fertile
source of new business and new client referrals as well.
Affluent Target Client. The Company believes that the affluent segment of
the population, meaning that segment with annual incomes over $150,000, is
increasing and is diverse in terms of its overall wealth and financial
needs. PrivateBank offers its services to those members of this segment who
are focused on building and preserving wealth. The Company's clients
include affluent individuals, professionals, entrepreneurs and their
business interests. Target service industries include the accounting, legal
and medical professions, as well as owners of closely-held businesses,
commercial real estate investors and corporate executives. Although the
Company generally targets individuals with high annual incomes and net
worths, the Company also recognizes the growth potential of certain young
professionals and extends services to those individuals whose incomes or
net worths do not initially meet the Company's criteria. The Company
believes that this segment of the market is most suited to the Company's
business and that these individuals are most likely to develop long-term
relationships.
Customized Financial Services. In taking a long-term relationship
approach to clients, the Company is able to differentiate its services from
the "one-size-fits-all" mentality of other financial institutions. Clients
use a wide variety of financial services beyond the traditional banking
products, and the Company is constantly working to develop and shape
services tailored to meet clients' growing financial needs. While the
Company offers a portfolio of products, the Company believes that it is
personalized service that distinguishes the Company from its competition.
Clients are encouraged, not discouraged, to contact the Company. The
Company uses regular contact as a way to strengthen relationships, increase
services to existing clients and earn referral business.
Streamlined Decision-Making Process. Unlike most larger banks,
PrivateBank has not instituted a lengthy chain of command. Clients
generally deal directly with their dedicated managing directors, who are
given broad decision-making authority. This allows managing directors to
respond quickly and efficiently to client needs. PrivateBank is able to use
a streamlined approach because of the many qualified, experienced credit
officers in the organization. Officers with credit approval authority make
themselves available on short notice to help consult on or approve credits
when time is of the essence. PrivateBank uses an "on call" approach, rather
than structured meetings, to approve credit. As the amount of the credit
and the complexity increases, PrivateBank resorts to a more traditional
process.
Enhanced Personal Service through Technology. While clients are
encouraged to contact the Company directly, the Company also utilizes
technology to complement and enhance client service. The Company offers
products such as PrivateBank Access, an Internet banking service,
MasterMoney debit cards and Private Line Access, a voice-response
communication system, to enhance, not replace, personal contact. This
technology allows the Company to afford clients the convenience of
accessing services from remote locations at any time of day.
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Clients may connect to PrivateBank Access directly through the Company's
Internet website, without the need for the diskettes or software downloads
found in some competing PC banking systems. Currently, the product:
. accesses deposit information and current deposit rate schedules;
. allows transfers of funds among accounts;
. includes a bill payment service with a variety of options;
. allows information to be exported to financial software packages;
. includes a help desk which is staffed 92 hours per week; and
. sends e-mail messages from clients to PrivateBank personnel.
As technology changes, the Company intends to modify and enhance
electronic banking products. The Company believes that in the future, a
growing number of clients will desire both personal and electronic
services. The Company intends to work to improve and expand its dual-
delivery systems providing the quality of service to which PrivateBank
clients are accustomed.
Extensive Financial Network. In order to compete with other financial
service providers, the Company relies on a network of professionals in the
financial and investment communities with whom strategic alliances have
been developed over the years. This enables clients to receive a broad
array of high quality services. For example, trust clients are provided
services with selected investment management firms. Clients can either
maintain existing investment management relationships when they become
trust clients, or use approved providers of investment management services.
The Company believes this choice distinguishes its service from the rigid
policies set by some competitors. Clients are assisted in selecting a
complete package of services best suited to their individual needs without
incurring the overhead associated with directly employing diversified
portfolio managers. The Company also has a contractual fee sharing
agreement with Mesirow Financial, Inc., through its Chicago-based
independent insurance brokerage unit. Through this affiliation, the Company
offers a full range of personal and corporate insurance products to
clients. To complement existing financial products and services, the
Company has a contractual arrangement with Sterling Investment Services,
Inc., a registered securities broker-dealer firm, through which clients are
offered on-site securities brokerage services.
Strategy for Growth
The Company seeks to enhance long-term stockholder value through internal
growth, geographic expansion and expanded product lines. The Company expects
to continue to evaluate possible acquisition candidates and new office
locations and intends to pursue opportunities that it perceives to be
attractive to the long-term value of its franchise. The Company intends to
structure any transactions pursued with the goal of avoiding earnings per
share dilution beyond the first year. It is anticipated that the costs
associated with particular expansion initiatives or start-up operations may,
in the near-term, have a negative impact on earnings per share. The Company's
growth strategy entails five key components:
Developing Existing Relationships. An important part of future growth
will be the continued development of existing client relationships. As the
needs of clients change and grow, the Company seeks to grow with them and
continue to provide them with custom-tailored, flexible services. For
example, the Company strives to follow clients from the purchase of their
homes, through the financing of their own businesses, to the development
and planning of their estates, and continuing the relationship tradition
with their children and grandchildren. The Company believes it has a
significant opportunity to further develop existing client relationships in
each office.
Increasing the Reach of Existing Offices. In addition to increasing the
services provided to existing clients, the Company seeks to expand the
market presence of existing offices. The Company believes that the growing
need for private banking services in these markets is still largely unmet,
and believes there is a
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significant opportunity to increase the client base of these offices,
particularly with the newly opened St. Charles, Illinois and St. Louis,
Missouri offices, and the newly acquired Winnetka and Lake Forest offices.
The Company hopes to capitalize on its reputation and the reputations of
its managing directors in increasing market presence. Managing directors,
with their personal and professional contacts in the financial and
corporate arenas, have been instrumental in developing business. The
managing director of the St. Charles location is an experienced banker with
significant contacts in St. Charles and the surrounding Fox Valley
communities. The Company encourages senior executives to attend and host
business receptions, charitable activities and promotional gatherings to
interact with clients in a unique and personal manner. The Company also
hopes to grow its business through referrals from existing clients.
Referrals have been a significant source of new business. The Company
values this system of networking because it allows further development and
strengthening of personal and professional relationships with both new and
existing clients.
Opening Additional Offices in the Chicago Metropolitan Area. To further
increase its market penetration in the Chicago area, the Company will
consider opening additional offices as attractive locations are identified,
and senior executives are found who share the Company's business
philosophy.
Expanding into New Markets. The Company believes the trend toward bank
consolidation and centralized decision-making that has created a demand for
private banking services is not unique to Chicago. In late 1999, the
Company opened a loan production office in St. Louis pending regulatory
approval of a new savings bank subsidiary that it is establishing in that
location. This new office is being built around senior banking officers
recruited for their strong banking experience and extensive personal and
professional contacts in the St. Louis area. The Company believes there is
similar demand for its products and services in other markets within the
Midwest. The Company is interested in expanding in markets that present
opportunities for growth and development similar to those in the Chicago
and St. Louis markets. The Company intends to continue to pursue selective
geographic expansion through possible acquisitions of existing institutions
or by establishing new banking offices.
Expanding into New Product Lines. The Company's goal is to be the primary
source of financial products and services for its clients. The Company
believes that by broadening product lines and adding financial services not
currently offered by PrivateBank, the Company should be able to achieve an
increase in franchise value through diversification of fee income and
strengthening of client relationships. To reach this goal, the Company
intends to consider acquisitions, joint ventures or strategic alliances
with other financial service companies that emphasize quality service and
the value of relationships. The Company targets businesses with
complementary services and the ability to broaden the Company's product
lines to better serve clients and help develop new client relationships.
Services
The Company offers banking services to clients at a personal level. The
Company believes this is not the same as personal banking service. The Company
defines private banking as offering banking products and services to clients
when they want it, how they want it and where they want it. Products and
services are tailored to fit clients instead of making clients fit products
and services. The Company's services fall into four general categories:
Commercial Services. The Company offers a full range of lending products
to businesses owned by or affiliated with its clients. Offerings include
lines of credit for working capital, term loans for equipment and other
investment purposes, and letters of credit to support client commitments.
The Company tailors these products to meet the varied needs of the client.
Non-credit products include lockbox, cash concentration accounts, merchant
credit card processing, electronic funds transfer, other cash management
products and insurance. The Company strives to offer banking packages that
are competitive and provide service to clients beyond what is expected in
the industry.
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Real Estate Services. PrivateBank provides real estate loan products to
businesses and individuals. Commercial real estate lending products are
designed for real estate investors. A full range of fixed and floating rate
permanent and mini-permanent mortgages are provided for clients to finance
a variety of properties such as apartment buildings, office buildings,
strip shopping centers, and other income properties. The Company also
provides some construction lending for residential and commercial
developments. PrivateBank believes that its lending products are
competitively priced with terms that are tailored to clients' individual
needs.
Residential mortgage products range from 30-year fixed rate products to
personal construction lending. The home mortgage market is very competitive
and service is what separates PrivateBank from the competition. Many
mortgage lenders cannot work with borrowers who have non-traditional income
sources or non-traditional properties, such as co-ops. The Company's
mortgage lending staff is trained to work with successful individuals who
have complex personal financial profiles. PrivateBank has developed a
proficiency for mortgages in excess of $1.0 million per loan and will work
with clients and market sources to place these loans into the secondary
market. Experience has shown that residential lending is an excellent
vehicle to attract new clients.
Trust and Asset Management. The Company's trust services include
investment management, personal trust and estate services, custodial
services, retirement accounts and brokerage and investment services. Trust
personnel work with clients to define objectives, goals and strategies for
their investment portfolios. The Company assists the client with the
selection of an outside investment manager and works to tailor the
investment program accordingly. During 1999, the Company introduced
PrivateBank Counselor, an asset allocation program that combines
professional portfolio management with an investment plan that trust
personnel tailor to the individual client's personal financial goals. Trust
and estate account administrators work with clients and their attorneys to
establish their estate plans. PrivateBank works closely with clients and
their beneficiaries to ensure that their needs are met and to advise them
on financial matters. When serving as trustee or executor, PrivateBank
often structures and oversees investment portfolios. Clients are also
provided with custodial services for safekeeping of their assets.
Consistent with the private banking approach, there is an emphasis on a
high level of personal service in the 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. The Company also offers retirement products such as
individual retirement accounts and administrative services for retirement
vehicles such as profit sharing plans and employee stock option plans, as
well as a full line of brokerage and investment products.
Individual Banking Services. The typical private banking client has
several of the following products: interest bearing checking with credit
line, money market deposit accounts, certificates of deposit, ATM/debit
card, and brokerage accounts. Some clients are using the PrivateBank Access
Internet PC banking product. In addition to residential mortgages, clients
are provided a variety of secured and unsecured personal loans and lines of
credit. Through affiliations with Mesirow and Sterling, the Company offers
insurance products and securities brokerage services. The Company strives
to accommodate the individual needs of each client by offering the
convenience of highly personalized services, including domestic and
international wire transfers and foreign currency exchange.
Lending Activities
The Company works with clients to provide a full range of commercial, real
estate and personal lending products and services. Loans are concentrated in
six major areas: (a) commercial real estate; (b) residential real estate; (c)
commercial; (d) personal; (e) home equity; and (f) construction. The Company
has adopted a loan policy that contains general lending guidelines and is
subject to review and revision by the Board of Directors. Credit is extended
consistent with this comprehensive loan policy. The Company believes the
credit quality of the loan portfolio is excellent.
The goal of the lending program is to meet the credit needs of a diverse
client base while using sound credit principles to protect the quality of the
Company's assets. The business and credit strategy is relationship-driven
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and the Company strives to provide a reliable source of credit, a variety of
lending alternatives, and sound financial advice. When extending credit,
decisions are based upon the 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. The loan portfolio's performance is monitored
through regular contacts with clients, continual portfolio review, careful
monitoring of delinquency reports and reliance on the Company's loan review
function.
The Company has retained an independent, outside resource to perform the
loan review function. Using an outside resource ensures that the loan review
process remains independent of the loan production and administration
processes. The loan reviewer examines individual credits to critique any
individual problems, and the entire portfolio to comment on any systemic
weaknesses. The reviewer reports directly to the audit committee of the Board
of Directors on a quarterly basis. In addition to loan review, the
loan/investment committee of the 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.
The legal lending limit, based on PrivateBank's statement of financial
condition, is calculated at 20% of capital plus unencumbered reserves. At
December 31, 1999, the legal lending limit was approximately $9.1 million and
after completion of the Johnson Bank Illinois acquisition, has increased to
$11.6 million at February 29, 2000. This is the maximum amount of credit that
the Company may commit to any one individual or business entity after
aggregating all related credit.
In addition to the 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) the Company becomes more
consistent in administration of credit as credit officers experience the
dynamics of the overall portfolio and credit culture.
The 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 Board of Directors reviews all
credit decisions over $2.5 million. Prior committee approval is required for
credit exposure in excess of $5.0 million and for all credits related to board
members or managing directors. Loans are approved at the bank level by a
management loan committee or by obtaining the approval of individual credit
officers. The Company believes that this process allows it to be more
responsive to clients' needs by being able to approve credit without waiting
for scheduled committee meetings. Management loan committee meetings are used
to discuss complex credits or when there is a feeling that a particular credit
may be informative to everyone in the loan approval process.
The lending policy sets guidelines for advance rates on certain types of
collateral including accounts receivable, inventory, equipment and real
estate. Under the policy guidelines, the maximum loan-to-value ratios are 80%
for accounts receivable, 50% for inventory and 65% for equipment. These ratios
are generally not exceeded. Under the policy, the maximum loan-to-value ratio
for real estate is 80%, but maximum advance rates on real estate will differ
depending upon the type of real estate taken as collateral. For example,
higher loan-to-value ratios are acceptable for owner-occupied residential
properties than non-owner occupied residential or commercial properties.
Vacant land commands the lowest advance rate guidelines. The Company accepts
primary and secondary liens on properties when appraised values are adequate.
The lending policy also contains advance rate guidelines for securities and
other financial instruments taken as collateral, including stocks, bonds,
commercial paper, and bank deposit instruments. Under the policy guidelines,
maximum loan-to-value ratios should generally not exceed 75% for stocks, 98%
for government bonds, 80% for non-governmental bonds, 95% for commercial paper
and 100% of bank deposit instruments.
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Specific collateral requirements are based upon the facts and circumstances
of each individual credit decision. The financial strength and ascertainable
character of each borrower and guarantor is also a factor in the credit
approval process. The Company believes it is in a good position to assess
borrowers' strengths and weaknesses and to make well-informed credit decisions
on this basis due to the Company's close relationship with its clients. Loans
are made based upon borrowers' available assets and the condition of their
financial statements. The Company does not sell credit life insurance to
borrowers.
The following table sets forth the loan portfolio by category as of December
31, 1999 and 1998:
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December 31, Percentage December 31, Percentage
1999 of total loans 1998 of total loans
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(dollars in thousands)
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Commercial real estate.. $146,368 36.8% $ 94,392 33.5%
Residential real
estate................. 72,972 18.4 54,171 19.2
Commercial.............. 67,026 16.9 46,800 16.6
Personal................ 57,497 14.5 44,094 15.7
Home equity............. 24,396 6.1 20,100 7.1
Construction............ 29,018 7.3 22,408 7.9
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Total loans........... $397,277 100.0% $281,965 100.0%
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Commercial Real Estate Loans. The commercial real estate portfolio is
comprised primarily of loans secured by multi-family housing units located in
the Chicago metropolitan area. Other types of commercial real estate
collateral include: commercial properties owned by clients housing their
manufacturing, warehousing or service businesses, investments in small retail
centers, and investments in other business properties.
Risks inherent in real estate lending are related to the market value of the
property taken as collateral, the underlying cash flows and documentation. It
is important to accurately assess property values through careful review of
appraisals. Some examples of risky commercial real estate lending include
loans secured by properties with widely fluctuating market values or income
properties occupied by renters with unstable sources of income, and not
perfecting liens on property taken as collateral. The Company mitigates these
risks by understanding real estate values in areas in which PrivateBank lends,
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.
Mini-permanent and permanent financing are typically structured as adjustable
rate mortgages ("ARMs"). ARM structure allows clients to lock in an interest
rate for a fixed period of time in order to avoid interest rate risk. The vast
majority of these 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 lines of credit
typically are based on a floating rate formula.
In the credit analysis process for commercial real estate loans, the Company
typically reviews 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 borrower, and the
strength of guarantors, if any. The real estate appraisal policy has been
approved by the 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. The residential real estate portfolio
consists primarily of first and second mortgage loans for 1-4 unit residential
properties. The Company does not originate long-term fixed rate loans for the
portfolio due to interest rate risk considerations. However, these loans are
originated for sale into the
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secondary market. This is a significant business activity in the residential
real estate lending unit. For the portfolio, the Company originates 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.
The credit review process mirrors the standards set by traditional secondary
market sources. The Company reviews appraised value and debt service ratios,
and then gathers data during the underwriting process in accordance with the
various laws and regulations governing residential real estate lending. The
real estate appraisal policy sets specific standards for valuing residential
property.
Pre-approval from secondary market sources is required before loans are
approved to be sold into the secondary market. The internal approval process
is less stringent for loans pre-approved by secondary market sources. This
allows the Company to be responsive to the tight time commitments dictated for
locking in rates in the secondary market.
The Company believes that it has a competitive advantage in its ability to
offer financing for clients who have non-traditional income sources or require
large mortgage loans. The Company has 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 clients. By offering
ARM loans, the Company 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. The Company also has experience in making loans
to qualified borrowers secured by co-ops. The Company believes that it is one
of a limited number of financial institutions in the Chicago area making these
loans.
Commercial Loans. The 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 clients,
or to clients directly for business purposes. The vast majority of the
Company's 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, the Company seeks to gain an
understanding of the business of each borrower, place appropriate value on
collateral taken and structure the loan properly to make sure that collateral
values are maintained while loans are committed. Appropriate documentation of
commercial loans is also important to protect the Company's interests.
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, the Company may require periodic aging of receivables, and inventory
and equipment listings to verify the quality of the borrowing base prior to
advancing funds. The term loans are typically also secured by the assets of
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 clients.
The Company issues standby or performance letters of credit, and can service
the international needs of clients through correspondent banks. The Company
uses the same underwriting standards for letters of credit as for funded
loans.
The credit approval process for commercial loans is comprehensive. The
Company typically reviews 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 the loan policy has guidelines for
advances on different types of collateral, the Company establishes eligible
asset values on a case-by-case basis for each borrower. The officer on the
account must be able to validate his or her position during the approval
process.
Personal Loans. The personal loan portfolio consists of loans to secure
funds for personal investment, loans to acquire personal assets such as
automobiles and boats, and personal lines of credit. Quite often, borrowers
prefer not to liquidate assets to secure funds for investment or personal
acquisitions. They will use
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these assets as collateral for personal loans, or if their financial
statements and personal reputations are sufficient, the Company will grant
unsecured credit. A key factor in originating personal loans is knowing the
borrowers. When personal loans are unsecured, the Company believes that the
character and integrity of the borrower becomes as important as the borrower's
financial statement.
Clients request a combination of lines of credit, floating-rate term loans
and fixed-rate term loan products. Many 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. The
Company responds quickly to the needs of clients within the limits set by the
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. The home equity loan portfolio consists of traditional
home equity lines of credit prevalent in the market today. In general, the
Company advances up to 80% on the value of a home, less the amount of prior
liens. However, the Company 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
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. The borrower's personal cash flow is compared to debt service
requirements to determine the borrower's ability to repay. Home equity loans
are competitively priced and are based on a floating rate formula.
Construction Loans. The construction loan portfolio consists of single
residential properties, multi-family properties, and commercial projects. As
construction lending has greater inherent risk, the Company closely monitors
the status of each construction loan throughout its term. Typically, full
investment of the borrower's equity is required in construction projects prior
to injecting funds. Generally, borrowers are not allowed to recoup their
equity from the sale proceeds of finished units (if applicable) until the
Company has recovered its funds on the overall project. A title company is
used to disburse periodic draws from the construction line to ensure that
there will be no title problems at the end of the project.
Construction loans are often the highest yielding loans in the portfolio due
to the inherent risks and the monitoring requirements. These loans typically
have floating rates, commitment fees and release fees. During the 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. The Company seeks 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
more stringent standards for underwriting and monitoring construction loans
and the credit profile of borrowers, the Company is comfortable with the risk
associated with this portfolio and are committed to construction lending as an
integral part of the lending program.
Investment Activities
The objective of the 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 the Board of
Directors. The Board is provided monthly information recapping purchases and
sales with the resulting gains or losses, average maturity, federal taxable
equivalent yields and appreciation or depreciation by investment categories.
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The Company invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States,
obligations of agencies of the United States, bank-qualified obligations of
state and local political subdivisions and collateralized mortgage
obligations. The Company also may invest from time to time in corporate debt
or other securities as permitted by the investment policy. In addition, the
Company enters into federal funds transactions with principal correspondent
banks, and primarily act as a net seller of such funds. The sale of federal
funds are effectively short-term loans from the Company to other banks.
The investment portfolio also includes minimal equity investments in the
Federal Home Loan Bank of Chicago ("FHLB") and Neighborhood Housing Service
("NHS"). The Company invests in FHLB in order to be a member, which qualifies
it to use their services, including FHLB borrowings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources." NHS is a not-for-profit organization which
helps provide affordable housing to low and moderate income residents in the
Chicago area. The size of this investment is proportionate to the volume of
loans in certain credit programs offered by NHS. NHS is an important vehicle
in the Company's Community Reinvestment Act ("CRA") lending program.
Rather than incurring the costs of employing a full-time investment manager
with the requisite expertise to establish a diverse investment program, the
Company engages outside investment advisory firms to help execute the
Company's strategy.
Asset/Liability Management Committee
The Company has 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 the 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 the investment
policy. On a monthly basis, ALCO reports to the loan/investment committee who
reviews the portfolio of reports prepared for the Board of Directors and all
the decisions made by ALCO affecting net interest income.
Trust and Asset Management
Clients are offered a wide variety of trust and asset management services
designed to meet their individual needs and investment goals. Many of the
trust clients have long-standing relationships with the Company's managing
directors. In administering a trust, there is a close working relationship
among the client, the beneficiaries and the trustees' attorneys and
accountants on personal and tax matters to assist the client in accomplishing
their stated objectives. As fiduciaries of a trust or estate, responsibilities
may include:
. administering the account pursuant to the applicable document;
. collecting, holding and valuing assets;
. monitoring investment portfolios;
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. paying debts, expenses and taxes;
. distributing property; and
. advising beneficiaries.
In addition to trust and estate administration, the Company offers:
. institutional accounts;
. guardianship administration;
. investment agency accounts;
. Section 1031 exchanges; and
. custodial accounts.
Over the past three years, the average account value of new trusts
administered by PrivateBank was approximately $3.0 million. The Company seeks
to continue to grow the trust business as PrivateBank expands its client base
and clients increasingly reach retirement age and focus on their estate plans.
The Company has chosen to outsource the investment management aspect of the
trust business so that the Company may offer to clients diversity and
flexibility of investment representation and to allow an impartial evaluation
of investment performance. This structure also allows 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, the Company helps them select an
investment management firm that will best service their needs. Based on the
client's investment strategy and objectives and the account attributes, one or
more investment managers are chosen from a selected group of approved
advisors.
The trust policy has established controls over trust activities to safeguard
the assets of clients against operational and administrative risk. The Company
has a system of internal controls that is designed to keep operating risk at
appropriate levels. The 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, the
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.
Competition
The Company does business in the highly competitive financial services
industry. PrivateBank's geographic market is primarily the greater Chicago
metropolitan area. The St. Louis market has characteristics similar to the
Chicago market. The financial services industry is comprised of commercial
banks, thrifts, credit unions, investment banks, brokerage houses, money
managers, and other providers of financial products and services. These firms
compete with PrivateBank for one or more of the following: loans, deposits,
trust services, or investment products. Some of these firms have business
units that promote 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.
The Company views PrivateBank as the only private bank in the Chicago market
focused solely on offering an extended range of traditional banking and trust
products to affluent professionals, entrepreneurial individuals and their
business interests. While the products may be similar to those of the
Company's competitors,
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PrivateBank attempts to emphasize its distinguishing characteristic of
consistent, superior levels of personal service. For commercial and commercial
real estate lending, the Company competes 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, the Company competes with the largest Chicago-area banks and some
investment managers. For private banking services, competition is with the
private banking departments of major Chicago-area financial institutions, some
suburban banks, and brokerage houses. For residential mortgage lending, the
Company competes with banks, savings and loans, mortgage brokers and numerous
other financial services firms offering mortgage loans in PrivateBank's market
areas. Several competitors are national or international in scope.
Some competitors are not subject to the same degree of regulation as that
imposed on bank holding companies and state banking organizations. In
addition, the larger banking organizations, investment banks and brokerage
houses have significantly greater resources than the Company. As a result,
such competitors have advantages over PrivateBank in name recognition and
market penetration.
Employees
As of December 31, 1999, the Company had approximately 91 full-time
equivalent employees. With the addition of the offices in Lake Forest and
Winnetka, as of February 29, 2000, the Company had approximately 115 full-time
equivalent employees.
Employees are provided with a comprehensive program of benefits, some of
which are on a contributory basis, including comprehensive medical and dental
plans, life insurance plans, and a 401(k) plan. The Company considers its
relationship with its employees to be good.
Year 2000
Through December 31, 1999, the Company had spent approximately $650,000 in
preparation for its year 2000 readiness. The Company has not experienced any
year 2000 problems.
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 the Company cannot predict what effect these changes, if made,
will have on its operations. Finally, please note 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
The Company is registered as a "bank holding company" with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") pursuant to
the Bank Holding Company Act of 1956 (the Bank Holding Company Act of 1956 and
the regulations issued thereunder are collectively referred to as the "BHC
Act"), and is subject to regulation, supervision and examination by, and is
required to file reports and additional information with, the Federal Reserve.
Minimum Capital Requirements. The Federal Reserve has adopted risk-based
capital requirements for assessing bank holding company capital adequacy.
These standards revise the normal definition of capital and establish minimum
capital standards in relation to assets and off-balance sheet exposures, as
adjusted for credit risks. At December 31, 1999, the Company's consolidated
assets were approximately $518.7 million. Under the Federal Reserve's risk-
based guidelines applicable to the Company, capital is classified into two
categories.
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For bank holding companies, Tier 1, or "core", capital consists of:
. common stockholders' equity;
. perpetual preferred stock (subject to some limitations); and
. minority interests in the common equity accounts of consolidated
subsidiaries
less:
. goodwill;
. specified intangible assets; and
. specified investments in other corporations.
Tier 2, or "supplementary," capital consists of:
. the allowance for loan and lease losses;
. perpetual preferred stock and related surplus;
. hybrid capital instruments;
. perpetual debt securities;
. mandatory convertible debt securities;
. term subordinated debt and related surplus; and
. intermediate-term preferred stock, including related securities.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying total capital to risk-
weighted assets of 8%, of which at least 4% must be in the form of Tier 1
capital. The Federal Reserve has established a minimum ratio of Tier 1 capital
to total assets of 3% for strong bank holding companies (the highest category
under the regulatory 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 in evaluating
proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum levels.
As of December 31, 1999, the Company had regulatory capital in excess of the
Federal Reserve's minimum requirements. The Company's total risk-based capital
ratio at December 31, 1999 was 13.96% and its leverage ratio was 10.77%.
Acquisitions. The BHC Act requires prior Federal Reserve approval for, among
other things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank or bank holding company, or for a merger or
consolidation of a bank holding company with another bank holding company.
With limited exceptions, the BHC Act prohibits a bank holding company from
acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. A bank holding
company may, however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve has determined, by regulation
or order, to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto, such as owning and operating a savings
association, trust company, or investment or financial advisory business.
Under the BHC Act and Federal Reserve regulations, the Company is prohibited
from engaging in tie-in arrangements in connection with an extension of
credit, lease, sale of property, or furnishing of services. That means that,
in most circumstances, the Company may not condition a client's purchase of
one of its services on the purchase of another service.
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Interstate Banking and Branching Legislation. Under the Interstate Banking
and Efficiency Act, adequately capitalized and adequately managed bank holding
companies are allowed to acquire banks across state lines subject to various
limitations. In addition, under the Interstate Banking Act, banks are
permitted, under some circumstances, to merge with one another across state
lines and thereby create a main bank with branches in separate states. After
establishing branches in a state through an interstate merger transaction, a
bank may establish and acquire additional branches at any location in the
state where any bank involved in the interstate merger could have established
or acquired branches under applicable federal and state law.
Ownership Limitations. Any person, including that person's associates,
affiliates and groups acting in concert with him or her, who purchases or
subscribes for 5% or more of the common stock of the Company may be required
to obtain prior approval of the Commissioner and the Federal Reserve. Under
the Illinois Banking Act, any person who thereafter acquires more than 10% of
the Company's stock may be required to obtain the prior approval of the
Commissioner. Under the Change in Bank Control Act, a person may be required
to obtain the prior regulatory approval of the Federal Deposit Insurance
Corporation ("FDIC") and the Federal Reserve before acquiring the power to
directly or indirectly control the management, operations or policies of the
Company or PrivateBank or before acquiring control of 25% or more of any class
of the Company's or PrivateBank's outstanding voting stock. In addition, any
corporation, partnership, trust or organized group that acquires a controlling
interest in the Company or PrivateBank may have to obtain approval of the
Federal Reserve to become a bank holding company and thereafter be subject to
regulation as a bank holding company.
Dividends. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies. In the policy statement, the
Federal Reserve expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to prohibit or limit the payment of dividends by banks
and bank holding companies.
Under a longstanding policy of the Federal Reserve, the Company is expected
to act as a source of financial strength to PrivateBank and to commit
resources to support PrivateBank. The Federal Reserve takes the position that
in implementing this policy, it may require the Company to provide financial
support when the Company otherwise would not consider itself able to do so.
In addition to the restrictions on dividends imposed by the Federal Reserve,
Delaware law also places limitations on the Company's ability to pay
dividends. For example, the Company may not pay dividends to its stockholders
if, after giving effect to the dividend, it would not be able to pay its debts
as they become due. Because a major source of the Company's revenue could be
dividends which the Company expects to receive from PrivateBank, the Company's
ability to pay dividends will depend on the amount of dividends paid by
PrivateBank. The Company cannot be sure that PrivateBank will, in any
circumstances, pay such dividends to it.
Bank Regulation
Under Illinois law, PrivateBank is subject to supervision and examination by
the commissioner of the Illinois Office of Banks and Real Estate (the
"Commissioner"). As an affiliate of PrivateBank, the Company is also subject
to examination by the Commissioner. PrivateBank is a member of the Federal
Home Loan Bank ("FHLB") of Chicago and may be subject to examination by the
FHLB of Chicago. In addition, the deposits of PrivateBank are insured by the
Bank Insurance Fund ("BIF") thereby rendering PrivateBank subject to the
provisions of the Federal Deposit Insurance Act ("FDIA") and, as a state
nonmember bank, to supervision and examination by the FDIC. The FDIA requires
the FDIC approval of any merger and/or consolidation by or with an insured
bank, as well as the establishment or relocation of any bank or branch office.
The FDIC also supervises compliance with the provisions of federal law and
regulations which place restrictions on loans by FDIC-insured banks to their
directors, executive officers and other controlling persons.
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Furthermore, all banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The Federal Reserve's monetary policies have had a
significant effect on the operating results of commercial banks in the past
and this trend is expected to continue in the future.
Dividends. The Illinois Banking Act provides that an Illinois bank may not
pay dividends of an amount greater than its current net profits after
deducting losses and bad debts while such bank continues to operate a banking
business. For the purpose of determining the amount of dividends that an
Illinois bank may pay, bad debts are defined as debts upon which interest is
past due and unpaid for a period of six months or more unless such debts are
well-secured and in the process of collection.
In addition to the foregoing, the ability of the Company and PrivateBank to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
Federal Reserve System. PrivateBank is subject to Federal Reserve
regulations requiring depository institutions to maintain noninterest-earning
reserves against their transaction accounts (primarily NOW and regular
checking accounts). The Federal Reserve regulations generally require 3%
reserves on the first $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. PrivateBank is in compliance with that requirement.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the Federal Reserve, together with the other federal bank regulatory agencies,
to prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The FDIC and the other federal
bank regulatory agencies have adopted a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA. The guidelines establish general
standards relating to internal controls and information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice
and describe compensation as excessive when the amounts paid are unreasonable
or disproportionate to the services performed by an executive officer,
employee, director or principal stockholder. In addition, the FDIC adopted
regulations that authorize, but do not require, the FDIC to order an
institution that has been given notice by the FDIC that it is not satisfying
any of the safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the FDIC must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to
which an undercapitalized association is subject under the "prompt corrective
action" provisions of FDICIA. If an institution fails to comply with such an
order, the FDIC may seek to enforce its order in judicial proceedings and to
impose civil money penalties. The FDIC and the other federal bank regulatory
agencies also proposed guidelines for asset quality and earning standards.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve and the FDIC, to take prompt corrective action
with respect to depository institutions that fall below minimum capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions,
including restrictions on growth, investment activities, capital distributions
and affiliate transactions, and will be required to submit a capital
restoration plan which, to be accepted by the regulators, must be guaranteed
in part by any company having control of the institution (for example, the
Company or a stockholder controlling
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the Company). In other respects, FDICIA provides for enhanced supervisory
authority, including greater authority for the appointment of a conservator or
receiver for under-capitalized institutions. The capital-based prompt
corrective action provisions of FDICIA and their implementing regulations
apply to FDIC-insured depository institutions. However, federal banking
agencies have indicated that, in regulating bank holding companies, the
agencies may take appropriate action at the holding company level based on
their assessment of the effectiveness of supervisory actions imposed upon
subsidiary insured depository institutions pursuant to the prompt corrective
action provisions of FDICIA. PrivateBank will be subject to annual reporting
under the provisions of FDICIA beginning with year ended information as of
December 31, 2000.
As of December 31, 1999, PrivateBank had capital in excess of the
requirements for a "well-capitalized" institution.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution,
PrivateBank is required to pay deposit insurance premiums based on the risk it
poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve designated reserve
ratios in the insurance funds and to impose special additional assessments.
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, PrivateBank 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 practice, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. The Company does not
know any practice, condition or violation that might lead to termination of
its deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 provides
that beginning with semi-annual periods after December 31, 1996, BIF deposits
will also be assessed to pay interest on the bonds issued in the late 1980s by
the Financing Corporation (the "FICO Bonds") to recapitalize the now defunct
Federal Savings & Loan Insurance Corporation. For purposes of the assessments
to pay interest on the FICO Bonds, BIF deposits will be assessed at a rate of
20% of the assessment rate applicable to SAIF deposits until December 31,
1999. Effective December 31, 1999, full pro rata sharing of FICO assessments
has begun. It has been estimated that the rates of assessment for the payment
of interest on the FICO Bonds will be approximately 1.3 basis points for BIF-
assessable deposits and approximately 6.4 basis points for SAIF-assessable
deposits. The payment of the assessment to pay interest on the FICO Bonds
should not materially affect PrivateBank.
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,
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relocations, mergers, consolidations, acquisitions of assets or assumptions of
liabilities, and savings and loan holding company acquisitions. The CRA also
requires that all institutions make public disclosure of their CRA ratings.
PrivateBank was assigned a "satisfactory" rating in January 1999 as a result
of its last CRA examination. This is the second highest rating a bank may
receive.
Compliance with Consumer Protection Laws. PrivateBank is subject to many
federal consumer protection statutes and regulations including the CRA, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Real Estate Settlement Procedures Act and the
Home Disclosure Act. Among other things, these acts:
. require banks to meet the credit needs of their communities;
. require banks to disclose credit terms in meaningful and consistent
ways;
. prohibit discrimination against an applicant in any consumer or business
credit transaction;
. prohibit discrimination in housing-related lending activities;
. require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects;
. require lenders to provide borrowers with information regarding the
nature and cost of real estate settlements;
. prohibit certain lending practices and limit escrow account amounts with
respect to real estate transactions; and
. prescribe possible penalties for violations of the requirements of
consumer protection statutes and regulations.
From time to time PrivateBank has been made aware of certain deficiencies in
its consumer compliance program. Management believes that any deficiencies
have already been or are in the process of being corrected. In the event that
consumer compliance deficiencies were to continue over time, enforcement or
administrative actions by the appropriate federal banking regulators may
affect the implementation of the Company's growth strategies.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
an enforcement action against an institution that fails to comply with
regulatory requirements, particularly capital requirements. Possible
enforcement actions range from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance.
Other. PrivateBank is also subject to state and federal restrictions upon:
. extensions of credit to the Company and any non-banking affiliates,
. the purchase of assets from affiliates,
. the issuance of guarantees, acceptances or letters of credit on behalf
of affiliates, and
. investments in stock or other securities issued by affiliates or
acceptance thereof as collateral for an extension of credit.
The Company and PrivateBank are subject to restrictions with respect to
engaging in the issuance, underwriting, public sale or distribution of certain
types of securities. In addition, PrivateBank must maintain reserves against
deposits and is subject to restrictions upon:
. the nature and amount of loans which it may make to a single borrower
(and, in some instances, a group of affiliated borrowers),
17
<PAGE>
. the nature and amount of securities in which it may invest,
. the amount of investment in PrivateBank premises, and
. the manner in and extent to which it may borrow money.
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. The GLB Act also
requires financial institutions to disclose, on ATM machines, any non-customer
fees and to disclose to their customers upon the issuance of an ATM card any
fees that may be imposed by the institutions on ATM users. For older ATMs,
financial institutions will have until December 31, 2004 to provide such
notices.
The GLB Act imposes new requirements on financial institutions with respect
to customer privacy. The GLB Act generally prohibits 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.
The Company does not believe that the GLB Act will have a material adverse
affect upon its 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 could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers and that can
aggressively compete in the markets it currently serves.
Pending Application--PrivateBank (St. Louis)
Assuming its pending application is approved by the Office of Thrift
Supervision ("OTS") and the FDIC, PrivateBank (St. Louis) will be a federally
chartered savings bank. Accordingly, it would be governed by and subject to
extensive regulation, examination and supervision by the OTS, and would be
required to comply with the rules and regulations of the OTS under the Home
Owners' Loan Act ("HOLA"). As a federally chartered savings bank, PrivateBank
(St. Louis) will have greater flexibility in pursuing interstate branching
than an Illinois state bank. The activities of PrivateBank (St. Louis) will
also be governed by the Federal Deposit Insurance Act. The FDIC will have
back-up regulatory authority over PrivateBank (St. Louis).
Under such regulation and supervision, PrivateBank (St. Louis) would be
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 would conduct
periodic examinations to test 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 the
Company, PrivateBank (St. Louis) and their operations.
PrivateBank (St. Louis) would also be 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
18
<PAGE>
months out of each 12 month period. As part of its application process,
PrivateBank (St. Louis) has 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, PrivateBank (St. Louis) may be assisted by PrivateBank through the
purchase by PrivateBank of certain loans and/or assets from PrivateBank (St.
Louis).
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
these safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, can generally be identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain and actual results may
differ materially from the results discussed in forward-looking statements.
Factors which might cause such a difference include, but are not limited to,
fluctuations in market rates of interest and loan and deposit pricing; a
deterioration of general economic conditions in the Company's market areas;
legislative or regulatory changes; adverse developments in the Company's loan
or investment portfolios; significant increases in competition; unanticipated
costs or lower than expected business levels relating to the Company's newly
established St. Charles, Illinois and St. Louis, Missouri operations; an
inability to realize cost savings in the newly acquired operations of Johnson
Bank Illinois or to achieve enhanced revenues to the full extent expected or
within the expected time frame; unanticipated delays or costs relating to the
establishment of PrivateBank (St. Louis); difficulties in identifying
attractive acquisition opportunities or strategic partners to compliment the
Company's private banking approach; and the possible dilutive effect of
potential acquisitions or expansion. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.
EXECUTIVE OFFICERS
The following persons serve as executive officers of the Company:
Ralph B. Mandell (59), a director since 1989, is a co-founder of the Company
and PrivateBank. A Managing Director of PrivateBank, he has served as Chairman
and Chief Executive Officer of the Company and PrivateBank since 1994 and
assumed the additional title of President of both entities in March 1999. From
inception until 1994, Mr. Mandell had the title of Co-Chairman and Co-Chief
Executive Officer. Prior to starting PrivateBank and the Company, 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.
Donald A. Roubitchek (49) has been a director since 1997. He has been the
Secretary/Treasurer and Chief Financial Officer of the Company since
inception, and is also currently Chief Financial Officer and a Managing
Director of PrivateBank. Mr. Roubitchek also served as Chief Operating Officer
of PrivateBank from its inception until June 30, 1999. He has 28 years
experience in the banking industry and a concentrated background in finance.
Prior to joining PrivateBank, Mr. Roubitchek served in various capacities with
LaSalle Community Banks, and its predecessor, Lakeview Bank.
19
<PAGE>
Gary S. Collins (41) has been a Managing Director of PrivateBank since 1991.
As a specialist in real estate lending, Mr. Collins has spent more than 20
years managing diverse real estate transactions and the full range of mortgage
financing. Before joining PrivateBank in 1991, he held senior positions at
several Chicagoland financial institutions, including First Chicago Bank of
Oak Park, First Colonial Bancshares and Avenue Bank of Oak Park.
M. Gail Fitzgerald (56) has been a Managing Director of PrivateBank since
1996. She serves as PrivateBank'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 (40) has been a Managing Director of PrivateBank since 1996.
He serves as head of credit marketing and manager of the Oak Brook office.
Prior to joining PrivateBank, 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.
ITEM 2. PROPERTIES
The Company currently has seven physical banking locations. The main offices
of the Company and PrivateBank are located in the central business and
financial district of Chicago. The Company leases 20,900 square feet
comprising the entire eighth, ninth, and tenth floors and part of the eleventh
floor of a building located at Ten North Dearborn Street. This lease expires
on or about August 31, 2006.
PrivateBank established a suburban office in the affluent North Shore area
located at 517 Green Bay Road, Wilmette, Illinois, in October 1994.
PrivateBank leases approximately 5,300 square feet on the first floor of a
commercial building. This lease expires on June 30, 2004.
In January 1997, the Company opened a second office of PrivateBank in
rapidly growing, west suburban DuPage County at 1603 West Sixteenth Street,
Oak Brook, Illinois. The Company leases 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, the Company opened the Kane County office at 24 South
Second Street, St. Charles, Illinois. PrivateBank leases approximately 6,700
square feet of a commercial building. This lease expires October 31, 2009.
On November 18, 1999, the Company announced that it had filed an application
to charter a new federal savings bank in St. Louis, Missouri. Pending
regulatory approval, the St. Louis location was opened as a loan production
office of PrivateBank at 1401 South Brentwood Boulevard, St. Louis, Missouri.
The Company leases approximately 12,400 square feet on the first and second
floors of a commercial building. This lease expires on February 4, 2009.
The Company's offices in Lake Forest and Winnetka, Illinois, were both
acquired as part of the purchase of Johnson Bank Illinois. The 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, 2005. The 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.
The Company has a variety of renewal options for each property and certain
rights to secure additional space.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be party to various legal proceedings
arising in the normal course of business. Since PrivateBank acts as a
depository of funds, the Company 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. However, the Company is not aware
of any pending or threatened litigation that would have a material adverse
effect on its business, results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PVTB." As of March 15, 2000, the Company had approximately 402 record
holders of its common stock. The table below sets forth the high and low sales
prices of the Company's common stock as reported by Nasdaq for the periods
indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
Second Quarter(1)......................................... $35 3/4 $18
Third Quarter............................................. 21 7/16 15 1/4
Fourth Quarter............................................ 17 7/8 12 7/16
</TABLE>
- --------
(1) Reflects the high and low sales prices on June 30, 1999, the first day of
trading.
Holders of the Company's common stock are entitled to receive dividends that
the Board of Directors may declare from time to time. The Company may only pay
dividends out of funds which are legally available for that purpose. Because
consolidated net income consists largely of the net income of PrivateBank,
dividend payments to stockholders are dependent upon the Company's receipt of
dividends from PrivateBank. See "Supervision and Regulation" for a discussion
of regulatory restrictions on dividend declarations. The Company's dividend
declaration is discretionary and will depend on its earnings and financial
condition, regulatory limitations, tax considerations and other factors.
The Company has paid quarterly dividends on its common stock since the third
quarter of 1995. While the Board of Directors expects to continue to declare
dividends quarterly, there can be no assurance that the Company will continue
to pay dividends at these levels or at all. The following table shows the
history of per share cash dividends declared and paid on the Company's stock
for the last two years.
<TABLE>
<S> <C>
1998
First Quarter....................................................... $0.019
Second Quarter...................................................... 0.020
Third Quarter....................................................... 0.020
Fourth Quarter...................................................... 0.020
1999
First Quarter....................................................... $0.025
Second Quarter...................................................... 0.025
Third Quarter....................................................... 0.025
Fourth Quarter...................................................... 0.025
</TABLE>
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
information of the Company at or for the periods indicated. This information
should be used in conjunction with the audited consolidated financial
statements and related notes included pursuant to Item 8 of this report. See
"Index to Consolidated Financial Statements" on page F-1.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Selected Statement of Income
Data:
Interest income:
Loans, including fees.......... $ 26,597 $ 19,619 $ 16,729 $ 12,152 $ 10,053
Federal funds sold and
interest-bearing deposits..... 330 2,181 875 1,392 1,149
Securities..................... 5,141 3,492 2,519 2,396 1,700
-------- -------- -------- -------- --------
Total interest income.......... $ 32,068 $ 25,292 $ 20,123 $ 15,940 $ 12,902
-------- -------- -------- -------- --------
Interest expense:
Interest-bearing demand
deposits...................... 604 487 377 305 276
Savings and money market
deposit accounts.............. 7,671 6,651 5,880 4,613 3,484
Other time deposits............ 7,399 6,155 3,821 2,973 2,620
Funds borrowed................. 931 19 3 143 50
-------- -------- -------- -------- --------
Total interest expense......... $ 16,605 $ 13,312 $ 10,081 $ 8,034 $ 6,430
-------- -------- -------- -------- --------
Net interest income............ 15,463 11,980 10,042 7,906 6,472
Provision for loan losses....... 1,208 362 603 524 930
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses..... 14,255 11,618 9,439 7,382 5,542
-------- -------- -------- -------- --------
Non-interest income:
Banking and trust services..... 1,947 1,281 1,210 911 674
Securities gains............... 57 40 -- -- --
-------- -------- -------- -------- --------
Total non-interest income....... $ 2,004 $ 1,321 $ 1,210 $ 911 $ 674
-------- -------- -------- -------- --------
Non-interest expense:
Salaries and employee
benefits...................... 5,156 4,077 3,902 3,411 2,749
Occupancy...................... 1,563 1,379 1,274 990 946
Data processing................ 478 508 396 334 282
Marketing...................... 692 567 500 424 296
Amortization of organization
costs......................... -- -- -- 23 280
Professional fees.............. 1,295 561 448 326 284
Insurance...................... 214 134 115 82 238
Towne Square Financial
Corporation acquisition....... 1,300 -- -- -- --
Other expense.................. 1,389 864 627 508 434
-------- -------- -------- -------- --------
Total non-interest expense..... 12,087 8,090 7,262 6,098 5,509
-------- -------- -------- -------- --------
Income before income taxes..... 4,172 4,849 3,387 2,195 707
Income tax provision........... 1,257 1,839 1,242 762 (403)
-------- -------- -------- -------- --------
Net income..................... $ 2,915 $ 3,010 $ 2,145 $ 1,433 $ 1,110
======== ======== ======== ======== ========
Per Share Data:
Basic earnings................. $ 0.73 $ 0.91 $ 0.69 $ 0.49 $ 0.39
Diluted earnings............... 0.69 0.86 0.65 0.47 0.38
Dividends...................... 0.10 0.08 0.07 0.07 0.03
Book value (at end of period).. 10.26 8.53 7.67 6.84 6.47
Selected Financial Data (at end
of period):
Total securities................ $ 71,134 $116,891 $ 65,383 $ 44,617 $ 38,296
Total loans..................... 397,277 281,965 218,495 171,343 126,069
Total assets.................... 518,697 416,308 311,872 246,734 196,917
Total deposits.................. 453,092 364,994 285,773 222,571 176,868
Funds borrowed.................. 15,000 20,000 -- 3,000 700
Total stockholders' equity...... 47,080 29,274 24,688 20,222 18,445
Trust assets under
administration................. 729,904 611,650 469,646 328,662 212,456
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial
Ratios and Other Data:
Performance Ratios:
Net interest
margin(1)............. 3.79% 3.61% 4.01% 3.73% 3.95%
Net interest
spread(2)............. 3.15 2.98 3.31 3.03 3.16
Non-interest income to
average assets........ 0.45 0.37 0.45 0.42 0.40
Non-interest expense to
average assets........ 2.71 2.29 2.71 2.79 3.31
Net overhead ratio(3).. 2.26 1.91 2.26 2.38 2.90
Efficiency
ratio(4)(7)........... 65.76 60.82 64.53 69.17 77.09
Return on average
assets(5)(7).......... 0.65 0.85 0.80 0.66 0.67
Return on average
equity(6)(7).......... 7.66 11.27 9.49 7.38 6.22
Dividend payout ratio.. 13.78 8.74 10.13 12.88 8.03
Asset Quality Ratios:
Non-performing loans to
total loans........... 0.21 0.36 0.24 0.65 1.90
Allowance for loan
losses to:
total loans............ 1.14 1.21 1.40 1.43 1.55
non-performing loans... 548 336 578 220 82
Net charge-offs to
average total loans... 0.03 -- -- 0.02 --
Non-performing assets
to total assets....... 0.16 0.24 0.17 0.45 1.22
Balance Sheet Ratios:
Loans to deposits...... 87.7 77.3 76.5 77.0 71.3
Average interest-
earning assets to
average interest-
bearing liabilities... 116.3 116.4 117.7 118.6 120.7
Capital Ratios:
Total equity to total
assets................ 9.08 7.03 7.92 8.20 9.37
Total risk-based
capital ratio......... 13.96 11.53 11.75 12.21 14.56
Tier 1 risk-based
capital ratio......... 12.84 10.40 10.50 10.96 13.31
Leverage ratio......... 10.77 7.88 8.70 8.71 9.76
</TABLE>
- --------
(1) Net interest income divided by average interest-earning assets.
(2) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(3) Non-interest expense less non-interest income divided by average total
assets.
(4) Non-interest expense divided by the sum of net interest income (tax
equivalent) plus non-interest income.
(5) Net income divided by average total assets.
(6) Net income divided by average common equity.
(7) 1999 performance ratios excluding special charges relating to the Towne
Square Financial Corporation acquisition and St. Louis start-up costs are
as follows:
<TABLE>
<S> <C>
Efficiency ratio...................................................... 57.53%
Return on average assets.............................................. 1.01%
Return on average equity.............................................. 11.86%
</TABLE>
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company was organized in 1989 to serve as the holding company for a de
novo bank, The PrivateBank and Trust Company, which provides personal and
commercial banking services to affluent individuals, professionals,
entrepreneurs and their business interests in the Chicago metropolitan area.
The Company opened its flagship Chicago location in 1991, and its full-service
offices in the affluent communities of Wilmette, Illinois, a North Shore
suburb of Chicago, in 1994, and Oak Brook, Illinois, located in the rapidly
growing western suburbs, in 1997.
In January 2000, the Company opened a fourth full service office of
PrivateBank in St. Charles, Illinois. This new office was established through
the acquisition in August 1999 of Towne Square Financial Corporation, a
company in the process of forming a de novo bank. The Company incurred
$133,200 of non-recurring start-up costs in connection with this office during
1999, which are recorded in professional fees and other components of non-
interest expense. The Company also incurred a total of approximately $403,000
of operating expense related to the St. Charles office prior to the opening on
January 31, 2000. Of this amount, $307,000 was incurred during 1999. In
addition, upon completing the Towne Square Financial Corporation acquisition
on August 3, 1999, the Company incurred a one-time charge to earnings of
approximately $1.3 million, an amount equal to the excess of the value of
stock issued over the net assets of Towne Square on the date of the closing.
This charge is non-deductible for tax purposes. The Company issued 91,668
shares of common stock in the transaction. The Company did not recognize any
goodwill in connection with the acquisition of Towne Square as the acquisition
did not constitute a business combination pursuant to generally accepted
accounting principles.
On October 3, 1999, the Company entered into an agreement to acquire Johnson
Bank Illinois, a unit of Johnson International, Inc., Racine, Wisconsin.
Johnson Bank Illinois was comprised of banking offices in Lake Forest and
Winnetka, Illinois. This transaction was consummated on February 11, 2000, and
Johnson Bank Illinois was merged into PrivateBank adding two additional
PrivateBank locations on Chicago's North Shore. The acquisition cost was $15
million in cash and $5 million in subordinated notes. 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.
On November 18, 1999, the Company announced that it had filed an application
to charter a new federal savings bank, to be known as The PrivateBank (St.
Louis). Pending regulatory approval of the new subsidiary, in late 1999
PrivateBank opened a loan production office in St. Louis in order to begin
developing credit business in that market. During 1999, the Company incurred
$324,000 of start-up costs associated with the establishment of the St. Louis
office. The costs incurred during 1999 represent salary, occupancy expense,
legal expenses and various other fees. The Company currently estimates that
the St. Louis banking office will become fully operational late in the second
quarter of 2000 and will until then incur additional start-up costs associated
with chartering and opening this new bank.
The profitability of the Company's operations depends on net interest
income, provision for loan losses, non-interest income, and non-interest
expense. Net interest income is the difference between the income the Company
receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits and borrowings. Net interest income is
dependent on the amounts and yields of interest-earning assets as compared to
the amounts and rates on interest-bearing liabilities. Net interest income is
sensitive to changes in market rates of interest and the asset/liability
management strategies used in coping with such changes. The provision for loan
losses reflects the cost of credit risk in the loan portfolio. The provision
for loan losses is dependent on increases in the loan portfolio, management's
assessment of the collectability of the loan portfolio, loss experience, as
well as economic and market factors.
25
<PAGE>
Non-interest income consists primarily of trust fee income, and to a lesser
extent, net securities gains and fees for ancillary banking services. The
Company earns trust fees for administering trusts for a variety of
individuals, families and fiduciary relationships.
Non-interest expense includes salaries and employee benefits as well as
occupancy, data processing, marketing, professional fees, insurance, and other
expenses. Non-interest expenses are heavily influenced by the growth of
operations. Growth in the number of client relationships directly affects the
majority of the Company's expense categories. Profitability and expense ratios
were negatively impacted in 1999 due to nonrecurring and start-up expenses
associated with the St. Charles expansion and St. Louis initiative. It is
expected that results for 2000 will continue to be impacted to some extent by
the start-up nature of operations in St. Charles and St. Louis. The Company
currently estimates that the St. Charles office will first become profitable
early in 2001 and that the St. Louis bank will not begin to operate profitably
until the last quarter of 2001.
On June 30, 1999, the Company completed its initial public offering of
900,000 shares of common stock at $18 per share. The shares are quoted on the
Nasdaq National Market under the symbol "PVTB." The closing date of the
offering was July 6, 1999, when the Company received net proceeds of
approximately $14.4 million after deduction of commissions and offering
expenses payable by the Company of approximately $665,000. 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.
CONSOLIDATED RESULTS OF OPERATIONS:
1999 COMPARED TO 1998; 1998 COMPARED TO 1997
Net Income
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 special charges, 1999 earnings per diluted share were
$1.07, a 24% increase over 1998 earnings per diluted share.
The increase in earnings from operations before special charges is primarily
attributable to growth in the balance sheet, particularly in loans, and
improvement in the 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
--------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Net income............................... $ 4,172 $ 1,257 $ 2,915
Special charges (net of tax)(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.
In 1998, the Company 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.
26
<PAGE>
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. The related
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 $15.7 million during the year ended December 31,
1999, compared to $13.3 million for 1998, an increase of 18.1%. 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 is primarily
attributable to growth in earning assets and, to a lesser extent, improvement
in net interest margin. Average earning assets during 1999 were $432.2 million
compared to $331.6 million for 1998, an increase of 30.3%. The Company's net
interest margin (tax equivalent net interest income as a percentage of earning
assets) 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 the 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.
The Company is likely to experience margin pressure during 2000 due to the
rising interest rate environment. Increases in interest rates paid on deposits
and other funding sources are likely to exceed the effect of higher rates
earned on assets. With its completion in February 2000 of the acquisition of
Johnson Bank Illinois in a cash transaction, the Company has fully utilized
the proceeds of its initial public offering. To fund anticipated loan growth
in 2000, PrivateBank expects to continue to rely on growth in traditional
deposit products supplemented by short-term borrowings and brokered deposits.
In 1998, net interest income increased from 1997 by $1.9 million, or 19.3%,
to $12.0 million. During the same period, the net interest margin decreased
from 4.01% to 3.61%. 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 the Company's loan portfolio.
In 1998, average interest-bearing liabilities grew by $71.8 million, while
average rates paid on interest bearing liabilities dropped from 4.72% in 1997
to 4.67% in 1998. Due to rate compression and competitive pressures,
PrivateBank was unable to reduce rates paid as quickly or as significantly as
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.
27
<PAGE>
The following table presents a summary of the Company's net interest income
and related net interest margin, calculated on a tax equivalent basis (dollars
in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
---------------------- ---------------------- ----------------------
Average Interest Rate Average Interest Rate Average Interest Rate
-------- -------- ---- -------- -------- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold...... $ 6,557 $ 329 5.02% $ 40,230 $ 2,181 5.42% $ 15,917 $ 875 5.43%
Investment
securities(1).......... 93,903 6,055 6.45% 57,427 3,576 6.23% 40,164 2,519 6.27%
Loans, net of unearned
discount............... 331,698 26,598 8.02% 233,987 19,620 8.39% 195,237 16,729 8.60%
-------- ------- -------- ------- -------- -------
Total earning
assets.............. $432,158 $32,982 7.63% $331,644 $25,377 7.65% 251,318 20,123 8.03%
======== ======= ======== ======= ======== =======
Deposits--interest
bearing:
Interest--bearing
demand accounts....... $ 27,248 604 2.22% $ 22,073 487 2.21% $ 17,722 377 2.13%
Savings and money
market deposits....... 184,192 7,707 4.18% 151,558 6,651 4.39% 127,560 5,880 4.61%
Time deposits.......... 141,481 7,364 5.20% 111,407 6,155 5.52% 68,252 3,821 5.60%
-------- ------- -------- ------- -------- -------
Total interest--
bearing deposits.... 352,921 15,675 4.44% 285,038 13,293 4.66% 213,534 10,078 4.72%
Funds borrowed.......... 17,500 931 5.32% 373 19 5.09% 49 3 5.83%
-------- ------- -------- ------- -------- -------
Total interest
bearing
liabilities......... $370,421 16,606 4.48% $285,411 13,312 4.66% $213,583 10,081 4.72%
======== ------- ======== ------- ======== -------
Tax equivalent net
interest income........ $16,376 $12,065 $10,042
======= ======= =======
Net interest spread..... 3.15% 2.99% 3.31%
Net interest margin..... 3.79% 3.64% 4.01%
</TABLE>
- --------
(1) Interest income on tax advantaged investment securities reflects a tax
equivalent adjustment based on a marginal federal corporate tax rate of
34%. The total tax equivalent adjustment reflected in the above table is
approximately $914,000, $85,000 and $0 in the years ending 1999, 1998 and
1997, respectively.
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, calculated 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.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 Compared to 1998 1998 Compared to 1997
--------------------------------- ----------------------------
Change Change Change Change Change Change
due to due to due to Total due to due to due to Total
rate volume mix change rate volume mix change
------- ------- ------ ------- ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold...... $ (27) $(1,690) $(135) $(1,852) $ (4) $1,318 $ (8) $1,306
Investment securities... 207 2,353 (81) 2,479 (23) 1,075 5 1,057
Loans, net of unearned
discount............... (1,227) 7,836 369 6,978 (491) 3,251 131 2,891
------- ------- ----- ------- ----- ------ ---- ------
Total interest income.. (1,047) 8,499 153 7,605 (518) 5,644 128 5,254
------- ------- ----- ------- ----- ------ ---- ------
Interest bearing
deposits............... (776) 3,014 144 2,382 (171) 3,332 54 3,215
Funds borrowed.......... 40 911 (39) 912 (3) 17 2 16
------- ------- ----- ------- ----- ------ ---- ------
Total interest
expense............... (736) 3,925 105 3,294 (174) 3,349 56 3,231
------- ------- ----- ------- ----- ------ ---- ------
Net interest income..... $ (311) $ 4,574 $ 48 $ 4,311 $(344) $2,295 $ 72 $2,023
======= ======= ===== ======= ===== ====== ==== ======
</TABLE>
Provision for Loan Losses
The Company's 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. The Company provides for an adequate
allowance for loan losses that are probable and inherent in the portfolio.
Increases in the provision for loan losses reflect the 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 32.
28
<PAGE>
The provision for loan losses decreased 60.0% from $603,000 in 1997 to
$362,000 in 1998. Throughout 1998, the allowance for loan losses was
reassessed to determine the appropriate level to be maintained. This analysis
was influenced by the following factors: the volume and quality of loans and
commitments in the portfolio, loss experience, and economic conditions. The
reduced provision, despite an increasing portfolio, reflects management's
assessment of the overall risk in the loan portfolio.
Non-interest Income
Non-interest income from fees and deposit service charges are below peer
group levels. This is largely the result of the profile of the Company's
typical client. These clients tend to have larger deposit account balances
than customers of traditional banks. Because average balances tend to be high,
the Company does not earn high service charge income typical of community
banks. In 1998, the Company entered into an alliance with Mesirow Financial to
provide insurance services to its clients. It is expected that fees related to
the sale of insurance services will increase in 2000 and future years.
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 February 2000, the acquisition of Johnson Bank Illinois added
approximately $60.0 million to trust assets under administration. The Company
expects to expand its trust services beyond the Chicago office with the
addition of trust staff to its suburban offices in 2000.
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 PrivateBank's success in attracting larger
blocks of business and the favorable stock market. In 1998, total non-interest
income increased 9.2% to $1.3 million from $1.2 million in 1997. 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, PrivateBank earned fees of
$119,000 while administering a problem account. This account was transferred
to another trust institution late in 1997. Without this income in 1997, the
increase in trust income in 1998 over 1997 would have been $210,000, or 25.7%.
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>
Year Ended
December 31,
---------------------
1999 1998 1997
------- ------ ------
(in thousands)
<S> <C> <C> <C>
Salaries and employee benefits........................ $ 5,156 $4,077 $3,902
Towne Square Financial Corporation acquisition........ 1,300 -- --
Occupancy............................................. 1,563 1,379 1,274
Data processing....................................... 478 508 396
Marketing............................................. 692 567 500
Professional fees..................................... 1,295 561 448
Insurance............................................. 214 134 115
Other expense......................................... 1,389 863 627
------- ------ ------
Total non-interest expense.......................... $12,087 $8,089 $7,262
======= ====== ======
</TABLE>
Included in total non-interest expense for the year ended December 31, 1999,
is the one-time $1.3 million charge associated with the acquisition of Towne
Square Financial Corporation, as well as $133,200 of start-up
29
<PAGE>
costs. The $1.3 million non-recurring charge is not tax deductible. Excluding
the effect of the one-time charge, non-interest expense increased 33.3% to
$10.8 million compared to $8.1 million for 1998. Total non-interest expense
increased 11.4% from $7.3 million in 1997, to $8.1 million in 1998. Non-
interest expense as a percentage of average assets changed from 2.71% in 1997
to 2.29% in 1998 to 2.32% in 1999.
The efficiency ratio (tax equivalent), which measures the percentage of net
revenue that is paid as non-interest expense, 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 Company's efficiency ratio for 2000 will be negatively impacted in 2000
due to the start-up nature of the St. Charles office and the St. Louis office.
During 2000, the Company expects to continue to incur operating expenses in
excess of revenues for these two offices.
The following table shows the Company's operating efficiency (excluding
special charges) over the last three years:
<TABLE>
<CAPTION>
December 31,
--------------------
1999(1) 1998 1997
------- ----- -----
<S> <C> <C> <C>
Non-interest expense to average assets................. 2.32% 2.29% 2.71%
Net overhead ratio..................................... 1.87 1.91 2.26
Efficiency ratio....................................... 57.52 60.80 64.50
</TABLE>
- --------
(1) Excludes the special charges relating to the Towne Square Financial
Corporation acquisition and the St. Louis start-up costs totaling
$1,757,000.
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, the
Company incurred approximately $262,000 in salary-related expenses 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
staffing at the Company 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. Full time equivalent employees
increased from 66.5 at year-end 1997 to 71.5 at year-end 1998 to 91.5 at year-
end 1999.
Professional fees, which include legal, accounting, consulting services and
investment management fees, increased 130.8% to $1.3 million for the year
ended December 31, 1999 from $561,000 for 1998 and $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, the Company completed its data processing conversion to a new third-
party provider. The Company incurred $145,000 of consulting expenses related
to the data processing conversion during the third quarter 1999. System
related projects are expected to continue in 2000. These projects include the
system merger completed in connection with the Johnson Bank Illinois
acquisition, the upgrade of PrivateBank's wire transfer system, implementation
of a new asset liability management software program and various other
projects which relate to general upgrades of PrivateBank's current technology
infrastructure. Acccordingly, consulting fees in 2000 are expected to exceed
1999 levels.
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.
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
30
<PAGE>
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 the Company's income before income taxes,
applicable income taxes and effective tax rate for the years ended December
31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
(dollars in
thousands)
<S> <C> <C> <C>
Income before taxes.................................. $4,172 $4,849 $3,387
Income tax provision................................. 1,257 1,839 1,242
Effective tax rate................................... 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 and 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
the Company's municipal bond portfolio as a percentage of total investment
securities and the initiation of a tax-advantaged strategy implemented in
February 1999. Municipal securities on a year to date average basis increased
from $25.0 million for the year ended December 31, 1998 to $39.5 million for
the year ended December 31, 1999. 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 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, including the use of FHLB advances and brokered deposits. The Company
expects to continue to use FHLB advances and brokered deposits as alternative
methods of funding loan growth. The Company will first look toward internally
generated deposits as funding sources, but expects to supplement its funding
needs with non-traditional funding sources as needed. FHLB advances have
proven to be reliable sources of funds. Brokered deposits are slightly more
costly than FHLB advances but require no collateral.
Loans
Total loans increased $115.3 million, or 40.9%, to $397.3 million at
December 31, 1999 from $282.0 million at December 31, 1998.
The following table sets forth the loan portfolio net of unearned discount
by category:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial real estate.......... $146,368 $ 94,392 $ 55,429 $ 39,452 $ 29,114
Residential real estate......... 72,972 54,171 56,307 45,012 25,973
Commercial...................... 67,026 46,800 33,862 28,004 22,906
Personal........................ 57,497 44,094 42,077 35,339 28,150
Home equity..................... 24,396 20,100 20,680 20,683 18,707
Construction.................... 29,018 22,408 10,140 2,853 1,219
-------- -------- -------- -------- --------
Total loans................... $397,277 $281,965 $218,495 $171,343 $126,069
======== ======== ======== ======== ========
</TABLE>
31
<PAGE>
The following table classifies the loan portfolio, by category, at December
31, 1999, by date at which the loans mature:
<TABLE>
<CAPTION>
More than one year
One year From one After five -------------------
or less to five years years Total Fixed Variable(1)
-------- ------------- ---------- -------- ------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate.. $ 30,643 $ 76,640 $ 39,349 $146,632 $50,762 $ 65,227
Residential real
estate................. 2,132 11,506 57,826 71,464 7,694 61,638
Commercial.............. 47,659 18,891 476 67,026 9,761 9,606
Personal................ 48,209 10,013 915 59,137 1,625 9,303
Home equity............. 1,771 10,708 11,917 24,396 -- 22,625
Construction............ 16,400 11,552 1,118 29,070 2,082 10,588
Unearned discount....... (448) -- -- (448) -- --
-------- -------- -------- -------- ------- --------
Total loans........... $146,366 $139,310 $111,601 $397,277 $71,924 $178,987
======== ======== ======== ======== ======= ======== ===
</TABLE>
- --------
(1) Includes adjustable rate mortgage products.
Allowance for Loan Losses
Loan quality is continually monitored by management and reviewed by the
loan/investment committee of the Board of Directors of PrivateBank on a
monthly basis. The amount of additions to the allowance for loan losses which
is 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, and evaluation of current and prospective
economic conditions in the market area, actual charge-offs during the year and
historical loss experience.
The Company maintains an allowance for loan losses sufficient to absorb
credit losses inherent in the loan portfolio. The allowance for loan losses
represents the Company's estimate of probable losses in the portfolio at each
balance sheet date and is supported by all available and relevant information.
The allowance for the loan losses contains provisions for probable losses that
have been identified relating to specific borrowing relationships as well as
probable losses inherent in the loan portfolio and credit undertakings that
are not specifically identified. The Company believes that the allowance for
loan losses is adequate to provide for estimated probable credit losses
inherent in the loan portfolio.
The allowance for loan losses as a percentage of total loans was 1.1% as of
December 31, 1999, compared to 1.2% as of December 31, 1998. In management's
judgment, an adequate allowance for loan losses has been established.
Management judges the adequacy of the allowance by formally reviewing and
analyzing potential problem credits, which entails assessing current and
historical loss experience, loan portfolio trends, prevailing economic and
business conditions, specific loan review and other relevant factors.
32
<PAGE>
Loan loss experience to date reflects the high credit quality of
PrivateBank's loan portfolio. The following table shows changes in the
allowance for loan losses resulting from additions to the allowance and loan
charge-offs for each of the periods shown. All charge-offs have been of loans
in the personal loan category. There were no recoveries on loans previously
charged off in any of the periods. Charge-offs as a percentage of average
total loans have been negligible.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.... $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025
Loans charged-off:
Commercial real estate............ -- -- -- -- --
Residential real estate........... -- -- -- -- --
Commercial........................ -- -- -- -- --
Personal.......................... 108 2 3 29 --
Home equity....................... -- -- -- -- --
Construction...................... -- -- -- -- --
Total loans charged-off......... 108 2 3 29 --
-------- -------- -------- -------- --------
Provision for loan losses......... 1,208 362 603 524 930
-------- -------- -------- -------- --------
Balance at end of period.......... $ 4,510 $ 3,410 $ 3,050 $ 2,450 $ 1,955
======== ======== ======== ======== ========
Average total loans............... $332,502 $234,486 $195,605 $141,043 $111,855
</TABLE>
The following table shows PrivateBank's allocation of the allowance for loan
losses by specific category at the dates shown. Various qualitative and
quantitative factors about the loan portfolio which are deemed relevant are
considered in determining the level of the allowance for loan losses.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of
Total Total Total Total Total
Amount Allowance Amount Allowance Amount Allowance Amount Allowance Amount Allowance
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate.. $1,154 25.6% $ 732 21.5% $ 429 14.1% $ 295 12.0% $ 226 11.6%
Residential real
estate................. 423 9.4 277 8.1 306 10.0 254 10.4 142 7.3
Commercial.............. 930 20.6 693 20.3 464 15.2 422 17.2 913 46.7
Personal................ 568 12.6 545 16.0 1,037 34.0 973 39.7 392 20.1
Home equity............. 237 5.3 201 5.9 201 6.6 184 7.5 164 8.4
Construction............ 369 8.2 236 6.9 106 3.5 28 1.1 13 0.7
Unallocated............. 829 18.3 726 21.3 507 16.6 294 12.0 105 5.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.................. $4,510 100.0% $3,410 100.0% $3,050 100.0% $2,450 100.0% $1,955 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The unallocated portion of the reserve involves the exercise of judgment by
management and reflects all appropriate considerations, including management's
view that the reserve should have a margin that recognizes the imprecision
inherent in the process of estimating expected credit losses.
33
<PAGE>
Asset Quality.
The following table classifies non-performing loans as of the dates shown:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998 1997 1996 1995
---- ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................ $600 $ -- $ -- $ -- $2,298
Loans past due 90 days or more.......... 223 1,016 527 1,116 100
---- ------ ------ ------ ------
Total non-performing loans............ 823 1,016 527 1,116 100
---- ------ ------ ------ ------
Other real estate owned................. -- -- -- -- --
---- ------ ------ ------ ------
Total non-performing assets........... $823 $1,016 $ 527 $1,116 $2,398
==== ====== ====== ====== ======
Total non-performing loans to total
loans.................................. 0.21% 0.36% 0.24% 0.65% 1.90%
Total non-performing assets to total
assets................................. 0.16 0.24 0.17 0.45 1.22
</TABLE>
It is the Company's 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, there were no
significant loans for which the terms had been renegotiated or restructured,
or for which there were serious doubts as to the ability of the borrower to
comply with repayment terms. PrivateBank had no other real estate owned as of
any of the dates shown.
Potential Problem Loans. In addition to those loans reflected in the table
above, some loans have been identified through the problem loan identification
system which exhibit a higher than normal credit risk. Loans in this category
include those with characteristics such as past maturity more than 90 days,
those that have recent adverse operating cash flow or balance sheet trends, or
loans that have general risk characteristics that management believes might
jeopardize the future timely collection of principal and interest payments.
The principal amount of loans in this category as of December 31, 1999 was
$223,000. At December 31, 1999, there were no significant loans which were
classified by any bank regulatory agency that are not included above as
nonaccrual, past due or restructured.
Loan Concentrations. Loan concentrations are considered to exist when there
are amounts loaned to a multiple number of borrowers engaged in similar
activities which would cause them to be similarly impacted by economic or
other conditions. Other than loans made to borrowers residing in the Chicago
metropolitan area and the involvement in lending secured by real estate, there
were no concentrations of loans exceeding 10% of total loans at December 31,
1999.
Nonaccrual loans increased to $600,000 as of December 31, 1999 from $0 as of
December 31, 1998. The largest component of nonaccrual loans at December 31,
1999 consists of one residential real estate loan in the amount of
approximately $538,000. Management does not believe that the increase in
nonaccrual loans represents a decline in the overall quality of the loan
portfolio at this time.
Nonperforming loans include nonaccrual loans and accruing loans which are 90
days or more delinquent. Nonperforming loans were $823,000 as of December 31,
1999, compared to $1.0 million at December 31, 1998. Nonperforming loans were
.21%, and .36% of total loans as of December 31, 1999 and December 31, 1998,
respectively. Nonperforming loans were .16% and .24% of total assets as of
December 31, 1999 and December 31, 1998, respectively.
34
<PAGE>
Investment Securities
All securities are classified as available-for-sale and may be sold as part
of the Company's 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. As of December 31, 1999, net unrealized losses resulted in a
$2.8 million decrease in equity. This 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 decreased 39.1% to $71.1 million as of
December 31, 1999, from $116.9 million as of December 31, 1998. The general
decline in investment securities is the result of management's decision to use
the proceeds of matured securities to fund loans originated by PrivateBank to
increase the Company's loan portfolio as lending opportunities became
available. The U.S. Treasury securities portfolio was sold in the third
quarter and the proceeds were reinvested in U.S. government agency securities.
U.S. government agency securities and collateralized mortgage obligations
decreased 56.5% to $26.7 million as of December 31, 1999, from $61.4 million
as of December 31, 1998. A primary reason for the decreases in the government
agency securities portfolio resulted from principal pay-downs that were driven
by the low interest rate environment experienced during the first half of
1999, with proceeds of repayments being redeployed into loans. Municipal
securities increased by 1.8% to $37.1 million as of December 31, 1999. The
increase in unrealized losses of $4.7 million since December 31, 1998 is
attributable to the municipal securities portfolio; rising interest rates
during the latter part of 1999 caused the municipal securities portfolio to
decline in value. Corporate and equity securities remained relatively
unchanged at $11.9 million as of December 31, 1999. Management does not
consider any of these changes to represent a change in the management
philosophy of the investment portfolio.
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998 1997
------- -------- -------
(in thousands)
<S> <C> <C> <C>
Available-for-Sale
U.S. Treasury securities and U.S. Government agency
obligations......................................... $ -- $ 6,095 $ 6,066
State and political subdivision obligations.......... 33,614 37,804 --
Collateralized mortgage obligations.................. 25,987 61,414 40,308
Corporate debt securities............................ 9,796 10,263 18,269
Equity securities.................................... 1,737 1,315 740
------- -------- -------
Total investment securities........................ $71,134 $116,891 $65,383
======= ======== =======
</TABLE>
Maturities of investment securities, by category, as of December 31, 1999,
are shown in the following table.
<TABLE>
<CAPTION>
Within From one to From five After ten Equity
one year five years to ten years years securities Total
-------- ----------- ------------ --------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... $ -- $ -- $ -- $ -- $ -- $ --
State and political
subdivision
obligations............ 71 1,639 3,813 28,091 -- 33,614
Collateralized mortgage
obligations............ -- -- 4,191 21,796 -- 25,987
Corporate debt
securities............. -- -- -- 9,796 -- 9,796
Equity securities....... -- -- -- -- 1,737 1,737
------ ------ ------ ------- ------ -------
Total investment
securities........... $ 71 $1,639 $8,004 $59,683 $1,737 $71,134
====== ====== ====== ======= ====== =======
</TABLE>
35
<PAGE>
The weighted average yield (computed on a tax equivalent basis) for each
range of maturities of securities, by category, is shown below as of December
31, 1999:
<TABLE>
<CAPTION>
Within From one to From five After ten Equity
one year five years to ten years years securities Total
-------- ----------- ------------ --------- ---------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... -- -- -- -- -- --
State and political
subdivision
obligations............ -- 8.67% 6.32% 6.53% -- 6.60%
Collateralized mortgage
obligations............ -- -- 8.00 7.37 -- 7.47
Corporate debt
securities............. -- -- -- 7.75 -- 7.75
Equity securities....... -- -- -- -- 6.40 6.40
--- ---- ---- ---- ---- ----
Total investment
securities........... -- 8.67% 7.20% 7.04% 6.40% 7.07%
=== ==== ==== ==== ==== ====
</TABLE>
Deposits
Total deposits of $453.1 million as of December 31, 1999 represented an
increase of $88.1 million or 24.1% from $365.0 million as of December 31,
1998. Non-interest-bearing deposits were $36.8 million as of December 31,
1999, approximately $2.7 million lower than the $39.5 million reported as of
December 31, 1998. Interest-bearing demand deposits increased $6.9 million to
$33.4 million at December 31, 1999. Money market deposit accounts increased by
approximately $23.1 million to $203.3 million at December 31, 1999 as compared
to December 31, 1998. Other time deposits increased by approximately $28.9
million to $157.2 million compared to $128.3 million at year end 1998.
The following table presents the balances of deposits by category and each
category as a percentage of total deposits at December 31, 1999, 1998 and
1997.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Percent Percent Percent
Balance of Total Balance of Total Balance of Total
-------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand.................... $ 36,771 8.1% $ 39,490 10.8% $ 34,234 12.0%
Savings................... 757 0.1 482 0.1 640 0.2
Interest-bearing demand... 33,400 7.4 26,508 7.3 26,084 9.1
Money market.............. 203,311 44.9 170,231 46.6 134,985 47.3
Certificates of deposit... 157,157 34.7 128,283 35.2 89,830 31.4
Brokered deposits......... 21,696 4.8 -- -- -- --
-------- ----- -------- ----- -------- -----
Total deposits.......... $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>
December 31,
-------------------------
1999 1998 1997
-------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Three months or less........................... $106,181 $ 67,922 $37,389
Over three through six months.................. 24,915 18,974 16,200
Over six through twelve months................. 23,110 17,664 16,100
Over twelve months............................. 3,218 904 941
-------- -------- -------
Total........................................ $157,424 $105,464 $70,630
======== ======== =======
</TABLE>
36
<PAGE>
Over the past several years, in a low interest rate, relatively flat yield
curve environment, clients have chosen to keep the maturities of their
deposits short. PrivateBank expects 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 PrivateBank, those deposits will be
replaced with traditional deposits, brokered deposits, borrowed money or
capital as discussed below, or the Company will liquidate assets to reduce
funding needs.
Liquidity and Capital Resources
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 the Company's
initial public offering in July 1999 and the increase in net income from the
year ended December 31, 1999. During July 1999, the Company raised
approximately $16.7 million in capital (net of commissions and offering costs)
through the issuance of 1,035,000 shares.
On February 11, 2000, the Company entered into a two-year, $18.0 million
revolving credit facility with a commercial bank. The Company borrowed $7.5
million under the revolver in order to consummate the Johnson Bank Illinois
acquisition. 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 Eurodollar-
based rate. The initial rate of interest on the borrowings is 7.20%.
In order to provide the initial capital required to establish PrivateBank
(St. Louis), subject to regulatory approval, the Company expects to borrow
approximately $8.0 million of additional funds under the revolving credit
facility. The Company currently anticipates receiving regulatory approval and
capitalizing the new bank subsidiary late in the second quarter of 2000.
The Company also issued a $5.0 million subordinated note to Johnson
International, Inc. as partial payment of the consideration for the Johnson
Bank acquisition. 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 initial rate of interest on the subordinated note is
6.60%.
The following table reflects various consolidated measures of capital:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Leverage ratio..................................... 10.77% 7.88%
Tier 1 risk-based capital ratio.................... 12.84% 10.40%
Total risk-based capital ratio..................... 13.96% 11.53%
Total equity to total assets....................... 9.08% 7.03%
</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 December 31, 1999, the Company exceeded the
minimum levels of all regulatory capital requirements, and PrivateBank was
considered "well-capitalized" under regulatory standards.
Liquidity measures the ability of the Company to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund its operations and to provide for clients' credit needs. The liquidity of
the Company principally depends on cash flows from operating activities,
investment in and maturity of assets, changes in balances of deposits and
borrowings and the Company's ability to borrow funds in the money or capital
markets. Liquidity management at PrivateBank involves planning to meet
anticipated funding needs at a reasonable cost. Liquidity management is guided
by policies, formulated and monitored by senior management and PrivateBank's
asset/liability committee, which takes into account the marketability of
assets, the sources and stability of funding and the level of unfunded
commitments. PrivateBank's principal sources of funds are deposits, short-term
borrowings and capital contributions by the Company funded by proceeds from
draws on its line of credit or through new capital.
37
<PAGE>
PrivateBank's core deposits, the most stable source of liquidity for
PrivateBank due to the nature of long-term relationships generally established
with clients, are available to provide long-term liquidity. At December 31,
1999, 79.6% of total assets were funded by core deposits. At December 31,
1998, 85.3% of total assets were funded by core deposits.
During 1999, the Company first utilized brokered deposits as a funding tool
to enhance liquidity in anticipation of increasing loan demand and year 2000
contingency planning. The Company expects to continue to use FHLB advances and
brokered deposits as alternative methods of funding loan growth. The Company
will first look toward internally generated deposits as funding sources, but
plans to supplement its funding needs with non-traditional funding sources as
needed. The Company anticipates that its average cost of funds will increase
in 2000 compared to 1999.
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 December 31, 1999, net liquid assets were approximately $79.5
million. At December 31, 1998, net liquid assets totaled approximately $104.5
million, compared to approximately $76.2 million at December 31, 1997 and
$55.4 million at December 31, 1996.
Net cash inflows provided by operations were $3.2 million for the year ended
December 31, 1999 compared to a net inflow of $4.3 million a year earlier. Net
cash outflows from investing activities were $74.1 million for the year ended
December 31, 1999, compared to a net cash outflow of $115.3 million a year
earlier. Cash inflows from financing activities for the year ended December
31, 1999 were $99.6 million compared to a net inflow of $100.3 million in
1998.
In the event of short-term liquidity needs, PrivateBank may purchase federal
funds from correspondent banks.
PrivateBank's membership in the Federal Home Loan Bank System gives it the
ability to borrow funds from the Federal Home Loan Bank of Chicago (FHLB) for
short- or long-term purposes under a variety of programs. PrivateBank has
periodically used services of the FHLB for short-term funding needs and other
correspondent services. At December 31, 1999, FHLB borrowed funds totaled
$15.0 million at an interest rate of 6.03%. This FHLB 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, PrivateBank also had
$21.4 million in FHLB letters of credit outstanding. PrivateBank pays 0.125%
per annum for FHLB letters of credit. At December 31, 1998, there were $20.0
million in FHLB advances at an interest rate of 5.20% and no FHLB letters of
credit outstanding. At December 31, 1997, there were no FHLB advances and no
FHLB letters of credit outstanding. The following table shows the maximum
availability for and usage of FHLB advances and letters of credit.
<TABLE>
<CAPTION>
Date Availability Usage
---- ------------ -------
(in thousands)
<S> <C> <C>
December 31, 1999.................................... $107,408 $36,380
December 31, 1998.................................... 45,842 20,000
</TABLE>
As of February 29, 2000, the Company had $8.0 million of FHLB advances.
These FHLB advances were acquired as part of the Johnson Bank Illinois
acquisition. The advances and respective call dates, if applicable, are
presented below:
<TABLE>
<CAPTION>
Contractual
Amount Maturity Call Date
------ ----------- ---------
<S> <C> <C>
$4,000,000.......................................... 8/27/04 8/27/00
$2,000,000.......................................... 5/22/00 N/A
$2,000,000.......................................... 4/29/00 N/A
</TABLE>
38
<PAGE>
PrivateBank accepts deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. The State of Illinois also
accepts FHLB letters of credit as collateral. At December 31, 1999 and 1998,
PrivateBank 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.
Impact of Inflation
The Company's consolidated financial statements and the related notes
thereto included in this report have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. Under these principles and practices, the Company is required to
measure its 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 the Company's assets and
liabilities are monetary in nature. As a result, interest rates have a more
significant impact on the Company's 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a continuing part of the Company's financial strategy, PrivateBank
attempts to manage the impact of fluctuations in market interest rates on its
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 the Board of
Directors and is monitored by management. The Company's asset/liability
management policy sets standards within which it is expected to operate. These
standards include guidelines for exposure to interest rate fluctuations,
liquidity, loan limits as a percentage of funding sources, exposure to
correspondent banks and brokers, and reliance on non-core deposits. The policy
also states the reporting requirements to its Board of Directors. The
investment policy complements the asset/liability policy by establishing
criteria by which the Company may purchase securities. These criteria include
approved types of securities, brokerage sources, terms of investment, quality
standards, and diversification.
The Company measures the impact of interest rate changes on its 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. In 1999, the Company's negative one-year interest
rate gap increased, making the Company potentially more exposed to a negative
impact from rising interest rates. The increase resulted primarily from the
addition to the loan portfolio of adjustable rate loans with fixed initial
rates of longer than one year. These loans will reprice each year once the
initial term has lapsed. Management anticipates placing a greater emphasis on
floating rate loans in 2000 in an effort to reduce the interest rate
sensitivity of its loan portfolio.
The following table illustrates the estimated interest rate sensitivity and
periodic and cumulative gap positions calculated as of December 31, 1999 and
1998.
39
<PAGE>
The following table illustrates the estimated interest rate sensitivity and
periodic and cumulative gap positions calculated as of December 31, 1999 and
1998.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
Time to Maturity or Repricing
-----------------------------------------------------
0- 1-
90 days 91-365 days 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%
GAP/RSA.................. 6.0% 27.6% -6.3% -13.4%
<CAPTION>
December 31, 1998
-----------------------------------------------------
Time to Maturity or Repricing
-----------------------------------------------------
0- 1-
90 days 91-365 days 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 85,047 -- 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) 36,058 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>
40
<PAGE>
The following table shows the impact of an immediate 200 basis point change
in interest rates, assessed through a simulation model, on the Company's
earning asset portfolio as of December 31, 1999 and as of 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 the Company
was 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>
December 31, 1999 March 31, 1999
--------------------- ---------------------
+200 Basis -200 Basis +200 Basis -200 Basis
Points Points Points Points
---------- ---------- ---------- ----------
<S> <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.......................... -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, the Company would suffer a decline in net
interest income of 8.3% and 8.7% over a two-year horizon based on its earning
asset portfolio as of December 31, 1999 and March 31, 1999, respectively.
Conversely, a like shift of -200 basis points would increase net interest
income by 10.8% over a two-year horizon based on December 31, 1999 balances,
up slightly from the 10.3% measured on the basis of the March 31, 1999
portfolio.
The range of potential decline in net interest income for rates up 200 basis
points and the potential increase in net interest income for rates down 200
basis points is not materially different as of December 31, 1999 as compared
to March 31, 1999.
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, the Company cannot
make any assurances as to the predictive nature of these assumptions including
how client preferences or competitor influences might change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding directors of the Company is included in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders (the "Proxy
Statement") under the heading "Election of Directors" and the information
included therein is incorporated herein by reference. Information regarding
the executive officers of the Company is included in "Part I., Item 1.
Business."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers and directors is
included in the Company's Proxy Statement under the headings "Board of
Directors' Compensation," "Executive Compensation," "Employment Agreements,"
"Amended and Restated Stock Incentive Plan," and "401(k) Plans" and the
information included therein is incorporated herein by reference.
41
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the Company's Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners, Directors and Executive
Officers" and the information included therein is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the Company's Proxy Statement under the heading "Transactions with
Certain Related Persons" and the information included therein is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
The consolidated financial statements of the Company and its subsidiary as
required by Item 8 are filed as a part of this document. See "Index to
Consolidated Financial Statements" on page F-1.
(a) (2) Financial Statement Schedules
All financial statement schedules called for by Item 8 and Item 14 of Form
10-K have been omitted because the information requested is either not
applicable or has been included in the consolidated financial statements or
notes thereto.
(a) (3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
----------- -----------------------
<C> <S>
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.+
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)
10.4 Building Lease by and between Towne Square Realty, L.L.C. and The
PrivateBank and Trust Company dated August 6, 1999.+
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,
and PrivateBancorp, Inc.+
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
----------- -----------------------
<C> <S>
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, as
amended by the first amendment thereto.(1)*
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.+
21.1 Subsidiary of the Registrant.(1)
23.1 Consent of Arthur Andersen LLP.+
27.1 Financial Data Schedule.+
</TABLE>
- --------
+ Filed herewith
* Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit.
(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.
(b) Reports on Form 8-K
The following current Report on Form 8-K was filed by the Company during the
last quarter of fiscal 1999:
. Form 8-K dated October 4, 1999.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PrivateBancorp, Inc.
Date: March 29, 2000
/s/ Ralph B. Mandell
By: _________________________________
Ralph B. Mandell,
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THERE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ralph B. Mandell and Donald A.
Roubitchek, and each of them, the true and lawful attorney-in-fact and agents
of the undersigned, with full power of substitution and resubstitution, for
and in the name, place and stead of the undersigned, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such 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, as fully as
to all intents and purposes as each of the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph B. Mandell Chairman, President, Chief March 29, 2000
______________________________________ Executive Officer and
Ralph B. Mandell Director
/s/ Caren L. Reed Vice Chairman March 29, 2000
______________________________________
Caren L. Reed
/s/ Donald A. Roubitchek Chief Financial Officer March 29, 2000
______________________________________ and Director
Donald A. Roubitchek
/s/ Lisa M. O'Neill Controller March 29, 2000
______________________________________
Lisa M. O'Neill
/s/ Donald L. Beal Director March 29, 2000
______________________________________
Donald L. Beal
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Naomi T. Borwell Director March 29, 2000
______________________________________
Naomi T. Borwell
Director March 29, 2000
______________________________________
William A. Castellano
/s/ Robert F. Coleman Director March 29, 2000
______________________________________
Robert F. Coleman
/s/ John E. Gorman Director March 29, 2000
______________________________________
John E. Gorman
/s/ Alvin J. Gottlieb Director March 29, 2000
______________________________________
Alvin J. Gottlieb
/s/ James M. Guyette Director March 29, 2000
______________________________________
James M. Guyette
/s/ Richard C. Jensen Director March 29, 2000
______________________________________
Richard C. Jensen
/s/ Philip M. Kayman Director March 29, 2000
______________________________________
Philip M. Kayman
/s/ William R. Langley Director March 29, 2000
______________________________________
William R. Langley
/s/ Thomas F. Meagher Director March 29, 2000
______________________________________
Thomas F. Meagher
/s/ William J. Podl Director March 29, 2000
______________________________________
William J. Podl
/s/ Michael B. Susman Director March 29, 2000
______________________________________
Michael B. Susman
</TABLE>
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PRIVATEBANCORP, INC.
<TABLE>
<S> <C>
Page
----
Report of Arthur Andersen LLP, Independent Public Accountants............ F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997........................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.................................. F-5
Consolidated Statements of Cash Flow for the years ended December 31,
1999, 1998 and 1997..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Selected Quarterly Financial Data (unaudited)............................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
PrivateBancorp, Inc.:
We have audited the accompanying consolidated balance sheets of
PRIVATEBANCORP, INC. (a Delaware corporation) AND SUBSIDIARY as of December
31, 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 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-2
<PAGE>
PRIVATEBANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<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
-------- --------
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.................................. 157,157 128,283
-------- --------
Total deposits..................................... 453,092 364,994
Funds borrowed....................................... 15,000 20,000
Accrued interest payable............................. 1,056 721
Other liabilities.................................... 2,469 1,319
-------- --------
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; 4,590,332 and
3,431,424 shares issued and outstanding as of
December 31, 1999 and December 31, 1998............. 4,590 3,431
Surplus.............................................. 39,761 22,274
Retained earnings.................................... 7,425 4,913
Accumulated other comprehensive income............... (2,812) 150
Deferred compensation................................ (759) (544)
Loans 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-3
<PAGE>
PRIVATEBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1999 1998 1997
------- ------- -------
<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 6,155 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
Occupancy expense, net................................. 1,563 1,379 1,274
Towne Square acquisition............................... 1,300 -- --
Professional fees...................................... 1,295 561 448
Marketing.............................................. 692 567 501
Data Processing........................................ 478 508 396
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............................... $ 0.73 $ 0.91 $ 0.69
Diluted earnings per share............................. $ 0.69 $ 0.86 $ 0.65
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<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>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
PRIVATEBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999, 1998 and 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1999 1998 1997
--------- --------- --------
<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 sale of securities.................. (56) (40) --
(Decrease) increase in deferred loan fees... 51 348 86
(Increase) in deferred income taxes......... (2,514) (291) (440)
(Increase) 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, paydowns, and
sales of securities........................ 55,930 85,391 11,255
Purchase of securities available-for-sale... (14,725) (136,662) (31,888)
Net loan principal advanced................. (115,646) (63,820) (47,240)
Premises and equipment expenditures......... (939) (191) (659)
Towne Square Acquisition.................... 1,300 -- --
--------- --------- --------
Net cash 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
Issuance of common stock.................... 16,898 1,361 2,348
Dividends paid.............................. (403) (263) (217)
Net decrease in funds borrowed.............. (5,000) 20,000 (3,000)
--------- --------- --------
Net cash provided by financing
activities............................... 99,593 100,318 62,333
--------- --------- --------
Net increase 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 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
Loans to officers 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-6
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO 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
F-7
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
identified as an allocated portion of the allowance for loan losses and is one
of the factors considered by management in its 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-8
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO 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-9
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO 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.
<TABLE>
<CAPTION>
Private Banking
Services
--------------------
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C>
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
</TABLE>
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,
weekly valuation, tracking of tax information, customized reporting and ease
of security settlement.
<TABLE>
<CAPTION>
Trust Services
---------------------
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C>
Trust assets under administration........................ $730.0 $611.6 $470.0
Net income (loss)........................................ 0.1 (0.2) (0.2)
</TABLE>
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 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.
F-10
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Holding Company
Activities
-------------------
1999 1998 1997
----- ----- -----
(in millions)
<S> <C> <C> <C>
Total assets............................................ $47.1 $29.3 $24.7
Total capital........................................... 47.1 29.3 24.7
Net loss................................................ (2.1) (0.2) (0.1)
</TABLE>
The following table identifies the significant differences between the sum
of the reportable segments and the reported consolidated results for total
assets:
<TABLE>
<CAPTION>
Total Assets
--------------
1999 1998
------ ------
(in millions)
<S> <C> <C>
Sum of reportable segments................................... $565.3 $445.7
Adjustments.................................................. (46.6) (29.4)
------ ------
Consolidated PrivateBancorp, Inc............................. $518.7 $416.3
====== ======
</TABLE>
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
Average Per
Income Shares 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
------ ----- ====
Effect of Dilutive Stock
Options................. -- 161
------ -----
Diluted Earnings Per
Share--
Income available to
common stockholders.... $2,145 3,286 $.65
====== ===== ====
</TABLE>
F-11
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due within one year..................................... $ 71 $ 71
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
======= =======
</TABLE>
F-12
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1998
-----------------------
Before Tax Net of
Tax (Benefit) 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>
NOTE 5--LOANS
Amounts outstanding by selected loan categories at December 31, 1999 and
1998, were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-13
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
NOTE 7--PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
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.
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:
<TABLE>
<S> <C>
2000............................................................ $ 760,607
2001............................................................ 817,072
2002............................................................ 739,871
2003............................................................ 759,338
2004............................................................ 735,124
2005 and thereafter............................................. 2,390,718
----------
$6,202,730
==========
</TABLE>
Total rent expense included in the consolidated statements of income was
$750,973, $635,761 and $601,461 for 1999, 1998, and 1997, respectively.
F-14
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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>
F-15
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 9--FUNDS BORROWED
As of December 31, 1999, funds borrowed consisted of a $15 million FHLB 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 FHLB
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.
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
Exercise Exercise
Shares Price Shares 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>
F-16
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-17
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-18
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-19
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
characteristics of various financial instruments and other factors. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------- ------------------
Estimated Estimated
Fair Carrying Fair
CarryingValue Value 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.
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.
F-20
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-21
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
<CAPTION>
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
Adequacy Action
Actual Purposes 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>
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-22
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO 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-23
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO 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
F-24
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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-25
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL DATA
Selected Quarterly Financial Data (unaudited)
The following are the consolidated results of operations on a quarterly
basis:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ------------------------------------------
Fourth Third Second First Fourth Third Second First
--------- --------- --------- --------- --------- --------- --------- ---------
(dollars in thousands except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary Income Statement
Interest Income
Loans, including fees.. $ 7,737 $ 7,006 $ 6,218 $ 5,636 $ 5,141 $ 4,979 $ 4,875 $ 4,624
Federal funds sold and
interest bearing
deposits.............. 115 134 33 48 373 897 413 498
Securities............. 1,088 1,189 1,294 1,570 1,413 654 698 727
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest income.. 8,940 8,329 7,545 7,254 6,927 6,530 5,986 5,849
Interest expense....... 4,653 4,166 3,948 3,838 3,624 3,481 3,111 3,096
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income.... 4,287 4,163 3,597 3,416 3,303 3,049 2,875 2,753
Provision for loan
loss.................. 437 273 213 285 90 91 90 91
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income
after provision for
loan loss............. 3,850 3,890 3,384 3,131 3,213 2,958 2,785 2,662
--------- --------- --------- --------- --------- --------- --------- ---------
Non-Interest income
Banking and trust
services.............. 535 504 512 396 348 340 320 273
Securities (losses)
gains................. (1) 8 4 46 (2) 42 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total non-interest
income................ 534 512 516 442 346 382 320 273
--------- --------- --------- --------- --------- --------- --------- ---------
Non-Interest expense
Salaries and employee
benefits.............. 1,753 1,309 1,088 1,115 1,123 948 904 1,102
Towne Square Acq....... -- 1,300 -- -- -- -- -- --
Occupancy expense...... 437 401 373 352 368 345 333 334
Other non-interest
expense............... 1,026 1,227 918 788 692 660 717 564
--------- --------- --------- --------- --------- --------- --------- ---------
Total non-interest
expense............... 3,216 4,237 2,379 2,255 2,183 1,953 1,954 2,000
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................. 1,168 165 1,521 1,318 1,376 1,387 1,151 935
Provision for income
taxes................. 191 366 409 291 484 541 449 365
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... $ 977 $ (201) $ 1,112 $ 1,027 $ 892 $ 846 $ 702 $ 570
========= ========= ========= ========= ========= ========= ========= =========
Key Statistics
Earnings before special
charges(1)............ $ 1,191 $ 1,180 $ 1,112 $ 1,027 $ 892 $ 846 $ 702 $ 570
Special charges (net of
tax).................. 214 1,382 -- -- -- -- -- --
Net income............. 977 (201) 1,112 1,027 892 846 702 570
Earnings before special
charges per diluted
share................. 0.25 0.25 0.30 0.28 0.25 0.24 0.20 0.17
Special charges (per
diluted share)........ (0.05) (0.29) -- -- -- -- -- --
Diluted earnings per
share................. 0.20 (0.05) 0.30 0.28 0.25 0.24 0.20 0.17
Basic earnings per
share................. 0.21 (0.05) 0.32 0.30 0.26 0.25 0.21 0.18
Return on average total
assets (before special
charges).............. 0.98% 1.04% 1.02% 0.97% 0.89% 0.96% 0.86% 0.71%
Return on average total
equity (before special
charges).............. 10.06% 10.17% 14.82% 13.84% 12.47% 12.50% 10.91% 9.11%
Net interest margin.... 3.85% 3.87% 3.61% 3.57% 3.50% 3.53% 3.76% 3.65%
Yield on average
earning assets........ 7.83% 7.63% 7.39% 7.40% 7.45% 7.57% 7.81% 7.79%
Cost of average paying
liabilities........... 4.72% 4.46% 4.31% 4.38% 4.47% 4.69% 4.71% 4.83%
Efficiency Ratio
excluding special
charges (tea)......... 57.5% 57.5% 57.2% 54.9% 60.94% 59.73% 64.03% 67.65%
Common Stock Information
Book value per share... 10.26 10.11 8.68 8.71 8.50 8.28 7.87 7.86
Dividends paid per
share................. 0.025 0.025 0.025 0.025 0.020 0.020 0.020 0.019
Outstanding shares at
end of period......... 4,590,332 4,584,092 3,451,824 3,451,824 3,431,424 3,385,424 3,319,824 3,233,504
</TABLE>
F-26
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL DATA
Selected Quarterly Financial Data (unaudited)(continued)
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------- ----------------------------------------------
Fourth Third Second First Fourth Third Second First
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of shares used to
compute:
Basic earnings per
share................. $4,585,109 $4,460,280 $3,451,824 $3,436,524 $3,396,924 $3,352,624 $3,273,264 $3,168,133
Diluted earnings per
share................. 4,794,770 4,717,660 3,705,116 3,683,388 3,629,958 3,567,796 3,489,352 3,354,494
Capital Ratios
Total equity to total
assets................ 9.08% 10.30% 6.83% 6.97% 7.02% 7.29% 8.14% 7.65%
Total risk-based
capital ratio......... 13.96% 15.22% 10.77% 11.21% 11.26% 12.20% 11.85% 11.47%
Tier-1 risk based
capital ratio......... 12.84% 14.09% 9.63% 10.05% 10.13% 10.96% 10.61% 10.22%
Leverage ratio......... 10.77% 11.19% 7.63% 7.53% 7.92% 8.28% 8.63% 7.87%
Selected Financial
Condition Data (at end
of period)
Total securities....... $ 71,134 $ 77,269 $ 89,026 $ 105,136 $ 116,891 $ 56,171 $ 45,037 $ 48,322
Total loans............ 397,277 352,236 335,306 307,766 281,965 239,224 237,972 223,746
Total assets........... 518,697 449,838 438,169 431,055 416,308 384,501 320,180 331,924
Total deposits......... 453,092 386,157 375,032 384,454 364,994 354,347 291,908 304,660
Funds borrowed......... 15,000 15,000 31,000 10,000 20,000 -- -- --
Total stockholders'
equity................ 47,080 46,351 29,966 30,054 29,274 28,034 26,111 25,400
Credit Quality
Ending allowance for
loan losses........... $ 4,510 $ 4,079 $ 3,903 $ 3,695 $ 3,410 $ 3,320 $ 3,230 $ 3,141
Non-performing assets:
Loans delinquent over
90 days............... 223 135 710 361 1,016 602 47 716
Nonaccrual loans....... 600 569 94 -- -- -- -- --
Other real estate...... -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-performing
assets................. $ 823 $ 704 $ 804 $ 361 $ 1,016 $ 602 $ 47 $ 716
========== ========== ========== ========== ========== ========== ========== ==========
Loans charged-off...... 6 97 5 -- -- 1 -- --
Recoveries............. -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net charge-offs........ $ 6 $ 97 $ 5 $ -- $ -- $ 1 $ -- $ --
========== ========== ========== ========== ========== ========== ========== ==========
Provision for loan
losses................ $ 437 $ 273 $ 213 $ 285 $ 90 $ 91 $ 90 $ 91
========== ========== ========== ========== ========== ========== ========== ==========
Key Ratios:
Net charge-offs to
average loans......... 0.002% 0.11% 0.002% -- -- 0.004% -- --
Total non-performing
loans to total loans.. 0.21% 0.20% 0.24% 0.12% 0.36% 0.25% 0.02% 0.32%
Total non-performing
assets to total
assets................ 0.16% 0.16% 0.18% 0.08% 0.24% 0.16% 0.01% 0.21%
Loan Loss Reserve
Summary
Balance at beginning of
period................ $ 4,079 $ 3,903 $ 3,695 $ 3,410 $ 3,320 $ 3,230 $ 3,140 $ 3,050
Provision.............. 437 273 213 285 90 91 90 91
Net charge-offs........ 6 97 5 -- -- 1 -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending allowance....... $ 4,510 $ 4,079 $ 3,903 $ 3,695 $ 3,410 $ 3,320 $ 3,230 $ 3,141
========== ========== ========== ========== ========== ========== ========== ==========
Net loan charge-offs:
Commercial real
estate................ -- -- -- -- -- -- -- --
Residential real
estate................ -- -- -- -- -- -- -- --
Commercial............. -- -- -- -- -- -- -- --
Personal............... 6 97 5 -- -- 1 -- --
Home equity............ -- -- -- -- -- -- -- --
Construction........... -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total net loan charge-
offs.................. $ 6 $ 97 $ 5 -- -- $ 1 -- --
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Special charges represent one-time costs associated with the third quarter
acquisition of Towne Square Financial Corporation and the fourth quarter
start-up costs for the St. Louis office.
F-27
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
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.+
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)
10.4 Building Lease by and between Towne Square Realty, L.L.C. and The
PrivateBank and Trust Company dated August 6, 1999.+
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, and PrivateBancorp,
Inc.+
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, as
amended by the first amendment thereto.(1)*
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)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.15 Loan Agreement dated as of February 11, 2000, between PrivateBancorp,
Inc. and LaSalle Bank National Association.+
21.1 Subsidiary of the Registrant.(1)
23.1 Consent of Arthur Andersen LLP.+
27.1 Financial Data Schedule.+
</TABLE>
- --------
+ Filed herewith
* Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit.
(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.
<PAGE>
EXHIBIT 4.1
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS NOTE IS BEING
OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE ACT,
REGULATION D PROMULGATED THEREUNDER, CERTAIN STATE SECURITIES LAWS AND
CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THIS NOTE MAY
NOT BE TRANSFERRED BY THE PURCHASER HEREOF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS, UNLESS SUCH TRANSFER IS EXEMPT FROM SUCH
REGISTRATION REQUIREMENTS OR NEITHER SUCH REGISTRATION NOR SUCH AN
EXEMPTION IS REQUIRED BY LAW.
THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY. THIS OBLIGATION IS SUBORDINATED TO THE CLAIMS OF GENERAL
CREDITORS OF PRIVATEBANCORP, INC., IS INELIGIBLE AS COLLATERAL FOR A LOAN
BY PRIVATEBANCORP, INC. AND IS NOT SECURED. THIS OBLIGATION IS NOT SUBJECT
TO A TRUST INDENTURE.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AND AS
REQUIRED BY TREASURY REGULATION '1.1275-3(b)(1)(ii), INFORMATION REGARDING
THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND
THE YIELD TO MATURITY MAY BE OBTAINED FROM THE CHIEF FINANCIAL OFFICER,
PRIVATEBANCORP, INC., 10 NORTH DEARBORN, SUITE 900, CHICAGO, IL 60602.
February 11, 2000
Principal Amount: $5,000,000
PRIVATEBANCORP, INC.
Subordinated Note due February 11, 2007
FOR VALUE RECEIVED, PrivateBancorp, Inc., a Delaware corporation (the
"Corporation"), hereby promises to pay to Johnson International, Inc. the
principal amount of Five Million ($5,000,000) on February 11, 2007 (the "Date of
Maturity") and to pay interest based on a 365-day year, and paid in arrears
quarterly at an interest rate of: (i) from February 11, 2000 through February
10, 2002, the 90-day London Inter-Bank Offered Rate ("LIBOR") rate plus fifty
(50) basis points; (ii) from February 11, 2002 through February 10, 2004, the
90-day LIBOR rate plus two hundred (200) basis points; and (iii) from February
11, 2004 through February 10, 2007, the 90-day LIBOR rate plus three hundred
fifty (350) basis points. The LIBOR rate for the first Interest Payment Date
shall be the LIBOR rate in effect as of the date of this Note. For subsequent
periods, the LIBOR rate shall be the LIBOR rate in effect as of the immediately
preceding Interest Payment
<PAGE>
Date. Such interest payments shall be due on February 11, May 11, August 11 and
November 11, with interest payments beginning on May 11, 2000 ("Interest Payment
Date"). All payments on this Note will be applied first to accrued interest and
the balance, if any, to principal.
This Note is issued pursuant to the Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated as of October 4, 1999 by and among the Corporation,
Johnson International, Inc. and Johnson Bank Illinois (Johnson International,
Inc., and together with any subsequent holders of the Note/Notes from time to
time outstanding, referred to herein individually as a "Holder" and collectively
as the "Holders"). The Note/Notes will be treated as a class and, to the extent
expressly provided herein, the actions of some Holders in certain circumstances
may bind or affect the rights of the Holders of other Notes without their
action.
1. Completion and Delivery.
-----------------------
(a) The Note is being issued and delivered in accordance with the
terms and conditions contained in this Note and the Stock Purchase Agreement.
The Corporation will (i) complete the Note; (ii) manually sign the Note by any
one of the officers of the Corporation duly authorized and designated by it for
such purpose; and (iii) deliver the Note to Johnson International, Inc.
(b) If the Note has been signed by one of the Corporation's officers
who was duly authorized for such purpose, but who is not so designated at the
time said Note is to be paid, the Corporation will pay the Note notwithstanding
that the authority of said officer has been terminated between the time of
execution and the time of payment.
(c) Each Note subsequently issued in exchange for or as the result of
transfer of the Note will bear the original issue date of February 11, 2000,
regardless of the date of issue of any such subsequently issued Note.
2. Maintenance of Records. (a) So long as the Note remains outstanding,
----------------------
the Corporation will maintain all records as may be customary, including any
Transfer Certificate (as defined below) for the Note, and will:
(i) Keep and maintain at its corporate offices in Chicago,
Illinois, a register (the "Register") in such form as the Corporation may
determine and subject to such reasonable regulations as it may prescribe,
in which it will provide for the registration of the Note and any transfers
thereof, including, without limitation, the name, address and tax
identification number of each Holder of the Note from time to time and
records of each transfer of all or any portion of the Note; and
(ii) Maintain records for the Note, showing the original and
unpaid principal amount, maturity date, interest rate, and all subsequent
transfers and consolidations.
3. Registration of Transfer. (a) Notwithstanding any provision of this
------------------------
Note to the contrary, the Corporation shall not be required to register for
transfer or otherwise acknowledge the
2
<PAGE>
purported transfer of the Note that is (i) not accompanied by a fully completed
and duly executed transfer certificate substantially in the form attached hereto
as Exhibit A (each a "Transfer Certificate"), or (ii) not effected in strict
---------
compliance with the terms of this Note (including the legend hereon). As a
condition to such transfer, the Corporation may require reasonable evidence that
the transfer does not require registration of the Note under the Act or any
state securities law. Any Note presented or surrendered for registration of
transfer or for exchange must be duly endorsed, be accompanied by a Transfer
Certificate with such evidence of due authorization and guarantee of signature
as may be reasonably required by the Corporation, duly executed by the Holder or
his attorney duly authorized in writing, and with such tax identification number
or other information for each person in whose name the Note is to be issued as
the Corporation may reasonably request to comply with applicable law. No
guarantee of signature shall be required in connection with any transfer made by
any Holder which is an Institutional Investor. "Institutional Investor" means
any bank, trust company, savings and loan association or other financial
institution, any pension plan, any registered investment company, any insurance
company, any broker or dealer, or any other similar financial institution or
entity, regardless of legal form. In the event the Note is to be issued in the
name of a transferee's nominee, such transferee shall provide to the Corporation
the name of the nominee and written instructions as to registration of the Note.
(b) Upon surrender or presentation of this Note (accompanied by a
complete and duly executed Transfer Certificate) for registration of transfer,
the Corporation will, at its own expense, execute and deliver in exchange
therefor a Note or Notes (as requested by the Holder) in the aggregate amount
equal to the then unpaid principal balance of this Note, and each in a minimum
denomination of $1,000,000 or any amount in excess thereof which is an integral
multiple of $1,000,000 (to the extent feasible) or, if the unpaid principal
balance is then less than $1,000,000, a single Note in such amount, that will
otherwise contain the same terms as this Note and will be registered in the name
of the transferee identified on such Transfer Certificate. No registration of
transfer of this Note will be made on or after the fifteenth day immediately
preceding the Date of Maturity.
(c) No service charge will be imposed for any registration of transfer
of this Note, but the Corporation may require the payment by the Holder of a sum
sufficient to cover any stamp or other tax or governmental charge that may be
imposed in connection therewith (or presentation of evidence that such tax or
charge has been paid).
(d) The Corporation may treat the Holder in whose name this Note is
registered in the Register as the absolute owner of this Note for the purpose of
receiving payments of principal of and interest on this Note and for all other
purposes whatsoever, whether or not this Note be overdue, and the Corporation
will not be affected by any notice to the contrary except in accordance with
this Section 3.
(e) The Corporation acknowledges that Johnson International, Inc.
shall be permitted to transfer the Note to a wholly-owned subsidiary of Johnson
International, Inc. without providing a Transfer Certificate to the Corporation,
provided, however, Johnson International, Inc. shall provide the Corporation
- -------- -------
notice, as described in Section 9, of such transfer. Such transfer shall in no
way adversely affect the rights and privileges of the Corporation hereunder.
3
<PAGE>
4. Mutilated Lost, Stolen or Destroyed Notes. The Corporation will, at
-----------------------------------------
its own expense, effect the replacement of any Note that is mutilated, lost,
stolen or destroyed, and may require indemnity and a bond from any Holder as a
condition of such replacement, provided, that if such Holder is, or is a nominee
for, an original Purchaser or another holder of a Note with a minimum net worth
equal to the greater of $20,000,000 or two times the principal amount of such
Note, established, if requested, to the reasonable satisfaction of the
Corporation, such Holder's own unsecured agreement of indemnity shall be deemed
satisfactory.
5. Notes Acquired by the Corporation. If the Corporation acquires any
---------------------------------
Note, such acquisition will not operate as a satisfaction of the indebtedness or
rights represented by such Note unless and until the same are recorded as
canceled on the records of the Corporation.
6. Payment. (a) Payment of the principal and interest payable on the
-------
Date of Maturity will be made by wire transfer in immediately available funds to
a bank account in the United States designated by the Holder in a written notice
received by the Corporation not later than 15 calendar days prior to the Date of
Maturity, without presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Corporation made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, the Holder hereof shall surrender such Note for cancellation,
reasonably promptly (but in no event later than 15 calendar days) after any such
request, to the Corporation at its principal executive office or at such other
place as the Corporation shall designate by notice to the Holder.
(b) Payments of interest (other than interest payable on the Date of
Maturity) will be made by wire transfer in immediately available funds to a bank
account in the United States designated by the Holder in a written notice
received by the Corporation not later than 15 calendar days prior to the
applicable Interest Payment Date. Interest payable on any Interest Payment Date
will be payable to the Holder in whose name this Note is registered on the
Register at the close of business on February 11, May 11, August 11 and November
11 of each year as the case may be (whether or not a Business Day (as defined in
Section 15 hereof)), next preceding such Interest Payment Date (such date being
referred to herein as the "Regular Record Date") for such Interest Payment Date,
notwithstanding the subsequent cancellation of this Note prior to or on such
Interest Payment Date, except that interest not so punctually paid, if any, will
be paid to the Holder of this Note at the close of business on a special record
date fixed by the Corporation (a "Special Record Date") notice of which will be
given to the Holder not less than 10 calendar days prior to such Special Record
Date. (The Regular Record Date and Special Record Date are referred to herein
collectively as "Record Date"). To the extent permitted by applicable law,
interest will accrue, at the rate at which interest accrues on the principal of
this Note, on any amount of principal of or interest on this Note not paid when
due.
(c) Payments of principal of and interest on this Note will be made in
such coin or currency of the United States of America as at the time of payment
may be legal tender for the payment of public and private debts.
4
<PAGE>
7. Redemption; No Sinking Fund. (a) Subject to the provisions of this
----------------------------
Section 7, except as otherwise may be specified in this Note, the Corporation
shall have the right to redeem the Notes, in whole or in part, at any time, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon to the date of such redemption (the
"Redemption Price"). If the Corporation redeems all of the Notes in full by
February 11, 2001, the aggregate Redemption Price shall be reduced by $5,000.
Any redemption pursuant to this Section 7 shall be made upon not less than 30
days nor more than 60 days notice to the Holder of the Notes, at the Redemption
Price. If the Notes are only partially redeemed pursuant to this Section 7, the
Notes shall be redeemed pro rata or by lot or in such other manner as the
Corporation shall deem appropriate and fair in its discretion. The Redemption
Price shall be paid prior to 12:00 noon, Chicago time, on the date of such
redemption or at such earlier time as the Corporation determines.
(b) In case the Corporation shall desire to exercise such right to
redeem all or, as the case may be, a portion of the Notes in accordance with the
right reserved so to do, the Corporation shall give notice of such redemption to
holders of the Notes to be redeemed by mailing, first class postage prepaid, a
notice of such redemption not less than 30 days and not more than 60 days before
the date fixed for redemption to such holders at their last addresses as they
shall appear upon the records of the Corporation unless a shorter period is
specified in the Note to be redeemed. Any notice that is mailed in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not the registered Holder receives the notice. In any case, failure duly to
give such notice to the Holder of any Note designated for redemption in whole or
in part, or any defect in the notice, shall not affect the validity of the
proceedings for the redemption of any other Note. Each such notice of
redemption shall specify the date fixed for redemption and the Redemption Price
and shall state that payment of the Redemption Price shall be made upon
presentation and surrender of such Note, that interest accrued to the date fixed
for redemption shall be paid as specified in said notice and that from and after
said date interest shall cease to accrue. If less than all the Notes are to be
redeemed, the notice to the holders of the Notes shall specify the portion of
the principal amount thereof to be redeemed, in minimum denominations of
$1,000,000 or any amount in excess thereof which is an integral multiple of
$1,000,000 (to the extent feasible). If the Notes are to be redeemed in part
only, the notice shall also state that on and after the redemption date, upon
surrender of such Notes, a new Note or Notes in principal amount equal to the
unredeemed portion thereof shall be issued.
(c) If the giving of notice of redemption shall have been completed as
above provided, the Notes or portions of Notes to be redeemed specified in such
notice shall become due and payable on the date and at the place stated in such
notice at the applicable Redemption Price, and interest on such Notes or
portions of Notes shall cease to accrue on and after the date fixed for
redemption, unless the Corporation shall default in the payment of such
Redemption Price with respect to any such Note or portion thereof. On
presentation and surrender of such Note on or after the date fixed for
redemption at the place of payment specified in the notice, said Note shall be
paid and redeemed at the Redemption Price (but if the date fixed for redemption
is an interest payment date, the interest installment payable on such date shall
be payable to the registered Holder at the close of business on the applicable
record date).
5
<PAGE>
(d) Upon presentation of any Note that is to be redeemed in part only,
the Corporation shall execute, authenticate and deliver to the Holder thereof,
at the expense of the Corporation, a new Note of authorized denomination in
principal amount equal to the unredeemed portion of the Note so presented.
(e) This Note is not subject to redemption at any time at the election
of the Holder prior to the Date of Maturity, and is not subject to any sinking
fund.
8. Subordination. The payment of principal and interest on this Note is
-------------
and will be subordinate to any and all current and future indebtedness of the
Corporation (including indebtedness of others guaranteed by the Corporation)
except for any other subordinated indebtedness of the Corporation that is
intended to qualify as "Tier 2" capital for holding company regulatory purposes,
with which this Note will rank on a parity, and any current or future
indebtedness of the Corporation that by its terms is ranked junior to this Note.
In the event of any bankruptcy or insolvency proceedings, receivership,
conservatorship, reorganization, readjustment of debt, marshaling of assets and
liabilities or similar proceedings or any liquidation or winding up of or
relating to the Corporation, whether voluntary or involuntary, all obligations
of the Corporation (except for indebtedness junior to or on a parity with this
Note) will be entitled to be paid in full before any payment will be made on
account of the principal of, or interest on, this Note. In the event of any
such proceedings, after payment in full of all sums owing with respect to such
obligations, the Holder of this Note, together with the holders of any other
obligations of the Corporation ranking on a parity with this Note, will be
entitled to be paid from the remaining assets of the Corporation the unpaid
principal and interest before any payment or other distribution, whether in
cash, property, or otherwise, will be made on account of any capital stock or
any obligations of the Corporation ranking junior to this Note. Advances from
or obligations owed to any affiliate or subsidiary of the Corporation will rank
senior to this Note unless the note or instrument evidencing such obligation
states that it ranks on a parity with or is junior to this Note.
9. Notices. Notices and other communications to the Corporation in
-------
connection with this Note are required to be in writing and sent by U.S.
Certified Mail or recognized overnight delivery service (with charges prepaid)
and must be addressed as follows, or to such other address as the Corporation
may specify from time to time.
If to the Corporation:
PrivateBancorp, Inc.
Ten North Dearborn
Chicago, Illinois 60602
Attention: Ralph B. Mandell
With a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
6
<PAGE>
Attention: Daniel O'Rourke
All notices to the Holder will be in writing and sent by first-class mail or
recognized overnight delivery service (charges prepaid) to the Holder at its
address specified to the Corporation in writing.
10. Default; Acceleration. (a) The term "Event of Default," as used in
---------------------
this Note, means any of the following events (whatever the reason for such event
and whether it may be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
governmental agency or authority):
(i) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Corporation in an
involuntary bankruptcy or reorganization case or proceeding under Chapter 7
(Liquidation) or Chapter 11 (Reorganization) of the U.S. Bankruptcy Code,
as amended, 11 U.S.C. et seq., and the continuance of any such decree or
order unstayed and in effect for a period of 90 days; or
(ii) the commencement by the Corporation of a voluntary
bankruptcy or reorganization case or proceeding under Chapter 7
(Liquidation) or Chapter 11 (Reorganization) of the U.S. Bankruptcy Code,
as amended, 11 U.S.C. et seq.
(b) If an Event of Default occurs and continues, the Holder may, at
its option, by written notice to the Corporation, declare this Note to be, and
upon receipt of such declaration by the Corporation, unless all Events of
Default have been cured by the Corporation within five Business Days (as
hereinafter defined in Section 15) after receipt by the Corporation of such
declaration, this Note will become immediately due and payable in its principal
amount, together with accrued and unpaid interest thereon to the date of payment
without presentment, demand, protest or further notice, all of which are hereby
waived. Failure of the Corporation to pay principal or interest when due will
not entitle the Holder to declare due any principal amount of this Note not
otherwise due.
(c) At any time after the delivery to the Corporation of a
declaration of an acceleration pursuant to the provisions of this Note, the
Holders of not less than 66-2/3% of the principal amount of the Notes then
outstanding may, on behalf of all Holders of the Notes then outstanding, by
notice to the Corporation, rescind and annul such declaration and its
consequences if:
(i) The Corporation will have paid to each Holder the aggregate
amount of overdue interest and any additional amounts due on all of the
Notes then held by such Holder;
(ii) all such Events of Default will have been cured or waived;
and
(iii) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes.
7
<PAGE>
No such rescission will affect any subsequent default or impair any right
relating to such subsequent default.
(d) The Holders of not less than 66-2/3% in principal amount of the
Notes then outstanding may, on behalf of the Holders of all Notes then
outstanding, by notice to the Corporation, waive any past Event of Default and
its consequences. No such waiver will affect any subsequent Event of Default or
impair any right relating to such subsequent default.
(e) The Corporation will promptly notify the Holders of the Notes then
outstanding, upon the occurrence of an Event of Default, the curing or waiving
of any Event of Default, the declaration of acceleration of any Note, and the
rescission and annulment of any declaration of acceleration.
11. Non-payment. If the Corporation fails to pay any interest on this
-----------
Note within 30 days after the same is due and payable pursuant hereto, or fails
to pay the entire unpaid principal and interest at the Date of Maturity, the
Corporation will, upon demand of the Holder, pay to the Holder the whole amount
then due and payable on this Note (without acceleration), with interest on the
overdue amount at the rate borne by this Note accrued to the date of payment, to
the extent permitted by applicable law. If the Corporation fails to pay such
amount upon such demand, the Holder may, among other things, institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Corporation and collect the moneys adjudged or decreed to be payable
in the manner provided by law out of the property of the Corporation.
12. Consolidation, Merger or Sale of Assets. The Corporation will not
---------------------------------------
consolidate with or merge into any other person, or transfer or lease its assets
substantially as an entirety to any person, unless (a)(i) the person formed by
such consolidation or into which the Corporation is merged, or the person which
acquires by transfer or which leases substantially all the assets of the
Corporation, will be a corporation duly organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and will expressly assume in writing the Corporation's obligations on
this Note and the Holders shall receive an opinion of independent counsel
satisfactory to them to the effect that such assumption is enforceable in
accordance with its terms; or (ii) the person formed by such consolidation or
into which the Corporation is merged, or the person which acquires by transfer
or which leases substantially all of the assets of the Corporation, will be
deemed to have assumed such obligation by operation of law; and (b) after giving
effect to such transaction, no Event of Default and no event which, after notice
or lapse of time, or both, would become such an Event of Default, will have
occurred and be continuing.
13. Modification of Rights.
----------------------
(a) The Corporation may modify the rights of the Holder of this Note
without the consent of the Holder of this Note (i) subject to compliance with
the terms of Section 12, to evidence the succession of another person to the
Corporation and the assumption by any such successor of the covenants and
agreements of the Corporation herein and in the Notes; or (ii) to add further
covenants, restrictions or conditions for the protection of the Holders of the
Notes.
8
<PAGE>
(b) The Corporation may also, with the consent of the Holders of not
less than 66-2/3% in principal amount of the Notes then outstanding, add any
provisions to or change or eliminate any of the provisions of the Notes or
modify the rights of the Holders of the Notes then outstanding, except that the
consent of the Holder of each Note then outstanding altered thereby is required
in order to change the Date of Maturity of any Note then outstanding, to extend
the time of payment on any overdue principal amount, to change the coin or
currency in which any Note then outstanding or the interest thereon is payable,
to change the definition of Interest Payment Date, to reduce the principal
amount of or rate of interest on the Notes then outstanding, to change the
method of payment to other than wire transfer in immediately available funds, to
impair the rights of the Holders of such Notes then outstanding, to institute
suit for the enforcement of any payment of principal of or interest or other
amounts on such Notes, to modify the subordination provisions of the Notes in
any manner adverse to the Holders of such Notes then outstanding, or to reduce
the percentage in principal amount of any Note then outstanding the consent of
which is required to rescind or waive certain Events of Default.
(c) The Corporation will provide each Holder (irrespective of the
amount of Notes then owned by it), not less than 10 days in advance of the date
a decision is required, with information the Corporation reasonably believes is
sufficient to enable such Holder to make an informed and considered decision
with respect to any proposed amendment, waiver or consent in respect of any of
the provisions of the Notes. The Corporation will deliver executed replacement
Notes reflecting each amendment effected pursuant to the provisions of this
Section 13 to each Holder promptly following the date on which any such
amendment receives the consent or approval of the requisite Holders upon
surrender of the Note to be replaced.
(d) The Corporation will not directly or indirectly pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any Holder as consideration for or
as an inducement to the entering into by any Holder of any waiver or amendment
of any of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same terms,
ratably to each Holder then outstanding even if such Holder did not consent to
such waiver or amendment.
(e) Solely for the purposes of determining whether the Holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under the
Notes, or have directed the taking of any action provided in the Notes to be
taken upon the direction of the Holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Corporation or any of its subsidiaries or other
affiliates shall be deemed not to be outstanding.
(f) Any consent or waiver by the Holder of this Note will be
conclusive and binding upon such Holder and upon any and all future Holders of
this Note, whether or not notation of such consent or waiver is made upon this
Note.
14. No Implied Waiver. No failure or delay on the part of the Holder in
-----------------
exercising any right under this Note will operate as a waiver of, or impair, any
such rights. No waiver of any such right will be effective unless in writing.
9
<PAGE>
15. Payments and Actions on Non-Business Days. If any date on which any
-----------------------------------------
payment of principal or interest, notice or other action due and payable on or
required by, as the case may be, this Note falls on other than a Business Day,
then that action or payment need not be taken or made on such date, but may be
taken or made on the next succeeding Business Day with the same force and effect
as if made on the date for payment of such principal or interest, and no
interest will accrue in respect of such payment for the period after such day.
The term "Business Day" means any day that is not a Saturday or Sunday and that
is not a day on which any bank in the city of Chicago, Illinois is generally
authorized or required by law or executive order to be closed.
16. Governing Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE.
* * *
10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Note to be duly
executed as of the date first written above.
PRIVATEBANCORP, INC.
By: /s/ Ralph B. Mandell
-----------------------------------------------
Name: Ralph B. Mandell
Title: President and Chief Executive Officer
By: /s/ Donald A. Roubitchek
-----------------------------------------------
Name: Donald A. Roubitchek
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.4
------------
BUILDING LEASE
--------------
This BUILDING LEASE ("Lease") is entered into this 6th day of August, 1999,
by and between TOWNE SQUARE REALTY, L.L.C., an Illinois Limited Liability
Company (the "Landlord"), and PRIVATEBANK AND TRUST COMPANY, an Illinois state
banking corporation (the "Tenant") who hereby mutually covenant and agree as
follows:
ARTICLE 1. AGREEMENT TO LEASE.
------------------
1.1 Grant. Landlord, for and in consideration of the Rents to be paid by
-----
Tenant herein and the covenants and agreements herein to be performed by Tenant,
hereby leases to Tenant, and Tenant hereby lets from Landlord, the following
described real estate and the improvements (including the existing structure)
located thereon from time to time (the "Leased Premises"):
The first floor (excluding any common area lobbies) as depicted on Exhibit
"A" attached hereto of the building located on the property commonly known
as 24 South Second Street, in the City of St. Charles, Kane County,
Illinois (the "Property") and the use of the sidewalks, if any, and other
common facilities located on the Property in common with Landlord and other
tenants of the building. The use of the common area lobbies, building
entrance and stairways between the first floor and basement of the Property
shall be in common with the use by other building tenants and Landlord.
1.2 Quiet Enjoyment. Subject to the foregoing, Landlord covenants and
---------------
agrees that so long as Tenant shall timely pay all Rents due to Landlord from
Tenant hereunder and keep, observe and perform all covenants, promises and
agreements on Tenant's part to be kept, observed and performed hereunder, Tenant
shall and may peacefully and quietly have, hold and occupy the Premises free of
any interference from Landlord; subject, however, to each of the terms,
provisions and conditions of this Lease.
Tenant acknowledges that the City of St. Charles (the "City") contemplates
demolition of the building directly to the east of the Leased Premises and
further plans to construct a parking structure on the property to the east.
Tenant acknowledges that the City has the right to proceed with the demolition
work and that the City's performance of such work shall not constitute in any
way a breach of Landlord's obligations under this Lease. Landlord and Tenant
agree to work cooperatively with the City to permit the demolition and
construction work to be completed at no additional cost or expense to Tenant.
Landlord shall not be liable to Tenant in any way for the City's performance or
failure to perform the demolition or construction work.
ARTICLE 2. TERM.
----
2.1 Term. The term of this Lease shall commence on August 1, 1999. That
----
date shall hereinafter sometimes be referred to as "Commencement Date." In the
event this Lease is executed after August 1, 1999, the Commencement Date shall
be retroactive to August 1, 1999.
This Lease shall have a Term of ten years and three months and shall end on
October 31, 2009 (unless sooner terminated as provided elsewhere in this Lease
or unless Tenant exercises its
<PAGE>
option to extend this Lease in accordance with the terms of paragraph 2.2
herein). The date on which this Lease shall end shall be sometimes referred to
herein as the "Termination Date."
2.2 Options to Extend. On the condition that Tenant has faithfully
-----------------
performed all of its obligations under this Lease and cured any defaults within
the time periods provided herein, Tenant shall have the option to extend this
Lease for two consecutive additional five year periods beyond the Termination
Date. In order for Tenant to exercise the first option to extend, Tenant must
first give Landlord six (6) months' advanced written notice prior to the end of
the initial ten year Lease Term. In order to exercise the second five year
option, Tenant must give Landlord six (6) months advance written notice prior to
the end of the first extended Lease Term. In the event that Tenant fails to
give the requisite notice of its intent to exercise an option within the time
period provided herein, then Tenant's options to extend this Lease shall lapse
and become null and void. In the event that Tenant breaches and fails to cure
within the time periods provided herein any of its obligations under this Lease,
then Tenant's options to extend shall likewise lapse and become null and void.
In the event that Tenant's options lapse, Tenant shall, at Landlord's request,
execute any and all documents necessary to evidence the lapse of said options.
In the event that an option is exercised by Tenant, then all provisions of this
Lease shall remain in full force and effect through the Option Period, and Base
Rent during each successive 12-month lease period shall be increased at a rate
of 2.5% more than the prior 12 months' Base Rent.
ARTICLE 3. RENT
3.1 Rent. Each lease year throughout the Term, Tenant shall pay to
----
Landlord, in lawful money of the United States of America, without any prior
demand by Landlord and without any deduction or set-off (except as otherwise
specifically permitted herein), as rent hereunder a combination of Base Rent and
Additional Rent (as those terms are hereinafter defined and described). All
such payments of Rent shall be made at the time, in the manner and in the
amounts hereinafter specified in this Article 3 by check payable to Landlord
mailed or delivered to Landlord at the address herein specified or to such other
person or at such other address as Landlord may hereafter designate by written
notice to Tenant.
All Rent shall be made to Landlord at 1536 Fargo Boulevard, Geneva,
Illinois 60134, or to such other individual or location as Landlord directs in
writing. Monthly Rent payments shall be paid in advance and shall be due on the
first day of each consecutive month. Each installment of Rent which is not paid
when due or within a ten (10) day grace period beyond any due date shall bear
interest at a rate of twelve percent (12%) per annum from the date when the same
is payable under the terms of this Lease until the same shall be paid.
3.2 Base Rent. During the first 15 months of this Agreement, Tenant shall
---------
pay to Landlord monthly Base Rent of $8,900.00. The monthly Base Rent for each
succeeding lease year (12 months) shall be increased to an amount equal to the
prior year's monthly Base Rent multiplied by 102.5%.
3.3 Additional Rent. During each month of this Lease, Tenant shall pay to
---------------
Landlord as Additional Rent, in advance, and simultaneously with each monthly
installment of Base Rent Tenant's pro rata share of the following attributable
to the Leased Premises:
2
<PAGE>
A. Real Estate/Special Service Area Taxes. One-twelfth of Landlord's
--------------------------------------
reasonable estimate of the annual general real estate or Special Service Area
taxes with respect to the Property which accrue for each year of the Lease
during the Lease Term (even though such taxes may not be payable during the
Lease Term). To the extent that Landlord's estimate is greater or less than the
actual real estate tax bill, then the parties shall settle the difference within
15 days of the issuance of the final tax bill.
B. Special Assessments. One-twelfth of all special assessments for
-------------------
the Property which accrue for each year of the Lease or are imposed during the
Lease Term with respect to the Property.
C. Insurance. One-twelfth of the property and casualty insurance
---------
premiums paid by Landlord and attributable to the Property and all buildings and
improvements thereon. Such insurance shall be underwritten on a replacement
cost basis by companies having a Best's rating of A or better.
D. Common Area Maintenance/Utilities. One-twelfth of all common
---------------------------------
area maintenance expenses for the Property and the non-separately metered or
zoned utilities provided by Landlord to the Leased Premises. Common area
maintenance expenses shall include Landlord's expenses for repairs and
maintenance performed pursuant to Section 7.5.
For purposes of this Lease, Landlord and Tenant agree that 66.67% of all
general real estate taxes, special service area taxes, and special assessments,
Property in which the Leased Premises (i.e. 24 South Second Street, St. Charles,
Illinois 60174) are located are attributable to the Leased Premises and 50.0% of
all insurance and common area maintenance expenses and non-separately metered or
zoned utilities are attributable to the Leased Premises.
In addition, all sums reasonably expended by Landlord (including reasonable
attorney's fees) in satisfying an obligation of Tenant under this Lease or in
enforcing the Terms of this Lease, together with all late fees due hereunder,
shall constitute Additional Rent.
ARTICLE 4. PURPOSE.
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4.1 Purpose. The Leased Premises shall be used and occupied by Tenant
-------
solely for the purpose of a bank or other similar financial institution or
general office use and for no other use without Landlord's consent, which shall
not be unreasonably withheld, delayed or conditioned. Tenant shall not use or
occupy the Leased Premises or permit the Leased Premises to be used or occupied
contrary to any statute, rule, order, ordinance, building code (including the
ADA), covenants, government regulations or in any manner which would violate the
Certificate of Occupancy relating to the Leased Premises. Tenant shall pay when
due all taxes (including sales and use taxes) arising out of Tenant's business
operations. Furthermore, Tenant shall not permit the Leased Premises to be used
in such a way so as to cause structural injury to the Leased Premises or the
improvements located thereon, to increase the rate of insurance thereon, or so
as to cause a public or private nuisance. Upon completion of Tenant's
improvements Tenant shall open for business on a continuous basis.
3
<PAGE>
Tenant further agrees that it shall not use the Leased Premises or any
portion of the Property on which the Leased Premises is located for the burial,
dumping, storage, handling, transportation, treatment, use or disposal of any
contaminates, pollutants, oil or other petroleum products, toxic substances,
hazardous substances or hazardous wastes. The terms "hazardous substances" or
"hazardous wastes" shall be defined as those substances or materials regulated
under or described as hazardous in any applicable State or Federal environmental
laws or regulations.
4.2 Landlord agrees that it shall not lease the basement space in the
Property to any bank, savings bank, credit union or similar financial
institution, insurance broker or agent, securities or investment broker, or
person or entity who or which specializes primarily in investment management or
financial planning. Landlord may lease such basement space to a person or
entity who or which processes insurance claims or an accounting firm whose
primary business is providing accounting services.
ARTICLE 5. UTILITIES/LANDLORD'S SERVICES/TRASH REMOVAL/MONITORING.
------------------------------------------------------
5.1 Utility Availability. Landlord represents and warrants that currently
--------------------
there is available for connection to the Leased Premises by Tenant lines, pipes
or conduits supplying electric power, natural gas, telephone, cable, if
available, potable water, and sanitary sewer utility services. Tenant shall be
responsible for any "tap on" or connection fees and deposits for the use of said
utilities at the Leased Premises. If additional or special utility services are
required for the conduct of the business contemplated by this Lease to be
operated and conducted by Tenant within and from the Leased Premises, the cost
thereof shall be borne by Tenant and shall be paid by Tenant to Landlord prior
to Tenant's occupancy of the Premises.
5.2 Utility Services. Tenant shall and hereby agrees to make all
----------------
appropriate applications and arrangements for electric, telephone and cable, if
available, utility services required to serve the Leased Premises directly with
those utility companies providing such utilities and to pay all fees, changes
and deposits and for all meters required by such utility companies as a
condition to their providing such utility services to the Premises.
5.3 Payment for Utility Services. Tenant shall be solely liable and
----------------------------
responsible for, and shall pay directly to such utility companies, all
separately metered or zoned bills for utility services including, without
limitation, electricity, telephone and cable, or any other utility provided by
them to and consumed and used on, at, in and from the Leased Premises, on or
before the date due, in accordance with the payment instructions contained in
such bills. After notice to Tenant and opportunity to cure as provided herein,
Landlord shall have the right to pay any past due bills and shall be entitled to
assess any charges therefor to Tenant as Additional Rent hereunder.
5.4 Interruption of Utility Services. Landlord shall have no liability or
--------------------------------
responsibility for any loss or damage occasioned by any interruption or failure
in the supply of any utility services to the Leased Premises or occasioned by
any required termination of such utility services necessary to effect repairs or
improvements or occasioned by any other cessation of such utility services for
any cause or reason other than any interruptions or failures wholly or partially
caused by the intentional or negligent acts or omissions of Landlord or its
employees, agents, contractors, licensees, guests
4
<PAGE>
or invitees. No such interruption, termination or cessation of utility services
shall relieve Tenant of any of its duties and obligations pursuant to this
Lease, including, without limitation, its obligation to pay all Rents as and
when the same shall be due. If such service interruption is due to Landlord's
failure to pay for any utility or service furnished by Landlord hereunder, then
after notice to Landlord and 5 days' opportunity to cure, Tenant may pay the
amount necessary to restore such service including, but not limited to, interest
and penalties thereon. If Tenant does so, Tenant may set-off the amounts so paid
against the next installments of Rent and Additional Rent due to Landlord
hereunder.
5.5 Landlord's Services. During the term of this Lease, Landlord shall
-------------------
provide the following services to the extent not separately metered or zoned to
the Leased Premises.
A. Air cooling and heating as necessary to provide a temperature of
70 (degrees Fahrenheit) + or - 2 (degrees Fahrenheit) (or such other temperature
required by law or government regulation) throughout the Leased Premises Monday
through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from 8:00 a.m. to 1:00
p.m., federal holidays excepted, and
B. Hot and cold water for use in lavatories and cold potable water
in other areas where water service is provided.
Landlord shall pay for such services and related sanitary sewer services and
shall charge Tenant its allocable (50%) share thereof as part of its common area
maintenance charges; provided however, that, until Landlord enters into its
initial lease of all or any portion of the basement space in the Property,
Tenant shall pay for all of such services allocable to the Leased Premises.
Tenant shall not pay for any portion of such services allocable to Landlord's
Work or any other user.
5.6 Trash Removal. Tenant shall remove trash and rubbish generated by
-------------
Tenant in the ordinary course of the operation of Tenant's business in the
Leased Premises and shall store trash in containers provided or approved by
Landlord and stored in locations designated by Landlord. The cost of trash
removal shall be included in common area maintenance expenses, and Tenant shall
pay its allocable (50%) share thereof; provided however, that, until Landlord
enters into its initial lease of all or any portion of the basement space in the
Property, Tenant shall pay for all of such services allocable to the Leased
Premises. Tenant shall not pay for any portion of such services allocable to
Landlord's Work or any other use.
5.7 Fire Monitoring. Landlord shall provide, or cause others to provide,
---------------
monitoring of an automated fire detection system which is integrated into the
fire sprinkler system that is part of the Leased Premises, and Tenant's 50%
share of the reasonable cost therefor shall be paid by Tenant. Tenant
acknowledges that Landlord shall not, by virtue of having elected to provide
such service, be deemed to have accepted any responsibility or liability in the
event of any malfunction of the fire monitoring system or service or in the
event of any negligence of any party in the operation and monitoring of the fire
monitoring service, and Landlord shall not, by virtue of having elected to
provide such service, be liable for any damage, loss, injury, cost or expense
that may be sustained by Tenant as the result of any fire that may hereafter
occur in the Leased Premises or any alleged or actual failure of the fire
monitoring system to minimize any damage resulting therefrom.
5
<PAGE>
ARTICLE 6. SIGNS AND SIGNAGE.
-----------------
6.1 Building Signage. Landlord agrees that Tenant shall, at its expense,
----------------
be permitted to identify and advertise Tenant's business by the placement upon
the facade of the Building, such signs, symbols, words, names, logos, trademarks
or other identifying features, graphics or advertising materials (collectively,
"Signs") as are generally or customarily associated with Tenant, its business
and/or its products and services; provided, however, that any and all of such
Signs, and the number, size, color, arrangement, placement and location of the
same upon said Building shall be subject at all times to the prior written
consent and approval of Landlord which shall not be unreasonably withheld,
delayed or conditioned. Initially, matters of Building Signs for Tenant's
business shall be addressed in and included as part of Tenant's Plans and
Specifications and Landlord's consent to and approval of Tenant's Plans and
Specifications, to the extent that they shall address matters of Building Signs,
shall constitute Landlord's consent to and approval of those Building Signs
reflected therein. All such signage must also comply with applicable
governmental laws and ordinances. Tenant shall have the right to use up to two-
thirds of the space permitted for signage by the Village of St. Charles and
shall have first choice of the face of the building on which such signage shall
be located, it being the intention of the parties that Tenant's signage be
"prominently" displayed.
6.2 Maintenance of Signage. Tenant shall and hereby agrees to keep and
----------------------
maintain any and all Signs erected, placed or installed by it upon the building
or within the Leased Premises as may be approved by Landlord, including, without
limitation, all mechanical and all electrical components thereof, in a neat,
clean and orderly fashion and in good condition and repair. All damaged Signs
and all burned out bulbs, tubes and lighting of any kind shall be promptly
repaired and replaced by Tenant, at its expense.
6.3 Removal of Signage. At the end of the Lease Term or earlier
------------------
termination of this Lease, if requested by Landlord, Tenant shall, at its
expense remove all of its signs from the building and, upon removal thereof, at
its expense, repair any damage to the Leased Premises and said building
(including the facade thereof) caused by such removal.
6.4 Signage of Other Tenants. Subject to Section 6.1, Landlord shall have
------------------------
the right to designate portions of the building exterior for signs of other
building Tenants.
ARTICLE 7. CONDITION, BUILD OUT AND UPKEEP OF LEASED PREMISES.
---------------------------------------------------
7.1 Condition of Leased Premises. With the exception of Landlord's
----------------------------
obligation to complete Landlord's Work as set forth in Section 7.2 and the
representations and warranties set forth below, Tenant certifies that it has
inspected the Leased Premises and accepts the Leased Premises in its existing
"AS-IS" condition. No other repair work, alterations or remodeling of the
Leased Premises is required to be done by Landlord as a condition of this Lease.
Landlord represents and warrants to Tenant that on the Commencement
Date and throughout the Term:
6
<PAGE>
(a) The Property and all improvements thereon (except
interior improvements to the Leased Premises to be performed by Tenant
pursuant to Section 7.3) are or, upon completion of Landlord's Work
pursuant to Section 7.2, will be in compliance in all material
respects with all applicable federal, state, and local laws, statutes,
ordinances, rules and regulations including, but not limited to,
building codes, health, safety and environmental laws, and the
Americans With Disabilities Act as it pertains to space used by the
public (collectively "Applicable Laws"). After the date hereof,
Landlord shall not be responsible for compliance of the Leased
Premises with the preceding sentence or for any non-compliance caused
by Tenant or its agents or employees.
(b) The plumbing, electrical, heating, ventilating, air
conditioning and mechanical systems which connect to the Leased
Premises are or, upon completion of Landlord's work pursuant to
Section 7.2, will be in good working order and repair and adequate to
service the Leased Premises for the use contemplated herein subject to
completion of Tenant's Work (defined below).
(c) At all times during the term of this Lease, the roof,
foundation and structural members of the building on the Property
shall be in good working order and repair.
7.2 Landlord's Work. Landlord shall perform the following work
----------------
("Landlord's Work") at its expense in a good and workmanlike manner, lien free,
using new, first-quality materials and experienced labor and in accordance with
applicable laws and plans and specifications therefor, copies of which have been
provided to Tenant. The interior work to be done by Landlord shall be
substantially completed on or before the Commencement Date. The exterior work
to be done by Landlord shall be substantially completed on or before October 31,
1999. Landlord shall perform Landlord's Work regardless of whether Landlord
obtains the facade grant described below.
1. Replace or repair the roof.
2. Replace or repair all existing windows and doorways on the west
side of the building.
3. Replace or repair the HVAC mechanical units, excluding duct work,
and upgrade the fire monitoring system.
4. Replace or upgrade landscaping.
5. Paint exterior trim.
In the event Landlord does not substantially complete Landlord's Work on or
before the dates specified above, then after written notice to Landlord and 15
days' opportunity to cure, Tenant may complete Landlord's Work and deduct the
cost thereof plus a 15% administrative fee from the Rent and Additional Rent due
to Landlord hereunder until Tenant is fully reimbursed therefor.
7
<PAGE>
Landlord has applied for and received preliminary approval for a facade
grant in the amount of $47,500.00 from the City of St. Charles to help improve
portions of the exterior of the building on the Property. Landlord agrees to
use its best efforts to obtain the facade grant, and Tenant shall cooperate with
Landlord in attempting to obtain the grant at no cost to Tenant. The proceeds
of the grant shall be applied toward Landlord's work described in clause 7.2.2
hereof.
7.3 Tenant's Work.
-------------
A. Tenant's Plans and Specifications. Not later than August 1,
---------------------------------
1999, Tenant shall submit to Landlord for its review and approval and, if
necessary, resubmit the same from time to time within fifteen (15) days after
receipt of written notice of disapproval thereof from Landlord, until the same
are approved by Landlord, detailed drawings and plans and specifications of and
for all interior and exterior improvements to be constructed and installed by
Tenant in the Leased Premises as Tenant's Work (as hereinafter defined),
including, without limitation, layout, lighting plan, interior finish and
material samples, typical display technique, if applicable, interior and
exterior signage plans and specifications, store front, and any work or
equipment to be done or installed by Tenant affecting any structural, mechanical
or electrical part of the Leased Premises, the building in which the Leased
Premises is located, and also showing all Trade Fixtures (as hereinafter
defined) to be installed therein by Tenant (the "Plans and Specifications").
Tenant's Plans and Specifications shall be prepared by a licensed architect or
other professional approved by Landlord. Tenant shall not commence the
construction and installation of any of Tenant's Work or Trade Fixtures unless
and until Landlord shall give its written consent and approval to Tenant's Plans
and Specifications, which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord shall have fifteen (15) days after receipt of Tenant's
original or resubmitted Plans and Specifications to review and approve or
disapprove same. Any disapproval by Landlord shall set forth with specificity
the items or aspects of Tenant's Plans and Specifications which Landlord does
not approve. Upon receipt of Landlord's approval of Tenant's Plans and
Specifications, Tenant shall promptly thereafter, at its sole cost and expense,
seek and obtain all necessary building permits and governmental approvals
required to enable Tenant to construct Tenant's work.
B. Commencement of Tenant's Work. Within a reasonable period of
-----------------------------
time following Tenant's receipt of written notice from Landlord approving
Tenant's Plans and Specifications, Tenant shall, at its expense, commence the
construction and installation to the interior of the Leased Premises of those
improvements including those more particularly listed and described on the
schedule of work to be accomplished by Tenant attached hereto as Exhibit B (the
"Tenant's Work"). Tenant shall use its commercially reasonable efforts to cause
all of Tenant's Work to be substantially completed and a certificate of
occupancy issued therefor and for the Leased Premises on or before December 31,
1999, subject to force majeure. Tenant warrants and represents to Landlord that
all such Tenant's Work will be performed in a good and workmanlike manner and in
conformance with all applicable laws, ordinances, requirements, orders,
directions, rules and regulations of all governmental authorities, and in
accordance with Tenant's Plans and Specifications. The contractor selected by
Tenant to perform Tenant's Work shall be approved by Landlord in writing prior
to commencement of construction, which approval shall not be unreasonably
withheld, delayed or conditioned. The construction contract to be executed by
Tenant and its contractor for Tenant's Work shall expressly provide that the
contractor shall be insured in amounts reasonably satisfactory to Landlord and
Tenant and shall name Landlord and Tenant as
8
<PAGE>
additional insureds. Tenant shall provide evidence of such contractor's
insurance to Landlord prior to commencing Tenant's Work.
C. Trade Fixtures. Immediately following the completion of Tenant's
--------------
Work in Section 7.3B above, Tenant shall cause to be installed within the Leased
Premises all trade fixtures reasonably required for the operation, as conducted
by Tenant, of the business contemplated by this Lease to be operated on, in, and
from the Leased Premises, including those trade fixtures, if any, contemplated,
shown and described on Tenant's Plans and Specifications (the "Trade Fixtures").
All Trade Fixtures so installed in the Leased Premises by Tenant shall be new
and of first-class quality and workmanship.
D. Landlord Not Bound. Landlord's approval of Tenant's Plans and
------------------
Specifications shall not be construed as approval of the structural adequacy or
integrity of the work detailed therein or of the conformity of the same to
applicable building codes and other legal requirements; it being agreed that
Tenant shall indemnify and save and hold Landlord harmless from and against any
and all claims and liabilities arising therefrom. Any work which does not
substantially conform with the Plans and Specifications, if so required by
Landlord or by law, shall be removed or reconstructed by Tenant, at Tenant's
sole cost and expense.
E. Compliance With Laws. Prior to Tenant's opening for business,
--------------------
Landlord and Tenant shall perform an inspection of the Property and the Leased
Premises in order to determine that the same is in good order and repair and
that both Landlord's Work and Tenant's Work have been completed in substantial
compliance with the terms of this Lease and, as to Tenant's Work, the Plans and
Specifications. At the walk-through, Landlord and Tenant shall create a written
"Punch List" of items to be completed. The party responsible for a given Punch
List item agrees that the given Punch List item shall be completed as soon as is
reasonably practical following the walk-through but not later than 30 days after
the date of the walk-through, subject to force majeure. If a party fails to
complete any item in the time period set forth herein, then after notice and
opportunity to cure as provided herein, the other party shall be entitled to
cause said items to be completed and assess the cost thereof to the other party.
With the exception of the items set forth on the Punch List, Tenant agrees to
accept the Leased Premises as being in good order and repair.
F. Force Majeure. If Landlord or Tenant fails to timely perform any
-------------
of the terms, covenants and conditions of this Lease on its part to be performed
and such failure is due in whole or in part to any strike, lockout, labor
trouble, civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, acts of God, acts caused directly or
indirectly by the other party (or the other party's agents, employees,
contractors, licensees or invitees) or any other cause beyond the reasonable
control of Landlord or Tenant, as the case may be, then such party shall not be
deemed in default under this Lease as a result of such failure, and any time for
performance provided herein shall be extended by the period of delay resulting
from such cause.
7.4 Landlord's and Tenant's Work. The parties acknowledge that Landlord
----------------------------
is in discussion with the city of St. Charles regarding modifications to the
northerly facade of the building in order to permit the construction of a new
main entrance to the Leased Premises and windows on the northerly facade. On
the condition that Landlord obtains City approval, Landlord agrees to
9
<PAGE>
construct said new main entrance and windows in accordance with the standards
for Landlord's Work set forth above, and the cost thereof shall be shared by the
parties with the Tenant paying two-thirds of the cost and Landlord paying one-
third of the cost. The parties agree that Tenant's share of the cost shall not
exceed $75,000.00. Payment for the proportionate share of the costs shall be due
immediately upon completion of the work. Landlord shall furnish Tenant with a
separate bill and breakdown for expenses for this work.
7.5 Maintenance and Repairs by Landlord. During the term of this Lease,
-----------------------------------
Landlord shall maintain, repair and replace, if necessary, the roof, the
exterior walls, the structural elements, and the exterior (exclusive of glass)
of the Leased Premises, all heating, air conditioning, ventilating, electrical,
mechanical, sprinkler and plumbing systems, equipment, machinery or fixtures
together with all pipes, conduits, ducts and drains servicing the Leased
Premises and other portions of the Property, and the remainder of the building
in which the Leased Premises are located including, without limitation, the
common areas of the building and the Property including, without limitation, the
sidewalks and landscaping, and keep the foregoing in a clean, sightly and
sanitary condition, free of snow, ice, debris, refuse, obstructions and hazards.
Landlord shall not, however, be responsible for maintaining or repairing any
window or window frames, doors, tracks and frames; pedestrian doors and frames;
exterior grills and ports for heating, ventilating and air conditioning units or
exhausts for inlets exclusively serving the Leased Premises. Notwithstanding
the foregoing, Landlord shall have no obligation to perform any maintenance or
repairs wholly or partially caused by the negligence or fault of Tenant or any
of its agents, visitors or licensees, or by Tenant's breach of any provision of
this Lease. Capitalized improvements to the Property shall not be deemed to be
common area maintenance.
Tenant agrees, on a timely basis, to provide Landlord with written notice
of the need for any repairs or maintenance of the type described above.
7.6 Maintenance and Repairs by Tenant. Tenant, at its expense, shall
---------------------------------
maintain and repair the interior of the Leased Premises, and all heating, air
conditioning, ventilating, electrical, mechanical, sprinkler and plumbing
systems, equipment, machinery or fixtures exclusively servicing the Leased
Premises, together with all pipes, conduits, ducts and drains therefor.
Furthermore Tenant, at its expense, shall replace any broken glass in the
interior or exterior of the Leased Premises, and shall maintain and repair all
entryway doors to the Leased Premises. Landlord shall assign to Tenant all
assignable manufacturers' warranties with respect to equipment and fixtures
installed in the Leased Premises.
Tenant further agrees to keep the Leased Premises in good, tenantable,
sanitary, sightly and clean condition and to keep all lobbies and entryways
which are part of the Leased Premises clean and free from debris, refuse,
obstructions or hazardous conditions. Tenant agrees to notify Landlord in the
event an excessive amount of snow accumulates on the roof of the Leased
Premises.
Tenant shall be responsible for all maintenance or repairs wholly or
partially (to the extent of Tenant's part) caused by the negligence or fault of
Tenant or any of its agents, visitors or licensees, or by Tenant's breach of any
provision of this Agreement.
10
<PAGE>
If Tenant does not make the repairs or perform the maintenance required
hereunder in a prompt and adequate manner, then after notice to Tenant and
opportunity cure as provided herein, Landlord may make such repairs or perform
such maintenance and pay the costs thereof, and such costs shall be so much
Additional Rent which shall become immediately due and payable by Tenant to
Landlord.
7.7 Future Drive-Up Teller Facility. Landlord is currently in discussion
-------------------------------
with the City of St. Charles in order to purchase or lease additional land to
the east of the Leased Premises to accommodate drive up teller lanes. If the
City makes said land available for purchase or lease as a drive up, then
Landlord shall submit a proposal to Tenant containing additional lease terms
(including additional rent and construction costs responsibilities) in relation
thereto. Tenant shall then decide whether or not to proceed with the
installation of the drive-up facility and to add such property to this Lease and
the Leased Premises described herein. Nothing contained herein shall obligate
Landlord to provide or make available a drive-up facility at any time during
this Lease and the failure to provide same shall not constitute a breach of
Landlord's obligations under this Lease.
7.8 Surrender of the Leased Premises. Upon the termination of this Lease
--------------------------------
whether by forfeiture, lapse of time, or otherwise, or upon the termination of
Tenant's rights to possession of the Leased Premises, Tenant will at once
surrender and deliver up to Landlord possession of the Leased Premises together
with all improvements thereon in good condition and repair, ordinary wear and
tear excepted. Said improvements shall include all plumbing, lighting,
electrical, heating, cooling and ventilating fixtures and equipment and other
articles of personal property used in the operation of the Leased Premises (as
distinguished from the Trade Fixtures which are used in the operation of
Tenant's business). All additions, hardware, non-trade fixtures and
improvements to the Leased Premises shall become Landlord's property and shall
remain upon the Leased Premises, without compensation to Tenant, unless Landlord
requests their removal in writing at the time of approval of installation (if
applicable). Upon termination of this Lease, the Tenant agrees to deliver to
Landlord all of the keys to the Leased Premises.
The Tenant may remove Tenant's Trade Fixtures from the Leased Premises
provided, however, that Tenant shall repair any injury to or damage to the
Leased Premises caused by the removal of its Trade Fixtures. In the event that
Tenant fails to remove its Trade Fixtures, Landlord may, at its option, remove
the same and deliver the same to any other place of business of Tenant or
warehouse the same, and Tenant shall be responsible for paying the cost of said
removal, including the cost of repairing any damage to the Leased Premises
resulting from such removal, delivery and warehousing, to Landlord on demand.
7.9 Holding Over. Any holding over by Tenant of the Leased Premises after
------------
the expiration of this Lease shall operate and be construed to be a tenancy from
month to month only at the same monthly rate of rent and other charges payable
hereunder for the Lease Term. If the parties are not then engaged in bona fide
negotiations to renew or to extend the Lease, and if Tenant continues to hold
over after a written demand by Landlord for possession at the expiration of the
Lease Term or after termination by either party of a month-to-month tenancy
created pursuant to this paragraph, then Tenant shall pay Monthly Rent at a rate
equal to double the rate of Monthly Rent for the month immediately prior to the
hold over period. Nothing contained in this section shall be
11
<PAGE>
construed to give Tenant a right to hold over at any time, and Landlord may
exercise any and all remedies at law or in equity to recover possession of the
Leased Premises.
7.10 Mechanic's Liens. Tenant will not permit any mechanic's lien or
----------------
liens (other than those caused by the acts of Landlord) to be placed upon the
Leased Premises or the Real Property or any building or improvement thereon
during the term hereof, and in case of filing of any such lien, Tenant shall
promptly pay for or cause a title company to bond over same. Tenant shall have
the right to contest any such lien provided that Tenant pursues such contest
diligently, such contest does not result in the forfeiture of the Property, and
Tenant posts adequate security with a title company or Landlord therefor. If
Tenant fails promptly to pay for or bond over any such lien, Landlord, at its
option, after notice to Tenant and opportunity to cure as provided herein, may
pay for said lien, and any amounts so paid, including expenses and interest,
shall become so much Additional Rent hereunder due from Tenant to Landlord and
shall be paid to Landlord immediately.
7.11 Alterations. Tenant shall not make any material changes or
-----------
structural alterations to the Leased Premises, without first obtaining the
Landlord's written consent, which consent shall not be unreasonably withheld,
delayed or conditioned. Upon the completion of any such changes or alterations,
Tenant shall provide Landlord with such documents as Landlord may require
(including, without limitation, Sworn Contractor's Statements and supporting
lien waivers) evidencing payment in full for such work. Any such changes or
alterations must be made in accordance with applicable building codes or other
governmental regulations.
ARTICLE 8. INSURANCE.
---------
As Additional Rent, Tenant shall procure and maintain, during the term of
this Lease, policies of insurance at Tenant's own cost and expense insuring the
following:
1. Landlord and Tenant from all claims, demands or actions for injury
to or death of any person in an amount of not less than $3,000,000.00, for
injury to or death of more than one person in any one occurrence in an
amount of not less than $3,000,000.00, and for damage to property in an
amount of not less then $1,000,000.00 made by, or on behalf of, any person
or persons, firm or corporation arising from, related to, or connected with
Tenant's use or occupancy of the Leased Premises.
2. Landlord and Tenant from all worker's compensation claims;
3. All contents, and all of Tenant's personal property and Trade
Fixtures, machinery, equipment and furniture and furnishings contained in
the Leased Premises to the extent of at least ninety percent (90%) of their
replacement cost under the standard fire and extended coverage insurance,
including without limitation to, vandalism and malicious mischief and
sprinkler leakage endorsements.
The aforesaid insurance shall be issued by companies and in form,
substance, and amount (where not stated above) reasonably satisfactory to
Landlord and any mortgagee of Landlord, and shall contain standard mortgage
clauses satisfactory to Landlord's mortgagee. Each such policy shall name
Landlord and its individual members as additional insureds. The aforesaid
insurance
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<PAGE>
shall not be subject to cancellation except after at least thirty (30) days
prior written notice to Landlord and any mortgagee of Landlord. Duplicate
original policies (or certificates thereof satisfactory to Landlord) together
with satisfactory evidence of payment of the premiums thereon shall be deposited
with Landlord at the Commencement Date and renewals thereof not less than thirty
(30) days prior to the end of the term of such coverage. If Tenant fails to pay
the premiums on any of said insurance policies, then after ten (10) days' notice
to Tenant and opportunity to cure, Landlord may at its option pay said premiums,
and any payments made by Landlord shall constitute Additional Rent which shall
become immediately due and payable.
ARTICLE 9. INDEMNITY FOR ACCIDENTS.
-----------------------
Tenant covenants and agrees that it will protect and save and keep the
Landlord forever harmless and indemnified against any penalty or damages or
charges imposed for any violation of any laws or ordinances, or any civil claim
with respect to the Leased Premises which occurs during the Lease Term or any
holdover period, whether occasioned by the neglect of Tenant or those holding
under Tenant, but not for any actions or inactions of the Landlord or its
agents, servants, employees, contractors, licensees, guests, invitees or other
tenants. Pursuant to said obligation, Tenant will at all times protect,
indemnify and save and keep harmless the Landlord against and from any and all
loss, costs, damage or expense, including reasonable attorney's fees, arising
out of and from any accident or other occurrence on or about the Leased Premises
causing injury to any person or property whomsoever or whatsoever and will
protect, indemnify, and save and keep harmless the Landlord against and from any
and all claims and against and from any and all loss, costs, damage or expense
arising out of any failure of Tenant in any respect to comply with and perform
all of the requirements and provisions hereof.
Likewise, Landlord covenants and agrees that it will protect and save
Tenant forever harmless and indemnified against any penalty or damages or
charges imposed as a result of any violation of any laws or ordinances or any
civil claim with respect to the Property (other than those with respect to the
Leased Premises), whether occasioned by Landlord's or its agents', servants',
employees', contractors', guests', or invitees' (excluding other tenants')
negligent or unlawful conduct or intentional acts or omissions other than such
guests' or invitees' criminal acts.
ARTICLE 10. FIRE AND CASUALTY.
-----------------
In the event that the Leased Premises shall be rendered substantially
untenantable or unsuitable for Tenant's purposes during the term of this Lease
by fire or other casualty, Landlord at its option may terminate this Lease
effective as of the date of such casualty or Landlord may elect to repair the
Leased Premises. If Landlord elects to repair this Lease will remain in effect
provided that such repairs are promptly commenced, diligently pursued and
completed in a timely manner but not more than 180 days after the date of the
fire or other casualty. If more than 40% of the Leased Premises is rendered
substantially untenantable or unsuitable by fire or casualty and Landlord does
not complete the repair and restoration thereof within said 180 days, then
Tenant may terminate this Lease effective as of the date of such fire or
casualty. If this Lease is terminated by reason of fire or casualty as herein
specified, monthly Base Rent and Additional Rent shall be apportioned and paid
to the day of such fire or other casualty. During any time period that the
Leased Premises is
13
<PAGE>
untenantable, rent will abate if the cause of the casualty is not the result of
Tenant's negligent acts or omissions.
Whenever (a) any loss, cost, damage or expense resulting from fire,
exploding or any other casualty or occurrence is incurred by either of the
parties to this Lease in connection with the Leased Premises, and (b) such party
is then covered in whole or in part by insurance with respect to such loss,
cost, damage or expense, then the party so insured hereby releases the other
party from any liability it may have on account of such loss, cost, damage or
expense to the extent of any amount recovered by reason of such insurance and
waives any right of subrogation which might otherwise exist in or accrue to any
person on account thereof, provided that such release of liability and waiver of
the right of subrogation shall not be operative in any case where the effect
thereof is to invalidate such insurance overage or increase the cost thereof.
ARTICLE 11. MISCELLANEOUS PROVISIONS.
------------------------
11.1 Subordination. This Lease is subordinate and shall be subordinate to
-------------
any and all mortgages which may now or hereafter affect the Leased Premises.
11.2 Assignment and Subletting. Tenant shall not, without Landlord's prior
-------------------------
written consent (which consent shall not be unreasonably withheld, delayed or
conditioned), assign, convey or mortgage this Lease or any interest in the
Leased Premises or sublet any and all or part of the Leased Premises.
Notwithstanding anything herein to the contrary, Tenant shall be permitted to
assign this Lease in whole, but not in part, to any parent, subsidiary or other
entity affiliated with Tenant or to any survivor of any merger or consolidation
with or reorganization of Tenant.
11.3 Abandonment and Reletting. If Tenant shall abandon or vacate the
-------------------------
Leased Premises, or if Tenant's right to occupy the Leased Premises shall be
terminated by Landlord by reason of Tenant's breach of any of the covenants
herein, the same may be relet by Landlord (acting reasonably) for such rent and
upon such terms as Landlord may deem fit, and if a sufficient sum shall not thus
be realized monthly, after paying expenses of such reletting and collecting to
satisfy the rent hereby reserved, Tenant agrees to satisfy and pay all
deficiencies monthly during the remaining term of this Lease.
11.4 Rights Reserved to Landlord. During the term of this Lease the
---------------------------
Landlord shall possess, the following rights:
1. Upon reasonable notice to Tenant, to inspect the Leased Premises
and to make repairs, additions or alterations to the Leased Premises
required by the terms of this Lease;
2. In the event of an emergency, to enter the Leased Premises without
notice to Tenant and to take any reasonable steps necessary in order to
eliminate said emergency.
3. During the last six months of the Lease Term (if not renewed or
extended by Tenant), to place and maintain a "For Rent" sign on the Leased
Premises; and
14
<PAGE>
4. To show the Leased Premises to prospective purchasers, mortgagees
or other persons having a legitimate interest in viewing the same and to
place and maintain a "For Sale" sign on the Property.
5. To install an elevator in the west lobby area, at Landlord's
expense if Landlord elects to do so.
11.5 Default. In the event that Tenant defaults on any of the covenants or
-------
provisions contained in this Lease, Landlord shall give Tenant written notice of
such default and 10 days' opportunity to cure in the case of a monetary default
or 30 days opportunity to cure in the case of a non-monetary default, provided
that if such default cannot reasonably be cured within a 30 day period and if
Tenant has commenced and is diligently proceeding to cure such default, Tenant
shall be given a reasonable period of time to cure such default. If any such
default remains uncured after the aforesaid time period, then Landlord at its
election may terminate this Lease or terminate Tenant's right to possession
only, without terminating the Lease. Upon termination of this Lease or Tenant's
right of possession, Landlord may re-enter the Leased Premises without process
of law and remove all persons, fixtures, and property therefrom, and Landlord
shall not be liable for any damages resulting therefrom. Upon the termination
of the Lease, or upon termination of Tenant's right of possession without
termination of the Lease, the Tenant shall surrender possession and vacate the
Leased Premises immediately, and deliver possession thereof to the Landlord, and
hereby grants to Landlord the full and free right to enter upon the Leased
Premises and to repossess the Leased Premises as Landlord's former estate and to
expel or remove the Tenant and any others who may be occupying or within the
Leased Premises without relinquishing the Landlord's rights to rent or any other
right given to Landlord hereunder or by operation of law.
In the event that Tenant breaches any of the provisions or covenants of
this Lease, Landlord shall be entitled to recover as damages, all rent and other
sums due and payable by Tenant as well as the cost of performing any covenants
to be performed by Tenant. Furthermore, Landlord shall be entitled to recover
any court costs or attorney's fees incurred as a result of Tenant's breach.
The rights and remedies of Landlord under this Lease are cumulative. The
exercise or use of any one or more thereof shall not bar the Landlord from
exercise or use of any other right or remedy provided herein or otherwise
provided by law, nor shall the exercise nor the use of any right or remedy by
Landlord waive any other right or remedy.
11.6 Successors. All covenants and agreements contained herein shall be
----------
binding upon and inure to, the respective rights of Landlord or Tenant or their
successors, heirs, executors, administrators or assigns.
11.7 Severability. Wherever possible, each provision of this Lease will be
------------
interpreted in a manner so as to be effective and valid under applicable law,
but if any provision of this Lease shall be prohibited by or be held invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Lease.
15
<PAGE>
11.8 Estoppel Certificates. Tenant shall from time to time, upon not less
---------------------
then ten (10) business days prior written request from Landlord, execute,
acknowledge and deliver to Landlord in a form reasonably satisfactory to
Landlord or Landlord's mortgagee a written statement certifying, if true, that
Tenant has accepted the Leased Premises, that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), that the
Landlord is not in default hereunder, the date to which the rental or other
charges have been paid in advance, if any, or such other accurate certification
as may be reasonably required by Landlord or Landlord's mortgagee. It is
intended that any such statement delivered pursuant to this section may be
relied upon by any prospective purchaser or mortgagee of the Leased Premises,
and its respective successors and assigns.
11.9 Amendments. None of the covenants, terms or conditions of this
----------
Lease, to be kept and performed by either party shall in any manner be altered,
waived, modified, changed or abandoned except by a written instrument, duly
signed, acknowledged and delivered by both parties.
11.10 Notices. All notices or demands upon Landlord or Tenant desired or
-------
required to be given hereunder shall be in writing and shall be deemed to have
been duly and sufficiently given if delivered personally or by reputable courier
or mailed by United States registered or certified mail in an envelope properly
stamped and addressed as follows:
As to Landlord: Towne Square Realty, L.L.C.
1536 Fargo Boulevard
Geneva, IL 60134
Fax: (630) 262-2516
with copy to: John J. Hoscheit
1001 E. Main Street, Ste. B
St. Charles, IL 60174
Fax: (630) 513-8799
As to Tenant: PrivateBank and Trust Company
10 North Dearborn, Suite 900
Chicago, IL 60602
Attn: President
Fax: (312) 683-7111
with a copy to: Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Suite 2600
Chicago, IL 60601
Attn.: Daniel O'Rourke
Fax: (312) 609-5005
or at such other address as either party designates by proper notice to the
other party. The effective date of such notice, if mailed, shall be three days
after delivery of the same to the United States Postal Service.
16
<PAGE>
11.11 Time is of the Essence. Time is of the essence of this Lease, and
----------------------
all provisions relating thereto shall be strictly constructed.
11.12 Captions. The captions of this Lease are for convenience only and
--------
are not to be construed as part of the Lease and shall not be construed as
defining or limiting in any way the scope or intent of the provisions hereof.
11.13 Law Applicable. This Lease is executed in Kane County, Illinois, and
--------------
shall be construed and enforced in accordance with the laws of the State of
Illinois.
11.14 Real Estate Brokers. Tenant warrants that it has had no dealings
-------------------
with any broker or agent in connection with this Lease.
LANDLORD: TENANT:
TOWNE SQUARE REALTY, L.L.C. PRIVATEBANK AND TRUST COMPANY
By: /s/ Thomas N. Castronovo By: /s/ Donald A. Roubitchek
-------------------------------- ---------------------------------
Its: Manager Its: Managing Director and COO
-------------------------------- --------------------------------
17
<PAGE>
EXHIBIT "A"
DIAGRAM OF LEASED PREMISES
<PAGE>
EXHIBIT "B"
TENANT'S IMPROVEMENTS
Complete interior finish of Leased Premises in compliance with all
applicable codes, laws and ordinances. Said work shall be done in a form
suitable to obtain an occupancy permit prior to Tenant opening for business.
<PAGE>
Exhibit 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease"), is entered into as of this 13th
day of December, 1999 by and between UNION PLANTERS BANK, NATIONAL ASSOCIATION,
a national banking association ("Sublandlord"), and PRIVATEBANCORP, INC., a
Delaware corporation ("Subtenant"). ST. LOUIS BRENTWOOD ASSOCIATES, L.P.,
(together with its Successors and permitted assigns, the "Primary Landlord")
joins in the execution and delivery of this Sublease for the purpose of
consenting to the same. The following recitals form the basis for this Sublease
and are made a material part hereof
A. Landlord is the tenant, and Primary Landlord is the landlord, under that
certain Lease Agreement (together with all amendments, modifications, renewals
and restatements, the "Prime Lease"), dated December 19, 1986 and amended by
that certain First Amendment dated November 17, 1987, that certain Addendum
dated February 1, 1990, that certain letter dated January 9, 1992, that certain
Amendment, Extension and Renewal of Lease dated August 28, 1997 and that certain
Fifth Amendment to Lease dated July 30, 1999.
B. The Prime Lease covers certain leased space in the office building (the
"Building") located at 1401 South Brentwood Boulevard, St. Louis, Missouri
63144. The leased area described in the Prime Lease is referred to herein as the
"Leased Premises."
C. Subtenant desires to lease a portion of the Leased Premises on the terms
and subject to the conditions below.
NOW, THEREFORE, in consideration of the foregoing recitals, the covenants
and agreements herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby
agree as follows:
1. Prime Lease.
1.1 Sublandlord and Subtenant agree that this Sublease is entered into
to create a sublease under the Prime Lease. The Prime Lease is attached
hereto as Exhibit A and by this reference incorporated herein. Subtenant
acknowledges having received and reviewed the Prime Lease. Notwithstanding
anything to the contrary in this Sublease, any termination of the Prime
Lease will cause this Sublease to be terminated as of the same time and
date that the Prime Lease is terminated, subject to Section 15.4 of this
Sublease, which provides for the survival of certain claims in the event
the Sublease is terminated, and any unearned Rent paid in advance shall be
refunded to Subtenant; provided, however that if such termination is the
result of a breach of Subtenant's obligations hereunder, then Sublandlord
shall have the right to retain such amount until such time that the damages
from such breach have been ascertained, at which time such amount may be
applied by Sublandlord to the payment of such damages without limiting the
amount Sublandlord will be entitled to recover as a result of such breach.
1.2 Sublandlord and Subtenant agree that this Sublease is not
effective until such time as Primary Landlord has consented in writing to
this Sublease, such consent to be evidenced by means of Primary Landlord's
execution and delivery of a counterpart of this Sublease in the space
provided below. Until such written consent has been obtained, either party
shall have the right to terminate this Sublease upon the delivery of
written notice thereof to the other party and Primary Landlord.
<PAGE>
2. Subleased Premises. Sublandlord agrees to lease to Subtenant certain
premises located on the 1st and 2nd floors of the Building, consisting of
approximately 12,378 total rentable square feet of floor area, with
approximately 3,026 rentable square feet on the 1st floor and approximately
9,352 rentable square feet on the 2nd floor, as more Rally described on Exhibit
B attached hereto and by this reference incorporated herein (the "Subleased
Premises"), together with the nonexclusive right and license during the Sublease
Term (as defined in Section 4 below) to use any areas required to access and use
the drive-up banking facilities and lanes, any areas required to access and use
the automated teller machines or space therefor and the after-hours depository
area, and any areas of the Leased Premises required for ingress and egress to
and from the Subleased Premises by Subtenant and its employees, agents and
invitees. Notwithstanding the fact that the foregoing use is nonexclusive,
Subtenant's access to such locations and/or facilities shall not be materially
or unreasonably restricted. Subtenant and its employees, agents and invitees
shall have the exclusive right and license during the Sublease Term to use any
automated teller machines or space therefor, the after-hours depository
facilities outside the Building and the drive-up banking facilities; provided,
however that the exclusive right shall not apply to drive-up lanes at those
locations and/or facilities. Subtenant must obtain Primary Landlord's prior
written approval before placing any automated teller or other banking facilities
on any part of the Leased Premises.
3. Compliance with Terms of Prime Lease.
3.1 Subtenant agrees that this Sublease is subject and subordinate to
all of the terms, conditions, and provisions of the Prime Lease and the
exhibits thereto, including without limitation the Building Rules set forth
on Exhibit D thereto, and that Subtenant will not violate or permit the
violation of, and at its cost shall cause the Subleased Premises and
Subtenant's activities on or about the Subleased Premises to be in
compliance with the Prime Lease. Subtenant will cooperate with Sublandlord
and assist Sublandlord in complying with the terms of the Prime Lease, as
it applies to the Subleased Premises and Subtenant's use of common areas.
In the event of a conflict between any term, condition or provision of the
Prime Lease and this Sublease, the terms and provisions of this Sublease
shall control in all controversies arising between Sublandlord and
Subtenant, and the terms and provisions of the Prime Lease shall control in
all controversies arising between Primary Landlord and Sublandlord or
Subtenant, except as the parties have agreed in this Sublease.
3.2 In the event that Subtenant or any agent, employee, officer, or
invitee of Subtenant takes, threatens to take, or fails to take any action
which will result in the breach or violation of the Prime Lease with
reference to the Subleased Premises or use of the common areas, Subtandlord
shall be entitled to injunctive or such other appropriate equitable relief
as may be necessary to prevent any violation or breach of the Prime Lease
by Subtenant or its agents employees, officers or invitees, together with
all of Sublandlord's damages occasioned thereby, it being agreed by the
parties that any breach of the Prime Lease would cause irreparable harm to
Sublandlord.
3.3 If any obligation of Sublandlord under this Sublease is to be
performed by Primary Landlord under the Prime Lease and Primary Landlord
fails to perform such obligation, then Sublandlord shall have no liability
to Subtenant hereunder as a result of such failure, except that Sublandlord
agrees to use commercially reasonable efforts to cause Primary Landlord to
perform such obligation. For example, and not by way of limitation, if any
service to be provided under this Sublease is to be provided by Primary
Landlord under the Prime Lease and Primary Landlord fails to provide such
service, then Sublandlord shall have no liability to Subtenant for the
failure of such service to have been
-2-
<PAGE>
provided. In such event, however, Sublandlord agrees to use commercially
reasonable efforts to cause Primary Landlord to provide such service.
3.4 If any consent or approval is required to be obtained by
Sublandlord under the provisions of this Sublease prior to the taking of
any action on the part of Subtenant, and the Prime Lease contains a
comparable provision requiring the consent of the Primary Landlord, then
any consent by Sublandlord to the taking of such proposed action by the
Subtenant shall not be effective until such time, if at all, that Primary
Landlord consents to the taking of such action.
4. Sublease Term.
4.1 Subject to Sections 1.1,36 and 37 of this Sublease, the term of
this Sublease (the "Sublease Term") shall commence on December 13, 1999
(the "Commencement Date") and shall expire at 11:59 p.m. (St. Louis time)
on February 4, 2009 (the "Expiration Date").
4.2 Subject to Sections 1.1, 36 and 37 of this Sublease, this
Sublease, and the Sublease Term, shall commence on the Commencement Date
and shall terminate and expire on the Expiration Date without the necessity
of any termination notice from either Sublandlord or Subtenant.
5. Monthly Base Rent Subtenant shall pay monthly base rent ("Monthly Base
Rent") in advance to Sublandlord on the first (1st) day of each month during the
Initial Term as follows:
5.1 The "Rent Commencement Date" is hereby defined to mean January 1,
2000. During the period commencing on the Rent Commencement Date through
and including the Expiration Date, Subtenant shall be obligated to pay
Monthly Base Rent on the first day of each month, without offset or
deduction for any reason. The amount of each such monthly payment shall be
as follows:
January 1, 2000 - December 31, 2000 $20,630.00
January 1, 2001 - December 31, 2001 $24,240.25
January 1, 2002 - December 31, 2002 $24,756.00
January 1, 2003 - December 31, 2003 $25,271.75
January 1, 2004 - December 31, 2004 $25,787.50
January 1, 2005 - December 31, 2005 $26,303.25
January 1, 2006 - December 31, 2006 $26,819.00
January 1, 2007 - December 31, 2007 $27,334.75
January 1, 2008 - December 31, 2008 $27,850.50
January 1, 2009 - February 4, 2009 $28,882.00
5.2 Monthly Base Rent for any partial month shall be prorated over the
actual number of days in such month that the Sublease Term is then in
effect, and shall be paid on the first (1st) day of such partial month. All
amounts required to be paid by Subtenant under this Sublease which do not
constitute Monthly Base Rent shall constitute "additional rent" due
hereunder. The term "Rent" shall mean the Monthly Base Rent and all
additional rent.
6. Building Operating Expense Reimbursement.
6.1 Under the Prime Lease, Sublandlord is obligated to reimburse
Landlord for Subtenant's pro rata share of increases in "Expenses" in
excess of the "Expense Stop Amount" (as such capitalized terms are defined
in the Prime Lease). For purposes of this Sublease, the term "Base Year"
-3-
<PAGE>
shall mean 2000. For purposes of this Section 6, Subtenant's pro rata share
("Subtenant's Percentage") shall be 7.25%. The parties agree that the
intention of this Section 6 is to obligate Subtenant to pay its pro rata
share of Expenses which are in excess of Expenses for the Base Year.
6.2 In addition to Monthly Base Rent, Subtenant shall pay to
Sublandlord additional rent with respect to each calendar year during the
Sublease Term in accordance with the following provisions:
(a) If Expenses during any calendar year after the Base Year
exceed Expenses for the Base Year (such excess being referred to
herein as "Excess Expenses"), then Subtenant shall pay to Sublandlord,
as additional rent for each such calendar year, an amount equal to
Subtenant's Percentage of such Excess Expenses. Expenses shall be
determined by Primary Landlord in accordance with the provisions of
the Prime Lease.
(b) Sublandlord shall deliver to Subtenant written notice of its
estimate of Excess Expenses for the upcoming calendar year.
Sublandlord shall have the right to rely on estimates thereof prepared
by Primary Landlord. On the first day of each and every calendar month
commencing after the receipt of each such estimate and prior to the
receipt of the next annual estimate of Excess Expenses, Subtenant
shall pay to Sublandlord one-twelfth (1/12) of Subtenant's Percentage
of Excess Expenses based upon such estimate. Such estimated payments
shall be due on the same date as are the installments of Monthly Base
Rent. Subtenant's Percentage of Excess Expenses for each calendar year
of the Sublease Term shall be deemed to be additional rent becoming
due under this Sublease and Subtenant's obligation to pay Subtenant's
Percentage of Excess Expenses for the Sublease Term shall survive the
expiration or termination of this Sublease.
(c) As soon as reasonably possible after the expiration of each
calendar year during the Sublease Term, Sublandlord will furnish to
Subtenant a statement showing the Expenses for the expired calendar
year and the estimated amount of Expenses to be paid during the next
calendar year, such statement to be in the same form as the statement
provided to Sublandlord by Primary Landlord. If Subtenant's Percentage
of Excess Expenses for any calendar year exceeds the payment on
account thereof made by Subtenant, Subtenant shall pay to Sublandlord
the deficiency within fifteen (15) days after the receipt of a
statement therefor. Such obligation on the part of Subtenant shall
survive any vacation of the Subleased Premises by Subtenant. If any
such statement shows that the payments made by Subtenant on account of
Excess Expenses exceeded the amount then payable by Subtenant, then
Sublandlord shall apply such excess to future payments of additional
rent or, in the event Subtenant has vacated the Subleased Premises in
accordance with its rights hereunder, pay the amount of such excess to
Subtenant. In no event shall any rent adjustment result in a decrease
of Monthly Base Rent.
(d) If Expenses for any calendar year are revised after a
statement thereof has been delivered to Subtenant, then the parties
agree to make such adjustments as may be necessary based upon the
revised amount of Expenses.
(e) Excess Expenses for any partial calendar year at the end of
the Sublease Term shall be prorated.
7. Security Deposit. Subtenant, concurrently with signing this Sublease,
shall pay to Sublandlord a Security Deposit in the amount of $28,882.00 to be
held to guarantee the faithful performance by Subtenant of all of Subtenant's
obligations under this Sublease. The Security Deposit may be commingled with
Sublandlord's other funds and any interest or other income earned thereon
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shall be the property of Sublandlord. If Subtenant defaults with respect to any
provision of this Sublease, Sublandlord may expend the whole or any part of the
Security Deposit for the payment of any amount which Sublandlord may expend by
reason of such default. If any portion or all of the Security Deposit is so
used, Subtenant shall, within ten (10) days after demand therefor, deposit cash
with Sublandlord in an amount sufficient to restore the Security Deposit to its
original amount and failure to do so shall be a breach of this Sublease.
Provided no event of default has occurred and is continuing under this Sublease
on the later of (a) the first anniversary of the Commencement Date, or (b) the
expiration of all contingencies and termination rights under this Sublease (as
set forth in Sections 36 and 37), Sublandlord shall return the Security Deposit
to Subtenant within fifteen (15) days after Sublandlord's receipt of notice from
Subtenant that each of the foregoing conditions have been met, together with any
evidence reasonably required by Sublandlord that all contingencies have been
satisfied and all termination rights have expired. In the event of a transfer of
Sublandlord's interest in the Building, Sublandlord may pay over the Security
Deposit to Sublandlord's transferee to be held under the terms of this Sublease
and Sublandlord shall be released from all liability for the return of the
Security Deposit. Under no circumstances shall Subtenant have the right to
direct that the Security Deposit be applied to the payment of Rent.
8. Use of Subleased Premises. Subtenant shall use and occupy the Subleased
Premises only as a full-service banking facility, providing any services that
may be provided by a commercial bank under federal and Missouri laws, and for
general office purposes, and for no other use or purpose whatsoever without the
express prior written consent of Sublandlord and Primary Landlord.
9. Alterations and Improvements.
(a) The Subleased Premises are being subleased in an "AS IS - WHERE
IS" condition, unless expressly provided otherwise herein; Sublandlord
shall have no obligation to perform any alterations to ready the Subleased
Premises for Subtenant's occupancy. Sublandlord makes and has made no
representations or warranties with respect to the condition of the
Subleased Premises or as to its suitability for the use or uses
contemplated by Subtenant. Subtenant's occupancy of the Subleased Premises
shall constitute Subtenant's acceptance of the condition of the same and
its agreement that the Subleased Premises are in good condition. Subtenant
shall, at its cost and expense, install its own telephone and computer
equipment systems.
(b) Except as provided in this Sublease, any alterations, additions,
changes or improvements to the Subleased Premises not expressly described
herein shall be made only with the prior written consent of Primary
Landlord and notice of the same to Sublandlord as provided herein. In the
event Primary Landlord consents to the making of alterations, additions,
changes or improvements to the Subleased Premises, Sublandlord shall be
furnished with such evidence of Primary Landlord's consent as Sublandlord
shall require at least fifteen (15) days prior to the commencement of such
work. Prior to the commencement of any work, Primary Landlord and
Sublandlord shall be furnished with copies of all plans and specifications,
a budget listing by line item the cost of the work to be done, and evidence
of the provision of performance bonds, if required by Primary Landlord. The
work necessary to make the change(s) shall be done at Subtenant's expense
by employees or contractors hired by Primary Landlord and approved by
Subtenant. Subtenant agrees to pay Primary Landlord or its agent,
lnsignia/ESG, Inc., directly for any work to be performed prior to the
commencement of any work and pay all construction supervision fees charged
by Primary Landlord. Subtenant also agrees to reimburse Sublandlord for any
construction supervision fees charged by Primary Landlord to Sublandlord.
In no event shall any lien be established against the Subleased Premises or
the Building. In the event the actual cost of the alterations, plus the
construction supervision fee, are less than the amount paid to
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Primary Landlord by Subtenant as required in this subsection (b), Primary
Landlord shall pay the difference to Subtenant within thirty (30) days
after completion of the alterations.
(c) Upon Subtenant's receipt of all Regulatory Approvals (as defined
in Section 16.4 of this Sublease), satisfaction of any other contingencies
set forth in this Sublease, expiration of all termination rights set forth
in this Sublease (as such contingencies and termination rights are set
forth in Sections 36 and 37 of this Sublease), and delivery of notice of
the same to Sublandlord and Primary Landlord (together with such evidence
of the same as Sublandlord or Primary Landlord may require), Sublandlord
will pay to Subtenant up to $123,780.00 (the "Improvement Allowance") in
accordance with Section 9(b) of this Sublease and all other provisions of
this Section 9. Subtenant agrees that such Improvement Allowance will be
used for Subtenant's improvement of the Subleased Premises (including
without limitation, for the preparation of any architectural drawings
created in connection with such improvements). Prior to the commencement of
any improvements, the name of the selected general contractor, all
architectural drawings, plans and specifications, the construction
schedule, a budget showing by line item the cost of the construction and
evidence of Primary Landlord's consent to the improvements as required in
this Section 9 must be furnished to Sublandlord. The Improvement Allowance
will be paid to Subtenant upon Sublandlord's receipt of sufficient evidence
as required by Sublandlord of completion of the improvements, including
without limitation copies of invoices, evidence that the same have been
paid, and lien waivers from contractors and suppliers; provided, however,
that in no event shall Sublandlord be obligated to pay more than the amount
of the Improvement Allowance for any and all work and that Subtenant shall
pay all costs in excess of the Improvement Allowance. If Subtenant does not
intend to utilize all or a part of the Improvement Allowance and so
notifies Sublandlord, then any unused amount of the Improvement Allowance
shall be credited against Subtenant's obligation to pay Monthly Base Rent
hereunder from the first day of the month after Sublandlord's receipt of
the notice until the entire unused amount of the Improvement Allowance has
been applied and credited to the Monthly Base Rent payments. If Subtenant
fails to fully utilize the Improvement Allowance during the Sublease Term,
then any unused amount of the Improvement Allowance shall be credited
against Subtenant's obligation to pay Monthly Base Rent hereunder and shall
be refunded by Sublandlord to Subtenant within fifteen (15) days after the
Expiration Date. Any and all improvements or alterations to be made by
Subtenant in connection therewith shall be subject to the provisions of
this Sublease. Nothing in the foregoing shall relieve Subtenant from any of
its other obligations under this Sublease.
(d) Primary Landlord covenants and agrees that no act or omission of
Primary Landlord or any contractor, subcontractor or supplier arising out
of any construction performed by or at the direction of Primary Landlord
with respect to the Subleased Premises, including without limitation, the
filing of any lien against the Leased Premises or any part thereof, shall
cause or create a default under the Prime Lease (as such term is defined
therein).
10. Repairs. During the continuance of this Sublease, Subtenant shall keep
the Subleased Premises and appurtenances in good order and repair; shall keep
the Subleased Premises and appurtenances in a wholesome condition without charge
or expense to Sublandlord; shall pay for all damages to the Building as well as
damages to the tenants or occupants thereof caused by any waste, misuse or
neglect of said Subleased Premises, its apparatus or appurtenances; and shall
not make nor allow to be made any change, alteration or addition, in, upon or to
said Subleased Premises without the written consent of Sublandlord and Primary
Landlord for that purpose first had and obtained. Upon the expiration or earlier
termination of Subtenant's right to possession of the Subleased Premises,
Subtenant shall surrender to Sublandlord the Subleased Premises in as good
condition and repair as on the Commencement Date, reasonable wear and tear
excepted, and all alterations, fixtures (other than
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Subtenant's trade fixtures) and improvements shall remain with, and become the
property of, Sublandlord unless Subtenant is directed by Sublandlord in writing
to remove the same prior to the expiration or termination of Subtenant's right
to possession of the Subleased Premises. If Subtenant fails to leave the
Subleased Premises in such condition, then Sublandlord shall have the right to
repair and restore the same to such condition and Subtenant shall reimburse
Sublandlord for the cost thereof plus fifteen percent (15%).
11. Furniture and Fixtures.
11.1 All trade fixtures attached to the Subleased Premises on the date
hereof, including without limitation, the teller counters and related
equipment, vaults, safe deposit boxes, facilities and marked keys for each
box, after-hour drops for deposits, kiosks, vacuum systems and related
equipment (but excluding the automated teller machine and the security
systems), and all furniture and equipment shown on Exhibit C attached
hereto and made a part hereof (such furniture and equipment, except for any
furniture or equipment located in the drive-up teller area, are
collectively referred to as the "Personal Property"), shall be deemed to be
a part of the property subleased by or licensed to Subtenant hereunder. As
of the date of this Sublease, to the knowledge of Sublandlord, such trade
fixtures, related equipment and Personal Property are in good working order
and repair. Subtenant shall be liable for and shall pay before delinquency,
taxes leveled against the Personal Property and any other personal property
or trade fixtures placed by Subtenant in the Subleased Premises. If any
such taxes are levied against Sublandlord, whether directly or indirectly,
or the Subleased Premises, or if the assessed value of the Building is
increased by the inclusion of such personal property or trade fixtures,
upon written notice from Sublandlord, Subtenant shall pay to Sublandlord
the amount of the taxes based upon the increased assessments. Subtenant
shall have the right, at its sole cost, to replace, remove or eliminate any
items of the Personal Property.
11.2 Provided no event of default has occurred and is continuing as of
the Expiration Date, and further provided that Subtenant has delivered to
Sublandlord a notice that it desires to purchase the Personal Property (as
shown on Exhibit C to this Sublease), on the Expiration Date, ownership of
such Personal Property shall immediately and automatically transfer to
Subtenant and this Sublease shall be deemed a bill of sale evidencing
Sublandlord's agreement, as of the date of this Sublease, to sell the
Personal Property to Subtenant, subject to the terms of this Sublease.
Sublandlord hereby represents and warrants that it has good right and
lawful authority to sell all of its right, title and interest in and to the
Personal Property and that it will not assign or transfer such rights prior
to the Expiration Date. SUBLANDLORD MAKES NO REPRESENTATION OR WARRANTY
(EXPRESS OR IMPLIED) AS TO THE CONDITION OF THE PERSONAL PROPERTY,
INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SUBLANDLORD AGREES TO
SELL THE PERSONAL PROPERTY "AS IS, WHERE IS" THE WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY
DISCLAIMED.
12. Insurance.
12.1 Subtenant shall, at its own expense, provide and keep in force,
comprehensive public liability insurance for the benefit of Sublandlord and
Subtenant jointly against liability for bodily injury, death, property
damage and contractual liability with a combined single limit of not less
than Five Million and 00/100 Dollars ($5,000,000.00), such limit to be for
any amount greater as may be reasonably indicated by circumstances from
time to time and existing.
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12.2 Subtenant shall maintain in full force and effect on all fixtures
and equipment in the Subleased Premises a policy or policies of fire and
extended coverage insurance with standard coverage, vandalism, malicious
mischief, special extended perils (all risk), sprinkler damage and
subrogation waiver endorsements to the extent of one hundred percent (100%)
of their insurable value during the term of this Sublease. Until Subtenant
surrenders possession of the Subleased Premises to Sublandlord, Subtenant
shall retain all risk of loss with respect to any of Subtenant's property
located at the Subleased Premises.
12.3 Subtenant shall maintain in form and amount reasonably acceptable
to Sublandlord all workers' compensation insurance or similar insurance as
may be required under the laws of the state in which the Subleased Premises
is located in respect to the operation, maintenance, protection, repair,
alteration, or reconstruction of the Subleased Premises or any part thereof
which may be undertaken by Subtenant pursuant to the terms of this
Sublease.
12.4 Subtenant shall maintain such other coverages as may be required
after the date hereof under or pursuant to the Prime Lease, each in the
standard form generally used in the State of Missouri and by a company
reasonably acceptable to Primary Landlord. The amount of any insurance
coverages required to be maintained by Subtenant are subject to increase
upon any increase in the coverages required under the Prime Lease.
12.5 Primary Landlord and Sublandlord shall be named as additional
insureds under all policies of insurance required by this Sublease. All
insurance policies shall be primary and non-contributing with any insurance
carried by Sublandlord or Primary Landlord. The insurance required
hereunder shall be in companies that are reasonably acceptable to
Sublandlord and Primary Landlord. Not less than ten (10) days prior to the
commencement of the Sublease Term, and thereafter, upon Sublandlord's
request, from time to time, Subtenant shall deliver to Sublandlord evidence
of the insurance required to be carried by Subtenant on ACORD form 27, and
each such certificate and insurance policy shall provide that it may not be
canceled or altered without at least thirty (30) days prior written notice
to Sublandlord. All such policies shall comply in all respects with the
requirements contained in the Prime Lease relative to the insurance
required to be maintained by Sublandlord. Subtenant shall not do or permit
anything to be done which shall invalidate the insurance policies referred
to in this section.
13. Subletting and Assignment. Subtenant may not assign, convey, mortgage,
sublet or otherwise transfer or encumber all or any part of the Subleased
Premises or Subtenant's interest in this Sublease, or permit the use or
occupancy of the Subleased Premises or any part thereof by anyone other than
Subtenant and its employees, without the prior written consent of the
Sublandlord and the Primary Landlord (whose conditions for consenting to a
sublease or assignment are outlined in Article VIII of the Prime Lease).
Acceptance of rent by Sublandlord from any person other than Subtenant shall not
be deemed to be a waiver by Sublandlord of this Section, and consent to one or
more assignments or sublettings shall not be deemed consent to any subsequent
assignment or subletting. For purposes of this Sublease, any transfer or
issuance of any ownership interest (e.g., stock in a corporation, partnership
interests, limited liability company interests or beneficial interests of
trusts) in Subtenant (whether as a result of a voluntary transfer, issuance of
additional ownership interests, death, redemption, bankruptcy, UCC sale or other
involuntary transfer, or by operation of law) which transfer or issuance results
in a change in the identity of those persons beneficially owning more than fifty
percent of the outstanding ownership interests of Subtenant from that in effect
on the date of this Sublease shall constitute an assignment of this Sublease
requiring the consent of Sublandlord and Primary Landlord.
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14. Casualty or Condemnation. In the event of casualty or condemnation of
the Subleased Premises or the Leased Premises or any of their respective
component parts, the terms and conditions of the Prime Lease shall govern the
parties' respective rights and obligations under this Sublease, and in no event
shall Subtenant have any greater rights under this Sublease than Sublandlord has
under the Prime Lease. If the Prime Lease grants to Sublandlord any rights to
terminate or not terminate the Prime Lease in the event of a casualty or
condemnation or grants any rights with respect to any insurance proceeds or
condemnation awards which may become payable with respect thereto, then it is
agreed by the parties that Subtenant shall have no rights with respect thereto
other than to make a claim under any insurance policy or policies which
Subtenant may maintain.
15. Sublandlord's Covenants, Representations and Warranties. Sublandlord
covenants and agrees with Subtenant that:
15.1 Sublandlord has the right to enter into this Sublease, subject to
approval of the Primary Landlord.
15.2 Sublandlord will put Subtenant in possession of the Subleased
Premises, and Subtenant upon paying the rent hereinabove (except for any
credits owed to Subtenant pursuant to Section 9(c) of this Sublease) and
observing and performing the several covenants and stipulations herein on
its part contained, shall peaceably hold and enjoy the Subleased Premises
during the Sublease Term without any interruption by Sublandlord.
15.3 Sublandlord shall use all commercially reasonable efforts to
cause Primary Landlord to furnish those utilities and other services to the
Subleased Premises described in Article VII of the Prime Lease, during the
hours provided therein. Subtenant shall have the same obligation to
reimburse Sublandlord for increased expenses cause by Subtenant's use of
the Subleased Premises after normal business hours as is imposed on
Sublandlord under the Prime Lease with respect to such after-hours use.
15.4 Sublandlord shall comply with its covenants and obligations set
forth in the Prime Lease, and Sublandlord shall not agree to terminate its
interest in the Subleased Premises without Subtenant's prior written
consent. Subtenant's claims against Sublandlord, if any, arising out of any
breach of the Prime Lease as a result of an act or omission of Sublandlord,
shall survive any termination of the Prime Lease. Notwithstanding the
foregoing, Sublandlord shall have no liability to Subtenant under this
Sublease in the event that the Prime Lease is terminated because of
Subtenant's breach of its obligations under this Sublease or any other act
or omission of Subtenant which effects a termination of the Prime Lease.
Sublandlord shall have no obligation to Subtenant to perform any obligation
assumed by Subtenant under this Sublease in order to prevent a termination
of the Prime Lease.
15.5 On or before December 13, 1999, Sublandlord shall cause all safe
deposit boxes to be emptied of their contents, and all keys thereto,
properly marked to identify the boxes or doors they fit, shall be delivered
to Subtenant.
16. Subtenant's Covenants. Reoresentations and Warranties. Subtenant
covenants, represents, warrants and agrees with Sublandlord:
16.1 Subtenant shall pay the rent in the time and the manner herein
provided.
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16.2 Subtenant shall permit Sublandlord and the Primary Landlord to
enter the Subleased Premises at any reasonable time for the purpose of
inspecting, maintaining and cleaning the same and making necessary repairs
to the building and the equipment and fixtures contained therein.
16.3 Subtenant shall surrender the Subleased Premises and all
appurtenances thereto at the end of the Sublease Term (whether at the
stated end of such term or by early termination by forfeiture or otherwise)
in the same condition as received, ordinary wear and tear excepted, and
shall surrender all keys and duplicates thereof. Subtenant shall remove all
of its personal property and removable trade fixtures (but shall not remove
any personal property or fixtures owned by Primary Landlord or Sublandlord)
from the Subleased Premises prior to the expiration or earlier termination
of the Sublease Term and shall repair any damage caused by the removal
thereof, and Subtenant shall surrender possession of the Subleased Premises
in broom clean condition.
16.4 Subtenant shall, at its cost, obtain all licenses, permits,
qualifications, registrations or other authorizations required in
connection with the operation of its business as a full-service banking
facility at the Subleased Premises (the "Regulatory Approvals"). Subtenant
represents and warrants that all applications required to obtain the
Regulatory Approvals have been filed with the appropriate parties and are
pending as of the date of this Sublease. No representation is made by
Sublandlord that Subtenant's use of the Subleased Premises is permitted
under applicable zoning or land use laws. Subtenant shall not use or permit
to be used the Subleased Premises in any manner that will (a) constitute a
hazard or an unreasonable annoyance to other tenants in the Building or any
adjoining properties, (b) cause the Subleased Premises or the Building or
both to suffer waste, (c) violate any laws, (d) permit any noxious odors or
vapors to be emitted from the Subleased Premises, or (e) violate, suspend,
void or serve to increase the premium of any policy or policies of
insurance at any time carried on the Building or any part thereof,
including the Subleased Premises. Subtenant shall not violate or permit the
violation of any restrictive covenant or other condition of title affecting
the Building. Subtenant shall not permit any hazardous substance or toxic
waste to be handled, generated, stored, treated, disposed of or released on
or in the Subleased Premises.
16.5 Sublandlord shall not be liable to Subtenant for any interruption
of services to or unavailability of materials at the Subleased Premises or
the Building (including, without limitation, utilities, trash removal and
maintenance) caused by circumstances not within the reasonable control of
Sublandlord or by strikes or labor disputes.
16.6 Sublandlord shall not be liable to Subtenant or its employees and
agents for injury or damage to persons or property caused by the theft,
vandalism or other criminal or tortious conduct of others (except for
Sublandlord), and Subtenant hereby acknowledges that Subtenant's occupancy
of the Subleased Premises and use of the common areas of the Building is at
Subtenant's own risk.
17. Hold Harmless: Indemnification. Sublandlord shall not be liable for any
damage occasioned by failure to keep the Subleased Premises in repair, and it
shall not be liable for any damage arising from the action or negligence of
Subtenant, co-tenants or other occupants of the Building. Subtenant shall defend
(by counsel acceptable to Sublandlord), pay, indemnify and save harmless
Sublandlord, its agents and employees, from and against any and all claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by or in favor of anyone whomsoever and from and against any
and all costs and expenses incurred by Sublandlord, including attorneys' fees,
resulting from or in connection with any of the following, unless the same are
caused by Sublandlord's gross negligence or willful misconduct: (a) any
accident, bodily injury, death, personal
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injury of any kind, or property damage arising directly or indirectly, out of or
from or on account of any occurrence an, upon, at or about the Subleased
Premises; (b) any accident, bodily injury, death, personal injury or property
damage arising, directly or indirectly, in connection with Subtenant's operation
and conduct of business on or in the Subleased Premises, or suffered by any of
Subtenant's employees, agents, contractors or invitees; (c) any use, occupancy,
non-use or condition of the Subleased Premises; and (d) any failure on the part
of Subtenant to perform or comply with any of the agreements, terms, covenants
and conditions of this Sublease. In case any action, suit or proceeding is
brought against Sublandlord by reason of any such occurrence, Subtenant or
Subtenant's insurer, upon Sublandlord's request, will at no expense to
Sublandlord resist and defend such action, suit or proceeding or cause the same
to be resisted and defended by counsel designated by Subtenant and approved by
Sublandlord. The obligations of Subtenant under this Section shall survive any
termination of this Sublease.
18. Events of Default. If any one or more of the following events occurs,
then the same shall constitute an event of default on the part of Subtenant
under this Sublease:
18.1 The failure of Subtenant to make any payment of Monthly Base
Rent, additional rent or other sum required to be paid when due or within
seven (7) days after Sublandlord sends notice of such failure to Subtenant.
18.2 The failure of Subtenant to perform or observe any of the other
terms or conditions of this Sublease (including, without limitation, the
terms and conditions of the Prime Lease to the extent that the same are
obligations of Subtenant hereunder) to be observed or performed by
Subtenant; provided, however, that if such event is not otherwise set forth
in this Section 18 and Subtenant cures such default within thirty (30) days
after Sublandlord sends Subtenant written notice of such default, no event
of default shall occur under this Sublease; further provided, that if such
event is not reasonably capable of cure within such thirty (30) day period,
no event of default shall occur if (a) Subtenant promptly commences and
diligently pursues cure, and such event is cured not later than sixty (60)
days after Sublandlord sends Subtenant written notice of such default; and
(b) no default or event of default occurs under the Prime Lease;
18.3 The failure of Subtenant to remedy, immediately after receipt of
notice from Sublandlord, any hazardous condition which Subtenant has
created or suffered in breach of subtenant's obligations under this
Sublease;
18.4 Except as expressly permitted under this Sublease, the purported
subletting of the Subleased Premises or purported assignment of this
Sublease by Subtenant without the prior written consent of Sublandlord and
Primary Landlord;
18.5 The abandonment of the Subleased Premises by Subtenant;
18.6 Subtenant becomes insolvent or admits its inability to pay its
creditors, or becomes the subject of a bankruptcy proceeding filed by or
against it, or otherwise suffers any material adverse change in its
financial condition; or
18.7 The subleasehold interest of Subtenant is levied upon under
execution or is attached by process of law.
18.8 Subtenant shall breach any of its obligations set forth in
Sections 3 (subject to any applicable cure rights), 8, 9(b), 9(c), 11, 12,
13, 16.4, or 28 of this Sublease.
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18.9 Any material representation or warranty made by Subtenant
hereunder shall prove to have been untrue when made.
19. Remedies. If an event of default occurs on the part of Subtenant under
this Sublease, then Sublandlord may exercise any one or more of the following
remedies, to the extent permitted by law, or any other legal or equitable remedy
permitted under applicable law:
19.1 Sublandlord may terminate this Sublease upon the delivery of
notice thereof to Subtenant, and Sublandlord shall have the right to
immediate possession of the Subleased Premises and Subtenant shall
peacefully surrender possession of the Subleased Premises to Sublandlord.
Subtenant hereby waives any and all rights it may have, at law or in
equity, to the receipt of notice of default or demand for forfeiture,
except as expressly provided herein. In the event Subtenant holds the
Subleased Premises over beyond the termination of the Sublease Term,
Sublandlord shall have the right to recover Sublandlord's cost in
recovering possession of the Subleased Premises (including, without
limitation, attorneys' fees and litigation costs), such amounts as may be
permitted under applicable law and any other amounts due and payable to
Sublandlord hereunder (including, without limitation, any past-due Rent).
19.2 Sublandlord, without terminating this Sublease, shall have the
right to terminate Subtenant's right to possess the Subleased Premises and
to recover possession thereof and Subtenant shall peacefully surrender the
Subleased Premises to Sublandlord. Subtenant hereby waives any and all
rights it may have, at law or in equity, to the receipt of notice of
default or demand for forfeiture, except as expressly provided herein.
Sublandlord, at Sublandlord's option, may cause the Subleased Premises to
be prepared for reletting, and may relet the Subleased Premises or any part
thereof as agent of Subtenant, for a term to expire prior to, at the same
time as, or subsequent to the expiration of the Sublease Term, at
Sublandlord's option. In the event of such reletting, Sublandlord shall
receive the rents therefor, applying the same first, to the repayment of
reasonable expenses as Sublandlord may have incurred in connection with
said resumption of possession, preparing for reletting and reletting
(including, without limitation, remodeling costs, brokerage and attorneys'
fees), and, second, to the payment of damages and amounts equal to the
Monthly Base Rent and additional rent due hereunder and to the cost of
performing the other obligations of Subtenant as herein provided.
Subtenant, regardless of whether Sublandlord has relet the Subleased
Premises, shall pay to Sublandlord damages equal to the Monthly Base Rent
and additional rent herein agreed to be paid by Subtenant less the costs
and proceeds of the reletting, if any, and such Rent shall be due and
payable by Subtenant by on the days on which Rent is due hereunder or, in
the alternative and at the option of Sublandlord, Subtenant shall
immediately pay all amounts of Monthly Base Rent payable during the
Sublease Term reduced by the rental value thereof discounted to present
value at the rate of three percent (3%) per annum.
19.3 Sublandlord may perform for Subtenant any of the obligations
Subtenant has agreed to perform hereunder if Subtenant has defaulted in the
performance of such obligations. Upon demand, Subtenant shall reimburse
Sublandlord for Sublandlord's cost of performing for Subtenant, together
with interest thereon at a rate equal to ten percent (10%) per annum,
compounded monthly. Any amounts so expended by Sublandlord shall be
immediately due and payable, and the failure of Subtenant to pay such
amounts shall entitle Sublandlord to all of the rights and remedies
available to it as if Subtenant had defaulted in the payment of Rent.
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19.4 Subtenant shall pay to Sublandlord a late charge equal to five
percent (5%) of the amount of any installment of Monthly Base Rent or
additional rent if such installment becomes more than ten (10) days past
due.
19.5 Subtenant shall pay to Sublandlord, upon demand, interest at the
rate of twelve percent (12%) per annum on any past-due payments of Monthly
Base Rent, additional rent or other amounts due hereunder.
20. Headings. The headings of the paragraphs of this Sublease are inserted
only for reference and convenience and the Sublease is to be construed in all
respects as if said headings did not appear hereon.
21. Parking. During the Sublease Term and provided that no event of default
has occurred on the part of Subtenant and is continuing under this Sublease,
Subtenant shall have a license to use forty-two (42) unreserved garage parking
spaces in the parking garage connected to the Building. No charge shall be
assessed for the license to park in the foregoing spaces. Parking shall be
subject to such rules and regulations as may be established from time to time by
Primary Landlord.
22. Common Areas. Subtenant shall keep and maintain Subtenant's lobby area
in a clean and orderly condition free and clear of any debris. Subtenant shall
not permit storage of any material or equipment in Subtenant's lobby to be
visible from the common areas of the Building. Upon Primary Landlord's request,
Subtenant shall remove any materials, equipment, furnishings or debris from
Subtenant's lobby that is visible from the common areas of the Building that is
in not consistent with the image of a first class office property. No signs,
marquis, flags, banners, placards, streamers or other display shall be hung,
maintained or displayed on or from Subtenant's windows in the Subleased
Premises.
23. Building Signage. After the conditions set forth in Sections 36 and 37
are satisfied, Subtenant shall have the right, at its sole cost and expense, to
have Primary Landlord erect and maintain signage inside and outside the Building
as permitted by Primary Landlord, and provided that such signage complies with
the standard graphics used on the Building signage. Subtenant has the right to
request the removal of all signs bearing Sublandlord's name (except for signage
relating to the Building's name, "Magna Place"), in which event such signs shall
be removed by Primary Landlord at Sublandlord's sole cost and expense within a
reasonable period of time after Subtenant's request, except to the extent such
signs relate to any use or occupancy of the Building by Sublandlord as of the
Commencement Date. Notwithstanding anything to the contrary in this Sublease or
the Primary Lease, in no event shall Sublandlord or the Primary Landlord be
required to reimburse Subtenant for any costs or expenses incurred by Subtenant
in connection with any change in the name or address of the Building.
Notwithstanding anything to the contrary in this Section 23, prior to the
satisfaction of the conditions set forth in Sections 36 and 37 of this Sublease,
(a) Primary Landlord shall, within a reasonable period of time after the date of
this Sublease, at Subtenant's expense, cause Subtenant to be included on all
tenant directories for the Building (excluding the exterior monument signage),
and (b) Subtenant shall have the right, at its sole cost and expense, to have
Primary Landlord erect and maintain signage outside the Building directing
vehicular traffic to the parking facilities for the Subleased Premises, all such
signage to comply with the standard graphics used on the Building signage.
24. No Waiver. No waiver of any default of a party hereunder shall be
implied from any omission by such party to take any action on account of such
default if such default persists or is
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repeated, and no waiver shall affect any default other than the default
specified in the waiver and that only for the time and to the extent herein
stated.
25. No Warranties: Amendments. Subtenant acknowledges and agrees that it
has not relied upon any statements, representations, agreements, or warranties
except as are expressed in writing herein, and that no amendment or modification
of this Sublease shall be valid or binding unless expressed in writing and
executed by the parties hereto in the same manner as the execution of this
Sublease. This Sublease may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument. The undersigned representatives of Sublandlord and
Subtenant each represent and warrant, respectively, that such persons have been
duly authorized and directed to execute and deliver this Sublease on behalf of
the party for which such person purports to be acting and that this Sublease
constitutes the legal, valid and binding obligations of such parties. This
Sublease supersedes any prior oral or written agreements relative to the subject
matter hereof and constitutes the entire agreement of the parties with respect
to the sublease of the Subleased Premises.
26. Attorneys' Fees. The parties hereby agree that if any litigation occurs
under this Sublease, then the nonprevailing party shall reimburse the prevailing
party for the prevailing party's expenses (including, without limitation,
reasonable attorneys' fees and court costs) incurred in connection with such
litigation.
27. Successors and Assigns. This Sublease shall be binding upon and inure
to the benefit of Sublandlord and Subtenant and their respective personal
representatives, heirs, successors, and permitted assigns. If there shall be
more than one Subtenant, they shall be bound jointly and severally by the terms,
covenants and agreements herein.
28. Recording. No party shall have the right to record this Sublease or any
memorandum hereof without the prior written consent of the other parties hereto.
Any recording of this Sublease or any memorandum hereof without such consent
shall constitute a breach of a material provision of this Sublease entitling the
other parties to exercise any rights or remedies available hereunder or under
applicable law as a result thereof.
29. Holding Over. Nothing contained herein is to be construed to give
Subtenant the right to hold over any time, and Sublandlord and Primary Landlord
may exercise any and all remedies at law or in equity to recover possession of
the Subleased Premises and damages resulting from any such holding over.
Subtenant agrees that if Subtenant fails to surrender possession of the
Subleased Premises at the end of the Sublease Term (or any earlier date that the
Sublease Term has been terminated), then, in addition to any other of
Sublandlord's rights and remedies, Subtenant will be liable to Sublandlord and
Primary Landlord for any and all losses, damages and expenses that Sublandlord
suffers or incurs as a result of such failure to surrender possession. Without
limiting the generality of the foregoing, Subtenant shall indemnify, defend (by
counsel acceptable to Sublandlord) and hold Sublandlord harmless from any and
all losses, damages and expenses suffered or incurred by Sublandlord resulting
from Sublandlord's inability to deliver possession of the Subleased Premises (or
any portion thereof) to any possible succeeding tenant (or to Primary Landlord
as required under the Prime Lease), which inability results from Subtenant's
failure to surrender possession of the Subleased Premises as required herein.
Such indemnification shall be in addition to any other right or remedy available
to Sublandlord under this Sublease or applicable law in the case of any holding
over of the Subleased Premises beyond the expiration or earlier termination of
the Sublease Term and shall survive any termination of this Sublease.
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<PAGE>
30. Brokerage. Subtenant represents and warrants that it has dealt solely
with Krombach Partners, Inc. ("Subtenant's Agent"), which has served solely as
the agent for Subtenant in connection with this Sublease and is not a sub-agent
of Sublandlord, and Crow Brokerage Company d/b/a Trammell Crow Company, which
has served as agent for Sublandlord, and that Subtenant has not dealt with any
other broker, agent or other person in connection with this transaction and that
no other broker, agent or other person brought about this transaction. Subtenant
agrees to indemnify and hold Sublandlord and Primary Landlord harmless from and
against any claim by any broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Subtenant with regard
to this leasing transaction. The provisions of this section shall survive the
termination of this Sublease. Sublandlord's Agent shall be paid an amount equal
to 2.75% of the total Monthly Base Rent required to be paid by Subtenant from
January 1, 2000 through December 31, 2004 and an amount equal to 1.65% of the
total Monthly Base Rent required to be paid by Subtenant from January 1, 2005
through the Expiration Date. Subtenant's Agent shall be paid an amount equal to
2.25% of the total Monthly Base Rent required to be paid by Subtenant from
January 1, 2000 through December 31, 2004 and an amount equal to 1.35% of the
total Monthly Base Rent required to be paid by Subtenant from January 1, 2005
through the Expiration Date.
31. Notices. Any notice or other communication provided for in this
Sublease shall be in writing and shall be deemed duly given: upon delivery, if
delivered by hand or by telecopy, or one day after posting, if sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by any nationally recognized overnight delivery service, to the parties at the
addresses herein set forth or such other address as a party may designate by
notice pursuant to this paragraph.
To Sublandlord: Union Planters Bank, National Association
c/o Trammell Crow Company, Corporate Services
4820 West Main Street
Belleville, Illinois 62223
To Subtenant PrivateBancorp, Inc.
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
Attention: Richard C. Jensen
To Primary Landlord: Ms. Gwen Knight
St. Louis Brentwood Associates, L.P.
1401 5. Brentwood Blvd.
Suite 675
St. Louis, MO 63144
Fax Number: 314/963-9715
With a copy to: Insignia/ESG, Inc.
1401 S. Brentwood Blvd
Suite 160
St. Louis, Missouri 63144
Fax Number 314/962-2677
32. Severability. If any portion of this Sublease is found to be
unenforceable or void as against public policy, then it shall be deemed stricken
and the Sublease shall be treated as if such portion did not exist and the
remaining provisions shall encompass the total substance of this Sublease;
provided,
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<PAGE>
however, that if any portion of this Sublease is found to be partially
enforceable, than it shall be enforceable to that extent.
33. Further Assurances. Subtenant agrees to take any further action, or
execute any further instruments or items reasonably requested by Sublandlord to
maintain compliance with the terms of the Prime Lease, including without
limitation, any estoppel certificates required by Sublandlord, the Primary
Landlord, any mortgagee or other lender, or any other party with respect to the
Subleased Premises. Estoppel certificates shall be executed and delivered by
Subtenant within ten (10) days following a request therefor.
34. Governing Law. This Sublease shall be governed by and construed in
accordance with the internal laws (and not the laws of conflict) of the state
where the Subleased Premises are located and the United States of America. Venue
for any dispute regarding this Sublease shall be in a court of competent
jurisdiction in the county and state where the Subleased Premises is located if
commenced in a state court action or in the Federal District for such county if
commenced in or removed to Federal Court.
35. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW AND APPLICABLE
POLICIES OF INSURANCE, EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
A JURY TRIAL IN THE EVENT OP LITIGATION BETWEEN SUBTENANT AND SUBLANDLORD
PERTAINING TO THIS SUBLEASE.
36. Conditions of Primary Landlord Approval: Consents. The foregoing
Sublease is hereby approved by Primary Landlord provided that (i) this approval
shall not create any relationship of landlord and tenant between Subtenant and
Primary Landlord, (ii) Sublandlord shall not be relieved of any obligations to
Primary Landlord under the Prime Lease, (iii) Primary Landlord shall not be
obligated to recognize this Sublease in the event of termination for any reason
of the Prime Lease, and (iv) Subtenant pays all legal fees incurred by Primary
Landlord in connection with the negotiation, execution and delivery of this
Sublease. Subtenant agrees to provide all information required by Article VIII
of the Prime Lease and all other information and items required by the Primary
Landlord and Sublandlord to obtain the Primary Landlord's continuing consent to
this Sublease. Notwithstanding anything to the contrary in this Sublease,
Primary Landlord's consent to this Sublease is contingent upon Subtenant's
receipt of all Regulatory Approvals and delivery of notice of receipt of the
same (together with such evidence of the same as may be required by Sublandlord
or Primary Landlord) to Sublandlord and Primary Landlord on or before July 1,
2000, and if the foregoing contingency is not satisfied, Primary Landlord's
consent to this Sublease shall be deemed automatically withdrawn on July 1, 2000
without any action required by Primary Landlord, Sublandlord or Subtenant.
Provided all applications required to obtain Subtenant's Regulatory Approvals
are pending, Subtenant is diligently pursuing the Regulatory Approvals, the
failure to obtain the Regulatory Approvals on or before July 1, 2000 is not due
to any condition or circumstance caused by Subtenant or its agents, and no event
of default has occurred under this Sublease, Primary Landlord will not
unreasonably withhold its consent to extend the July 1, 2000 deadline to August
1, 2000, or for additional thirty (30) day periods until Subtenant obtains the
Regulatory Approvals. If Subtenant desires to request an extension of Primary
Landlord's consent to this Sublease, it shall deliver a written request for
extension to Primary Landlord and Sublandlord at least five (5) business days
prior to the date on which Primary Landlord's consent will be deemed withdrawn,
together with such evidence of the foregoing conditions to extension as Primary
Landlord may require.
37. Termination if Regulatory Approvals Not Obtained. Notwithstanding
anything to the contrary in this Sublease, this Sublease shall automatically
terminate without any action required by
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<PAGE>
Sublandlord or Subtenant if Subtenant does not receive its Regulatory Approvals
and deliver notice of receipt of the same (together with such evidence of the
same as may be required by Sublandlord or Primary Landlord) to Sublandlord and
Primary Landlord on or before July 1,2000; provided, however, if Primary
Landlord has agreed to extend its consent to this Sublease beyond July 1,2000,
and no event of default has occurred under this Sublease, this Sublease shall
not terminate until such date, if any, on which Primary Landlord's consent is
deemed automatically withdrawn.
38. Counterparts. This Sublease may be executed in any number of
counterparts (including telecopy counterparts), each of which shall be deemed an
original and together shall constitute one and the same instrument. Counterparts
of this Sublease which have been executed and sent by facsimile to the other
parties shall have the same effect as the hand delivery of executed originals.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of
the day and year first above written
SUBLANDLORD UNION PLANTERS ASSOCIATION
BANK, NATIONAL
By: /s/ M. Kirk Walter S.
----------------------
Printed Name: M. Kirk Walter
Title: Senior Vice Pres.
SUBTENANT PRIVATE BANCORP, INC.
By: /s/ Ralph B. Mandell
----------------------
Ralph B. Mandell
Chairman and Chief Executive Officer
CONSENT OF PRIMARY LANDLORD: ST. LOUIS BRENTWOOD ASSOCIATES, L.P.
By ST. LOUIS BRENTWOOD COMPANY, L.P.
General Partner
By: /s/ Gwen Knight
----------------------
Gwen Knight
Authorized Representative
<PAGE>
EXHIBIT 10.15
-------------
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), dated as of February 11, 2000, is
entered into between PrivateBancorp, Inc., a Delaware corporation (the
"Borrower"), and LaSalle Bank National Association, a national banking
association with its main office located in Chicago, Illinois (the "Bank").
RECITALS
The Borrower desires to borrow from the Bank, and the Bank desires to loan
to the Borrower, an aggregate principal sum of up to Eighteen Million Dollars
($18,000,000), all in accordance with the terms, subject to the conditions and
in reliance on the representations, warranties and covenants set forth herein
and in the other documents and instruments entered into or delivered in
connection with or relating to the loans contemplated by this Agreement
(collectively, including this Agreement, the "Loan Documents").
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENTS
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
Section 1.1 Definitions. In addition to those terms defined throughout
-----------
this Agreement, the following terms, when used herein, shall have the following
meanings.
(a) "Banking Subsidiary" means a Subsidiary of the Borrower that is a
depository institution, as defined in the Federal Deposit Insurance Act, as
amended, and shall include any Person that becomes a Subsidiary of the Borrower,
that is a depository institution, at any time during the term of this Agreement.
(b) "Borrowing" means the borrowing of all Loans from the Bank on a
given date.
(c) "Business Day" means (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day on which the
Bank is authorized or required by law or other government action to close, and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Rate Loans, any day which is a
Business Day described in clause (i) above and
<PAGE>
which is also a day for trading by and between banks in the London interbank
Eurodollar market.
(d) "Credit Event" means the making of any Loan.
(e) "Eurodollar Rate" means with respect to each Interest Period for
a Eurodollar Rate Loan, the rate per annum (rounded upward, if necessary, to the
nearest 1/8 of 1%) at which deposits in dollars are offered by the Eurodollar
lending office of the Bank to other prime banks in the London interbank market
at approximately 11:00 a.m. London time, on the date which is two Business Days
prior to the commencement of such Interest Period, in an amount approximately
equal to the aggregate principal amount of the Eurodollar Rate Loan to which
such interest rate is to apply and for a period of time comparable to the
Interest Period selected by the Borrower for such Eurodollar Rate Loan, as
adjusted for maximum Federal Reserve Board reserve requirements.
(f) "Eurodollar Rate Loan" means a Loan designated as such by the
Borrower at the time of the incurrence thereof.
(g) "Indebtedness" means any of the indebtedness described in this
paragraph that is pari passu or senior in terms of repayment obligation to any
of the Loans, which indebtedness shall include:
(i) all items arising from the borrowing of money, which
according to GAAP now in effect, would be included in determining total
liabilities as shown on a balance sheet;
(ii) all indebtedness secured by any lien on property owned by
the respective debtor whether or not such indebtedness shall have been assumed;
(iii) all guarantees and similar contingent liabilities in
respect to indebtedness of others; and
(iv) all other interest-bearing obligations evidencing
indebtedness to others.
(h) "Knowledge" or "to the knowledge of" or similar phrases means to
the knowledge of Ralph B. Mandell or Donald A. Roubitchek in their capacities as
President and Chief Executive Officer and as Chief Financial Officer,
respectively.
(i) "Permitted Banking Subsidiary Indebtedness" means obligations
incurred by any Banking Subsidiary in the ordinary course of business in such
circumstances as may be incidental or usual in carrying on the banking or trust
or mortgage business of a bank, thrift, trust company, or mortgage company
incurred in accordance with applicable laws and regulations and safe and sound
practices, including obligations incurred in connection with: (i) any deposits
with or funds collected by such Subsidiary; (ii) any bankers acceptance credit
2
<PAGE>
of such Subsidiary; (iii) any check, note, certificate of deposit, instrument,
money or letter of credit issued by such Subsidiary; (iv) any check, note,
certificate of deposit, money order, traveler's check, draft or bill of exchange
issued, accepted or endorsed by such Subsidiary; (v) any discount with,
borrowing from, or other obligation to, any Federal Reserve Bank; (vi) any
agreement made by such Subsidiary to purchase or repurchase securities, loans or
Federal funds or any interest or participation in any thereof; (vii) any
guarantee or similar obligation incurred by such Subsidiary in the ordinary
course of its banking or trust business; (viii) any transaction in the nature of
an extension of credit, whether in the form or a commitment or otherwise,
undertaken by such Subsidiary for the account of a third party with the
application of the same banking considerations and legal lending limits that
would be applicable if the transaction were a loan to such party; (ix) any
transaction in which such Subsidiary acts solely in the fiduciary or agency
capacity; and (x) other short-term liabilities similar to those enumerated in
clauses (i) and (vi) above, including United States Treasury tax and loan
borrowings.
(j) "Person" means any individual, bank, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or government agency or authority.
(k) "Prime Base Rate" means the rate which the Bank announces from
time to time as its corporate base rate of interest, the Prime Base Rate to
change when and as such corporate base rate changes. The Prime Base Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged by the Bank to a customer. The Bank may make commercial loans
or other loans at rates of interest at, above or below the Prime Base Rate.
(l) "Prime Rate Loan" means any Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.
(m) "Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
(n) "Type" means any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Prime Rate Loan or a Eurodollar Rate
Loan.
Section 1.2 Principles of Construction. (a) In this Agreement, unless
--------------------------
otherwise stated or the context otherwise requires, the following uses apply:
(i) actions permitted under this Agreement may be taken at any time and from
time to time in the actor's sole discretion; (ii) references to a statute shall
refer to the statute and any successor statute, and to all regulations
promulgated under or implementing the statute or successor, as in effect at the
3
<PAGE>
relevant time; (iii) in computing periods from a specified date to a later
specified date, the words "from" and "commencing on" (and the like) mean "from
and including," and the words "to," "until" and "ending on" (and the like) mean
"to, but excluding"; (iv) references to a governmental or quasi-governmental
agency, authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality; (v)
indications of time of day mean Chicago, Illinois time; (vi) "including" means
"including, but not limited to"; (vii) all references to sections, schedules and
exhibits are to sections, schedules and exhibits in or to this Agreement unless
otherwise specified; (viii) "dollars" or the symbol "$" means United States
dollars; (ix) all words used in this Agreement will be construed to be of such
gender or number as the circumstances require; and (x) the captions and headings
of articles, sections, schedules and exhibits appearing in or attached to this
Agreement have been inserted solely for convenience of reference and shall not
be considered a part of this Agreement nor shall any of them affect the meaning
or interpretation of this Agreement or any of its provisions.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles as applied
in the United States in conformity with those used in the preparation of the
Borrower's financial statements referred to in this Agreement ("GAAP"), or
applicable banking rules and regulations, as the case may be. All financial data
submitted pursuant to this Agreement shall be prepared in accordance with such
principles.
ARTICLE 2
AMOUNT AND TERMS OF CREDIT
Section 2.1 The Loans. Subject to and upon the terms and conditions set
---------
forth herein, the Bank agrees, at any time and from time to time prior to the
close of business on the second anniversary of the date of this Agreement (the
"Expiry Date"), to make loans (any such loan being referred to as a "Loan," and
collectively referred to as the "Loans"), which Loans: (a) shall at the option
of the Borrower be Prime Rate Loans or Eurodollar Rate Loans, provided that all
Loans comprising the same Borrowing shall at all times be of the same Type; and
(b) may be prepaid and reborrowed in accordance with the provisions hereof;
provided, however, that the aggregate principal amount of Loans outstanding from
the Bank shall at no time exceed the principal amount of Eighteen Million
Dollars ($18,000,000).
Section 2.2 Notice of Borrowing; Fixed Eurodollar Rate. (a) Whenever the
------------------------------------------
Borrower desires to make a Borrowing hereunder, it shall give the Bank at least
two Business Days' prior notice of each Prime Rate Loan and at least three
Business Days' prior notice of each Eurodollar Rate Loan to be made hereunder,
provided that any such notice shall be deemed to have been given on a certain
day only if given before 12:00 noon on such day. Each such notice (each a
"Notice of Borrowing") shall specify the aggregate principal amount of the Loans
to be made pursuant to such Borrowing, the date of such Borrowing (which shall
be a Business Day), whether the Loans being made pursuant to such Borrowing are
to be maintained initially as Prime Rate Loans or Eurodollar Rate Loans, and if
a Eurodollar Rate Loan, the initial Interest Period to be applicable thereto.
Notwithstanding anything contained
4
<PAGE>
herein to the contrary, the principal amount of each Eurodollar Rate Loan shall
be not less than Fifty Thousand Dollars ($50,000).
(b) Notwithstanding anything contained herein to the contrary, from
time to time during the term of this Agreement, the Borrower may request that
the Bank establish a Eurodollar Rate which shall be effective for the initial
borrowing of the amount of any Loan and for reborrowings up to the amount of
such initial borrowing during a period of ninety (90) days after the date such
Eurodollar Rate is provided to the Borrower (the "Fixed Eurodollar Rate"),
provided, however, that any Fixed Eurodollar Rate provided by the Bank to the
Borrower will only be effective for the Business Day on which it is given to the
Borrower (provided that the Borrower then requests a Loan on such Business Day
based upon such Fixed Eurodollar Rate) and for the succeeding eighty-nine (89)
days, and the Borrower may only direct that a Loan shall be subject to such
Fixed Eurodollar Rate by expressly selecting such Fixed Eurodollar Rate in the
Notice of Borrowing related to such Loan. If the Borrower fails to specify the
Type of Loan in a Notice of Borrowing, or if no express reference is made to a
Fixed Eurodollar Rate that was provided to the Borrower with respect to such
Notice of Borrowing, then the Loan shall be deemed to be a Prime Rate Loan and
bear interest at the Prime Base Rate.
Section 2.3 Disbursement of Funds. No later than 12:00 noon on the date
---------------------
specified in each Notice of Borrowing, the Bank will make available to the
Borrower at its office the aggregate amount of the Borrowing.
Section 2.4 Note. The Borrower's obligation to pay the principal of, and
----
interest on, all the Loans made by the Bank shall be evidenced by a promissory
note duly executed and delivered by the Borrower substantially in the form of
Exhibit A with blanks appropriately completed in conformity herewith (the
"Note"). The Note shall be: (a) payable to the order of the Bank; (b) dated
the date of this Agreement; (c) in the stated principal amount of Eighteen
Million Dollars ($18,000,000); (d) mature, with respect to each Loan evidenced
thereby, on the Expiry Date; (e) bear interest as provided in the appropriate
clause of Section 2.6 in respect of the Prime Rate Loans and Eurodollar Rate
Loans, as the case may be; and (f) entitled to the benefits of this Agreement.
The Bank will note on its internal records the amount of each Loan made by it
and each payment in respect thereof.
Section 2.5 Conversions. The Borrower shall have the option to convert on
-----------
any Business Day all or a portion of the outstanding principal amount of the
Loans made pursuant to one or more Borrowings of one or more Types of Loan into
a Borrowing of another Type of Loan, provided that Eurodollar Rate Loans may be
converted into Prime Rate Loans only on the last day of the Interest Period
applicable to the Loans being converted. Each such conversion shall be effected
by the Borrower by giving the Bank prior to 12:00 noon at least three Business
Days' prior notice (each a "Notice of Conversion") specifying the Loans to be so
converted and, if to be converted into Eurodollar Rate Loans, the Interest
Period to be initially applicable thereto. Upon any such conversion, the
proceeds thereof will be applied directly on the day of such conversion to
prepay the outstanding principal amount of the Loans being converted.
5
<PAGE>
Section 2.6 Interest. (a) The Borrower agrees to pay interest in respect
--------
of the unpaid principal amount of each Prime Rate Loan from the date the
proceeds thereof are made available to the Borrower until the maturity or
repayment thereof (whether by acceleration or otherwise) at a rate per annum
which shall be equal to the Prime Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Rate Loan from the date the proceeds thereof
are made available to the Borrower until the maturity or repayment thereof
(whether by acceleration or otherwise) at a rate per annum which shall, during
each Interest Period applicable thereto, be the Eurodollar Rate for such
Interest Period plus one hundred twenty (120) basis points.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each: (i) Prime Rate Loan shall bear interest at a rate
per annum equal to two percent (2%) per annum in excess of the Prime Base Rate
in effect from time to time (the "Prime Loan Default Rate"); and (ii) Eurodollar
Rate Loan at a rate per annum equal to two percent (2%) per annum in excess of
the interest rate otherwise applicable to such Eurodollar Rate Loan. Any other
amount payable by the Borrower hereunder that is not paid to the Bank when due
shall bear interest at the Prime Loan Default Rate.
(d) Accrued (and theretofore unpaid) interest shall be payable: (i)
in respect of each Prime Rate Loan and each Eurodollar Rate Loan, quarterly in
arrears on the first day of each January, April, July and October, and the first
such interest payment shall be due and payable on April 1, 2000; and (ii) in
respect of each Loan, on any prepayment (on the amount prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
Section 2.7 Interest Periods. Unless otherwise agreed by the Bank in
----------------
writing, the interest period applicable to each Eurodollar Rate Loan requested
by the Borrower (each an "Interest Period") shall, be a three month period,
provided that: (a) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the date of Borrowing of such Loan; (b) if any Interest Period
relating to a Eurodollar Rate Loan begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the last Business Day of such calendar
month; (c) if any Interest Period would otherwise expire on a day which is not a
Business Day, such Interest Period shall expire on the next succeeding Business
day; provided, however, that if any Interest Period for a Eurodollar Rate Loan
would otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest
Period shall expire on the next preceding Business Day; and (d) no Interest
Period shall extend beyond the Expiry Date. If upon the expiration of any
Interest Period applicable to a Eurodollar Rate Loan, the Borrower has failed
affirmatively to request that the Bank continue such Loan as a Eurodollar Rate
Loan, the Borrower shall be deemed to have elected to convert such Loan into a
Prime Rate Loan effective as of the expiration date of such current Interest
6
<PAGE>
Period. The Bank shall have no obligation to inform the Borrower of the
potential for automatic conversion of any Eurodollar Rate Loan to a Prime Rate
Loan.
Section 2.8 Increased Costs. If any new or existing statute, treaty or
---------------
regulation (including any regulation promulgated by the Board of Governors of
the Federal Reserve System (the "FRS") or the Office of the Comptroller of the
Currency), or any interpretation thereof by any governmental authority charged
with the administration thereof, or any action by any central bank or other
fiscal authority having jurisdiction over the Bank or any Loans, impose, modify
or deem applicable any tax or any reserve and/or special deposit requirement
against any assets held by, or deposits in or for the amount of any Loan by the
Bank (or any branch or affiliate of the Bank involved in transactions under or
contemplated by the Note), except for such matters which have resulted in a
change in the Eurodollar Rate pursuant to the definition of Eurodollar Rate
contained herein, or any similar measure shall result in a reduction in the
amount of principal or interest receivable by the Bank with respect to any Loans
or an increase in the cost to the Bank with respect to the amount of principal
or interest receivable by the Bank with respect to any Loans or an increase in
the cost to the Bank of funding any Eurodollar Rate Loan in the London interbank
offer rate market (whether or not such Loan is actually so funded) or engaging
in any other transaction material to the maintenance of any Eurodollar Rate
Loans (such reduction in amounts receivable or increases in costs being
hereinafter referred to as "Costs"), the Borrower shall fully indemnify the Bank
for all such Costs and shall compensate the Bank as of the end of each Interest
Period for which the Eurodollar Rate has been determined during which such
measures were in effect for the Costs incurred during such period. All such
Costs shall be determined by the Bank and a statement thereof shall be sent by
the Bank to the Borrower when such Costs have been determined, and such
determinations shall be conclusive and binding on the Borrower in the absence of
manifest error, but the Bank shall, as promptly as practicable, notify the
Borrower of the existence of any event which would (if interest were to be
accrued based on the Eurodollar Rate) require reimbursement by the Borrower of
Costs incurred by the Bank.
Section 2.9 Expenses. Whether or not any Loans are made, the Borrower
--------
shall: (a) pay all reasonable costs and expenses of the Bank incident to the
transactions contemplated by this Agreement, including all reasonable costs and
expenses, incurred in connection with the negotiation, preparation and execution
of this Agreement and the other Loan Documents, or in connection with any
modification, amendment, alteration or enforcement of any terms of the Loan
Documents, including the Bank's out-of-pocket expenses and the charges of and
disbursements to counsel retained by the Bank; and (b) pay and save the Bank and
all other holders of any portion of the Note harmless against any and all
liability with respect to amounts payable as a result of: (i) any taxes which
may be determined to be payable in connection with the execution and delivery
of, or any modification, amendment or alteration of, the terms or provisions of
any of the Loan Documents; (ii) any interest or penalties resulting from
nonpayment or delay in payment of such expenses, charges, disbursements,
liabilities or taxes; and (iii) any income taxes in respect of any reimbursement
by the Borrower for any of such violations, taxes, interests or penalties paid
by the Bank. The obligations of the Borrower under this Section shall survive
the repayment in full of the Note.
7
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Section 2.10 Prepayments. The Borrower shall have the right to prepay the
-----------
Loans, without premium or penalty in whole or in part from time to time on the
following terms and conditions: (a) the Borrower shall give the Bank at least
three Business Days' prior notice of its intent to prepay any Eurodollar Rate
Loans, the amount of such prepayment and the Types of Loans to be prepaid and,
in the case of Eurodollar Rate Loans, the specific Borrowing or Borrowings
pursuant to which made; (b) each prepayment shall be in an aggregate principal
amount of at least One Hundred Thousand Dollars ($100,000); and (c) prepayments
of Eurodollar Rate Loans made pursuant to this Section may only be made on the
last day of an Interest Period applicable thereto.
Section 2.11 Method and Place of Payment. All payments under this
---------------------------
Agreement, the Note and the Pledge Agreement shall be made to the Bank not later
than 12:00 noon on the date when due and shall be made in dollars in immediately
available funds at the Bank's Chicago, Illinois, office identified in this
Agreement. Whenever any payment to be made hereunder or under the Note or the
Pledge Agreement shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable at the
applicable rate during such extension.
Section 2.12 Application of Payments. All payments received by the Bank
-----------------------
from or on behalf of the Borrower shall first be applied to amounts due under
Section 2.9 (Expenses), second to accrued interest under the Note, and then to
principal amounts outstanding under the Note; provided, however, that after the
Expiry Date, or following and during any Default (as defined below), all
payments received on account of the Borrower's obligations under this Agreement,
the Note, the Pledge Agreement and the other Loan Documents shall be applied in
whatever order, combination and amounts as the Bank, in its sole and absolute
discretion, decides, to all costs, expenses and other indebtedness owing from
the Borrower to the Bank.
Section 2.13 Net Payments. All payments made by the Borrower hereunder or
------------
under the Note or the Pledge Agreement will be made without setoff, counterclaim
or other defense. All such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein (but excluding, except as provided below, any tax imposed on
or measured by the net income of the Bank pursuant to the laws of the
jurisdiction (or any political subdivision or taxing authority thereof or
therein) in which the principal office of the Bank is located).
Section 2.14 Collateral. The Borrower's obligations under this Agreement,
----------
the Note and any other Loan Documents (collectively, the "Borrower's
Liabilities") shall be secured by the pledge of 100% of the outstanding capital
stock of the Subsidiaries, including PrivateBank and Trust Company, an Illinois
state bank with its main office located in Chicago, Illinois ("PrivateBank"),
and, upon the completion of its formation, The PrivateBank, a federal savings
bank with its main office to be located in St. Louis, Missouri ("PrivateBank St.
Louis"), pursuant to the terms of a Pledge and Security Agreement dated as of
the Closing
8
<PAGE>
Date between the Borrower and the Bank (the "Pledge Agreement") in the form
attached as Exhibit B.
ARTICLE 3
CONDITIONS
Notwithstanding the earlier execution of this Agreement, the Bank's
obligation to make any Loan shall be subject to the performance by the Borrower
prior to any disbursement hereunder of all of its agreements to be performed
under this Agreement and to the satisfaction of the following further conditions
precedent:
Section 3.1 Documents. The Bank shall have received all of the following
---------
documents, each duly executed and dated the date of this Agreement, in form and
substance reasonably satisfactory to the Bank and its counsel:
(a) the Note;
(b) the Pledge Agreement;
(c) a copy of the certificate of incorporation of the Borrower
certified by the Secretary or an Assistant Secretary of the Borrower;
(d) a good standing certificate for the Borrower issued as of a
recent date by the Secretary of State of the States of Illinois and Delaware;
(e) copies of the bylaws of the Borrower certified by the Secretary
or an Assistant Secretary of the Borrower;
(f) a copy of the charter of PrivateBank certified by the
Commissioner of the Office of Banks and Real Estate of the State of Illinois
(the "Commissioner");
(g) a good standing certificate for PrivateBank issued as of a recent
date by the Commissioner;
(h) copies of the bylaws of PrivateBank certified by the Secretary or
an Assistant Secretary of PrivateBank;
(i) copies of resolutions of the board of directors of the Borrower
certified by the Secretary or an Assistant Secretary of the Borrower authorizing
the execution, delivery and performance of this Agreement, the Note, the Pledge
Agreement and the other Loan Documents;
(j) copies certified by the Secretary or an Assistant Secretary of
the Borrower of all documents evidencing any necessary corporate action,
consents and approvals of any federal or state governmental department,
commission, board, regulatory authority or
9
<PAGE>
agency including the FRS (and collectively with the foregoing, the "Governmental
Agencies" or individually, a "Governmental Agency") with respect to this
Agreement, the Note, the Pledge Agreement or any other Loan Document;
(k) an incumbency certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names of the officer or officers of the
Borrower authorized to sign this Agreement, the Note, the Pledge Agreement, any
Notice of Borrowing or Notice of Conversion and any other Loan Documents (and
the Bank may conclusively rely on such certificates until formally advised by a
like certificate of any changes therein);
(l) the original certificate(s) representing all of the securities
constituting the Pledged Security (as defined in the Pledge Agreement)
accompanied by corresponding irrevocable stock power(s) executed in blank;
(m) a safekeeping agreement in the form of Exhibit C pursuant to
which the Bank's agent will hold all of the Pledged Security in safekeeping, in
the State of New York, for the benefit of the Bank;
(n) the opinion of counsel for the Borrower, in customary form
reasonably acceptable to the Bank; and
(o) a certificate signed by the President or Chief Financial Officer
of the Borrower certifying that the conditions specified in this Article have
been satisfied.
Section 3.2 Other Conditions of Borrowing. Notwithstanding any other
-----------------------------
provision of this Agreement, the obligation of the Bank to make any Loan shall
further be subject to satisfaction of the following conditions:
(a) between the date of this Agreement and the date of any Loan,
there shall not have occurred, in the Bank's reasonable discretion, a material
adverse change in the financial condition or affairs of the Borrower and its
Subsidiaries taken as a whole;
(b) no Default, nor any other event that, with the giving of notice
or lapse of time, or both, would constitute a Default, shall have occurred, and
all representations and warranties contained herein and in the other Loan
Documents shall be true and correct in all material respects with the same
effect as though such representation and warranties had been made on and as of
the date of such Credit Event;
(c) no litigation or governmental proceeding shall have been
instituted or, to the knowledge of the Borrower, threatened against the Borrower
or any of its Subsidiaries or any of the respective directors, officers or
shareholders of the Borrower or its Subsidiaries which, in the Bank's reasonable
discretion, would have a material adverse effect on the financial condition or
operations of the Borrower and its Subsidiaries taken as a whole
10
<PAGE>
(d) all necessary or appropriate actions and proceedings shall have
been taken in connection with, or relating to the transactions contemplated by
this Agreement, and all of the Loan Documents shall have been completed and
tendered for delivery, in substance and form reasonably satisfactory to the
Bank; and
(e) the Bank shall have received in substance and form reasonably
satisfactory to the Bank, all certificates, affidavits, schedules, resolutions,
opinions, notes, and/or other documents which are required by this Agreement, or
which it may reasonably request, including a certificate signed by the President
or Chief Financial Officer of the Borrower certifying that the conditions
specified in paragraphs (a) - (d) of this Section have been satisfied.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, and to make the Loans, the
Borrower makes the following representations, warranties and agreements as of
the date of this Agreement, which shall survive the execution and delivery of
this Agreement, the Note and the Pledge Agreement and the making of such Loans:
Section 4.1 Organization. Each of the Borrower and its Subsidiaries: (a)
------------
is a duly organized and validly existing corporation or bank in good standing
under the laws of the jurisdiction of its incorporation or formation; (b) has
all requisite power and authority, corporate or otherwise, to own, operate and
lease its properties and to carry on its business as now being conducted; and
(c) is duly qualified as a foreign bank or corporation and in good standing in
all states in which it is doing business, except where it is not required to
qualify or where the failure to so qualify would not have a material adverse
effect on the Borrower and its Subsidiaries taken as a whole. The Borrower has
made payment of all franchise and similar taxes in the State of Delaware, and in
all of the jurisdictions in which it is qualified to do business, and so far as
such taxes are due and payable at the date of this Agreement. The Borrower does
not have any Subsidiaries other than those set forth in Schedule 4.1.
Section 4.2 Stock of Subsidiaries. All of the capital stock of each of
---------------------
the Borrower's Subsidiaries has been duly authorized and validly issued, and is
fully paid and nonassessable. The Borrower owns all of the issued and
outstanding capital stock of each of its Subsidiaries free and clear of any
claim, lien or other encumbrance, except for the security interests disclosed on
the Borrower's audited financial statements for its most recently ended fiscal
year. Upon the completion of the proposed acquisition of 100% of the capital
stock of Johnson Bank Illinois, an Illinois state bank with its main office
located in Lake Forest, Illinois ("Johnson Bank"), Johnson Bank, will be merged
with and into PrivateBank, PrivateBank will be the resulting bank from such
merger and the Borrower will continue to own 100% of the stock of PrivateBank.
Section 4.3 Use of Proceeds.
---------------
11
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(a) The proceeds of the Loans shall be used by the Borrower for the
purpose of acquiring 100% of the capital stock of Johnson Bank, to capitalize
PrivateBank St. Louis and for working capital and other general corporate
purposes.
(b) The Borrower does not own any "margin security" as such term is
defined in Regulation G of the FRB. The Borrower will not use any part of the
proceeds of the Loans: (i) directly or indirectly to purchase or carry any
security or reduce or retire any indebtedness originally incurred to purchase
any such security within the meaning of Regulation G of the Board; or (ii) so as
to involve the Borrower in a violation of Regulation T, U or X of the FRB.
Section 4.4 Financial Statements. The Borrower has delivered to the Bank
--------------------
copies of its consolidated financial statements as of and for the year ending
December 31, 1998, and as of and for the nine months ending September 30, 1999,
audited in the case of the Borrower's year end financial statements by the
Borrower's certified public accountants (the "Financial Statements"). The
Financial Statements are true and correct in all material respects, are in
accordance with the respective books of account and records of the Borrower and
have been prepared in accordance with GAAP, or applicable banking rules and
regulations, as the case may be, applied on a basis consistent with prior
periods, and fairly and accurately present the consolidated financial condition
of the Borrower and its Subsidiaries and its and their respective assets and
liabilities and results of operations as of such date. Since December 31, 1998,
there has been no material adverse change in the financial condition, or
operations of the Borrower and its Subsidiaries taken as a whole. The Financial
Statements contain and reflect provisions for taxes, reserves and other
liabilities of the Borrower and each of its Subsidiaries in accordance with GAAP
or applicable banking rules and regulations, as the case may be.
Section 4.5 Title to Properties.
-------------------
(a) The Borrower and its Subsidiaries have good and marketable fee
title to all real property, and good and marketable title to all other property
and assets reflected in the latest balance sheet included as part of the
Financial Statements or purported to have been acquired by the Borrower or its
Subsidiaries subsequent to such date, except property and assets sold or
otherwise disposed of subsequent to the date of such balance sheet in the
ordinary course of business. Except as disclosed in the Financial Statements,
all material property and assets of any kind (real or personal, tangible or
intangible) of the Borrower and each of its Subsidiaries are free from any
material liens, encumbrances or defects in title.
(b) Except as disclosed in the Financial Statements, none of the
assets or property the value of which is reflected in the latest balance sheet
that is included as part of the Financial Statements is held by the Borrower or
any of its Subsidiaries as lessee under any lease, or as conditional vendee
under any conditional sales contract or other title retention agreement. The
Borrower and each of its Subsidiaries enjoy peaceful and undisturbed possession
under all of the material leases under which they are operating, all of which
permit
12
<PAGE>
the customary operations of the Borrower and each of its Subsidiaries. None of
such leases is in material default and no event has occurred which with the
passage of time or the giving of notice, or both, would constitute a material
default under any such lease.
Section 4.6 Legal and Authorized. The borrowing of the principal amounts
--------------------
of the Loans, the execution and performance of this Agreement, the Note, the
Pledge Agreement and the other Loan Documents and compliance by the Borrower
with all of the provisions of this Agreement and of the other Loan Documents are
within the corporate powers of the Borrower. Each of this Agreement, the Note,
the Pledge Agreement and the other Loan Documents has been duly authorized,
executed and delivered and is the legal, valid and binding obligation of the
Borrower, and is enforceable in accordance with its respective terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization or
other laws and subject to general principles of equity.
Section 4.7 No Defaults or Restrictions. Neither the execution, delivery
---------------------------
or performance by the Borrower of any of the Loan Documents, nor compliance by
it with the terms and provisions hereof or thereof: (a) will contravene any
provision of any law, statute, rule or regulation or any order, writ, injunction
or decree of any court or governmental instrumentality; (b) will conflict with
or result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any lien upon any of the property or
assets of the Borrower or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other agreement, contract or instrument to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its property or assets is bound
or to which it may be subject; or (c) will violate any provision of the
certificate of incorporation or bylaws of the Borrower or the organizational
documents, charter or bylaws of any of its Subsidiaries. Neither the Borrower
nor any of its Subsidiaries is in material default in the performance,
observance or fulfillment of any of the terms, obligations, covenants,
conditions or provisions contained in any indenture or other agreement creating,
evidencing or securing indebtedness of any kind or pursuant to which any such
indebtedness is issued, or other agreement or instrument to which the Borrower
or any of its Subsidiaries is a party or by which it or its properties may be
bound or affected, which would have a material adverse effect on the financial
condition and operations of the Borrower and its Subsidiaries taken as a whole.
Section 4.8 Governmental Consent. No order, consent, approval, license,
--------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the date of this Agreement), or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with: (a) the
execution, delivery and performance by the Borrower of this Agreement, the Note,
the Pledge Agreement or any of the other Loan Documents; or (b) the legality,
validity, binding effect or enforceability of any of the Loan Documents.
Section 4.9 Taxes. Each of the Borrower and its Subsidiaries has filed
-----
and will continue to file all tax returns required to be filed by it and has
paid and will pay all income taxes
13
<PAGE>
payable by it which have become due pursuant to such tax returns and all other
taxes and assessments payable by it which have become due, other than those not
yet delinquent and except for those contested in good faith and for which
adequate reserves have been established. Each of the Borrower and its
Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgment of the management of the Borrower) for the payment of, all federal and
state income taxes applicable for all prior fiscal years and for the current
fiscal year to the date hereof. The Borrower has no knowledge of any audit,
assessment or other proposed action or inquiry of the Internal Revenue Service
or any other taxing authority with respect to any tax liability of the Borrower
or any of its Subsidiaries.
Section 4.10 Compliance with Law. Each of the Borrower and its
-------------------
Subsidiaries is and will continue to be in material compliance with all
applicable statutes, regulations and orders of, and all applicable material
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property
(including applicable statutes, regulations, orders and restrictions relating to
environmental standards and controls), except such noncompliance as would not,
in the aggregate, have a material adverse effect on the business, operations or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken as
a whole.
Section 4.11 Employee Benefit Plans. All employee benefit plans, as
----------------------
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), established or maintained by the Borrower or any of its
Subsidiaries or to which any of them contributes, are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect) of the Internal
Revenue Code of 1986, as amended (the "Code"), for obtaining the tax benefits
the Code thereupon permits with respect to such employee benefit plans. For
purposes of this Section, non-compliance with the Code and ERISA is material if
such non-compliance would reasonably be expected to have a material adverse
effect on the financial condition, assets or business of the Borrower and its
Subsidiaries taken as a whole. No such employee benefit plan has, or at the
time of any Loan will have, any amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA) for which the Borrower or any of its
Subsidiaries would be liable to any Person under Title IV of ERISA if any such
employee benefit plan were terminated as of the date hereof or as of the date of
such Loan, which amounts would be material to the Borrower or any of its
Subsidiaries. Such employee benefit plans are funded in accordance with Section
412 of the Code (if applicable). There would be no obligations which would be
material to the Borrower or any of its Subsidiaries under Title IV of ERISA
relating to any such employee benefit plan that is a multi-employer plan if any
such plan were terminated or if the Borrower or any of its Subsidiaries withdrew
from any such plan as of the date hereof or as of the date of any Loan.
Section 4.12 No Material Adverse Change. Since December 31, 1998, none of
--------------------------
the business, operations, properties or assets of the Borrower and its
Subsidiaries taken as a whole has been materially and adversely affected in any
way as the result of any act or event, including fire, explosion, accident, act
of God, strike, lockout, flood, drought, storm,
14
<PAGE>
earthquake, combination of workers or other labor disturbance, riot, activity of
armed forces or of the public enemy, embargo, or nationalization, condemnation,
requisition or taking of property, or cancellation or modification of contracts,
by any domestic or foreign government or any instrumentality or agency thereof.
Section 4.13 Regulatory Enforcement Actions. Neither the Borrower nor any
------------------------------
of its Subsidiaries, nor any of the officers or directors or any of them, is now
operating under any restrictions, agreements, memoranda, or commitments (other
than restrictions of general application) imposed by any Governmental Agency,
nor are any such restrictions to the knowledge of the Borrower threatened or
agreements, memoranda or commitments being sought by any Governmental Agency.
Section 4.14 Hazardous Materials. Neither the Borrower nor any of its
-------------------
Subsidiaries is in material violation of any applicable statute, regulation,
ordinance or policy of any governmental entity relating to the ecology, human
health, safety or the environment and no Hazardous Material (as defined below)
is located on any real property owned or leased by the Borrower or any of its
Subsidiaries or has been discharged from or to, or penetrated into, any real
property (or surface or subsurface rivers or streams crossing or adjoining any
real property) owned or leased by the Borrower or any of its Subsidiaries or the
aquifer underlying any real property owned or leased by the Borrower or any of
its Subsidiaries. "Hazardous Material" as used herein means any asbestos,
polychlorinated byphenyls and petroleum products, solid wastes, urea
formaldehyde, discharges of sewer or effluent, paint containing lead and any
other hazardous or toxic material, substance or waste which is defined,
determined or identified by those or similar terms or is regulated as such under
any statute, law, ordinance, rule or regulation or by any local, state or
federal authority (whether as the result of any judicial or administrative
interpretation of any such statute, law, ordinance, rule or regulation or
otherwise) including any material, substance or waste which is a hazardous
substance within the meaning of 33 U.S.C. (S)1251 et seq., as amended, or 42
U.S.C. (S)9601 et seq., as amended, or is a hazardous waste within the meaning
of 42 U.S.C. (S)6901 et seq., as amended.
Section 4.15 Pending Litigation. There are no actions, suits, proceedings
------------------
or written agreements pending, or, to the best knowledge of the Borrower,
threatened or proposed, against the Borrower or any of its Subsidiaries at law
or in equity or before or by any federal, state, municipal, or other
governmental department, commission, board, or other administrative agency,
domestic or foreign that if adversely determined would have a material adverse
effect on the Borrower and its Subsidiaries taken as a whole; and none of the
Borrower nor any of its Subsidiaries is in default with respect to any material
order, writ, injunction, or decree of, or any written agreement with, any court,
commission, board or agency, domestic or foreign.
Section 4.16 Investment Company Act. None of the Borrower or any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
15
<PAGE>
Section 4.17 Year 2000. The Borrower has reviewed the areas within its
---------
own businesses and operations and those of its Subsidiaries which could be
adversely affected by, and has developed a program in each case to address on a
timely basis, the "Year 2000 Problem" (i.e., the risk that computer applications
used by the Borrower or any of its Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999), and has made related appropriate inquiries of
material suppliers and vendors to it. Based on such review and program, the
Borrower believes that the Year 2000 Problem will not have a material adverse
effect on the Borrower or any of its Subsidiaries or any of its or their
operations. From time to time, at the request of the Bank, the Borrower will
provide to the Bank such updated information or documentation as is reasonably
requested regarding the status of the Borrower's efforts to address the Year
2000 Problem.
Section 4.18 No Misstatement of Material Fact. No information, exhibit,
--------------------------------
report or document furnished by the Borrower to the Bank in connection with the
negotiation or execution of this Agreement or any of the other Loan Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading,
all as of the date when furnished to the Bank.
Section 4.19 Survival of Representations and Warranties. The foregoing
------------------------------------------
representations and warranties in this Article shall survive the making of this
Agreement, and execution and delivery of the Note and the Pledge Agreement, and
shall be deemed to be continuing representations and warranties until such time
as the Borrower has satisfied all of its obligations to the Bank, including the
obligation to pay in full all principal, interest and other amounts in
accordance with the terms of this Agreement, the Note and the Pledge Agreement.
ARTICLE 5
COVENANTS
Section 5.1 Negative Covenants. The Borrower agrees that until it
------------------
satisfies all of its obligations to the Bank, including its obligations to pay
in full all principal, interest and other amounts due in accordance with the
terms of this Agreement, the Note, the Pledge Agreement and the other Loan
Documents, it shall not take any of the following actions, nor permit any of its
Subsidiaries to take any of the following actions, without the prior written
consent of the Bank, which consent shall not be unreasonably withheld:
(a) create, assume, incur, have outstanding, or in any manner become
liable in respect of any Indebtedness other than that represented by this
Agreement and the Note, and that certain subordinated note in the principal
amount of $5,000,000 to be issued to Johnson International, Inc., Racine,
Wisconsin, in connection with the acquisition by the Borrower of Johnson Bank,
provided, however, that the foregoing shall not restrict nor operate to prevent:
(i) the obligations of the Borrower owing to the Bank and other
indebtedness and obligations of the Borrower or any of its Subsidiaries from
time to time owing to the Bank;
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(ii) Permitted Banking Subsidiary Indebtedness;
(iii) any indebtedness of the Borrower solely to any of its
Subsidiaries, any indebtedness of any of the Borrower's Subsidiaries solely to
the Borrower and any indebtedness of any of the Borrower's Subsidiaries solely
to each other;
(iv) contingent obligations incurred with respect to the
endorsement of instruments for deposit or collection in the ordinary course of
business;
(v) purchase money indebtedness and capitalized lease
obligations secured by liens permitted by herein in an aggregate amount not to
exceed $2,000,000 at any one time outstanding;
(vi) indebtedness repaid and permanently retired out of the
initial Loan made hereunder; and
(vii) indebtedness not otherwise permitted under this Section in
an aggregate amount not to exceed $2,000,000 at any one time outstanding.
(b) directly or indirectly create, assume, incur, suffer or permit to
exist any pledge, encumbrance, security interest, assignment, lien or charge of
any kind or character on any of its assets, excepting only liens existing on the
date hereof as shown on the Financial Statements, provided, however, that the
foregoing shall not restrict nor operate to prevent:
(i) liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar charges,
good faith cash deposits in connection with tenders, contracts or leases to
which the Borrower or any of its Subsidiaries is a party or other cash deposits
in any such foregoing case that is required to be made in the ordinary course of
business, provided in each case that the obligation is not for borrowed money
and that the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate proceedings which prevent enforcement of
the matter under contest and adequate reserves have been established therefor;
(ii) mechanics', workmen's, materialmen's, landlords',
carriers', or other similar liens arising in the ordinary course of business
with respect to obligations which are not due or which are being contested in
good faith by appropriate proceedings which prevent enforcement of the matter
under contest;
(iii) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Borrower and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $1,000,000 at any one time
outstanding;
17
<PAGE>
(iv) liens, charges and encumbrances incidental to the conduct
of the business of the Banking Subsidiaries incurred in the ordinary course of
business and not in connection with the borrowing of money, and liens securing
Permitted Banking Subsidiary Indebtedness in the ordinary course of business;
(v) liens on property of the Borrower or any of its
Subsidiaries created solely for the purpose of securing indebtedness permitted
by Section 5.1(a)(v) hereof, representing or incurred to finance, refinance or
refund the purchase price of property, provided that no such lien shall extend
to or cover other property of the Borrower or such Subsidiary other than the
respective property so acquired, and the principal amount of indebtedness
secured by any such lien shall at no time exceed the original purchase price of
such property;
(vi) liens to secure public funds or other pledges of funds
required by law to secure deposits;
(vii) repurchase agreements, reverse repurchase agreements and
other similar transactions entered into by any Banking Subsidiary in the
ordinary course of its banking or trust business; and
(viii) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Borrower or its Subsidiaries.
(c) engage in any business or activity not permitted by all
applicable laws and regulations;
(d) except for the merger of Johnson Bank with and into PrivateBank
where PrivateBank is the resulting bank, merge into or consolidate with or into
any other person, firm or corporation, provided, however, any such merger or
consolidation shall be permitted so long as the applicable Subsidiary is the
surviving entity and such merger or consolidation would not have a material
adverse effect on the financial condition or operations of the Borrower and its
Subsidiaries taken as a whole;
(e) make any loans or advances whether secured or unsecured to any
Person other than loans or advances made in the ordinary course of its business
and in accordance with applicable laws and regulations and safe and sound
business practices;
(f) acquire the capital stock, assets or obligations of or any
interest in another corporation, partnership, trust, limited liability company
or any other entity, except for the acquisition of 100% of the capital stock of
PrivateBank St. Louis and except where such
18
<PAGE>
acquisition would not have a material adverse effect on the financial condition
or operations of the Borrower and its Subsidiaries taken as a whole;
(g) redeem any of its capital stock or otherwise change its capital
structure where the same would result in a material adverse effect on the
Borrower and its Subsidiaries taken as a whole;
(h) engage in any unsafe or unsound business practice that would
reasonably be expected to have a material adverse effect upon the Borrower and
its Subsidiaries taken as a whole;
(i) breach or fail to perform or observe any of the material terms
and conditions of this Agreement, the Note, the Pledge Agreement or any other
document or agreement entered into or delivered in connection with, or relating
to, the Loans; or
(j) commit any material violation of any law or regulation, or any
condition imposed by or undertaking provided to any Government Agency which
would result in a material adverse effect on the Borrower and its Subsidiaries
taken as a whole.
Section 5.2 Affirmative Covenants. The Borrower agrees that until it
---------------------
satisfies all of its obligations to the Bank, including its obligations to pay
in full all principal, interest and other amounts due in accordance with the
terms of this Agreement, the Note, the Pledge Agreement and the other Loan
Documents, it shall:
(a) furnish and deliver to the Bank:
(i) as soon as practicable, and in no event later than forty-
five (45) days after the end of each of the first three calendar quarterly
periods of the Borrower a copy of: (A) the Borrower's balance sheet at the end
of such quarter, and the Borrower's income statement and statements of changes
in financial position and cash flow for the three months then ended, with all
supporting schedules, prepared on a consolidated basis in accordance with GAAP
consistently applied and signed by the Chief Financial Officer of the Borrower;
and (B) all financial statements, including all Call Reports, filed by any of
the Banking Subsidiaries;
(ii) as soon as practicable, and in no event later than ninety
(90) days after the end of each calendar year, a copy of: (A) the Borrower's
consolidated balance sheet as of the end of such year and the Borrower's
consolidated income, changes in financial position and cash flow statements for
the year then ended audited by independent certified public accountants
satisfactory to the Bank and accompanied by an unqualified opinion; and (B) all
financial statements and reports, including Call Reports and annual reports,
filed annually by any of the Banking Subsidiaries with any state or federal bank
regulatory authority;
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<PAGE>
(iii) immediately after receiving knowledge thereof, notice of
all charges, assessments, actions, suits and proceeding that are proposed or
initiated by, or brought before, any court or governmental department,
commission, board or other administrative agency, in connection with the
Borrower or any of its Subsidiaries, other than ordinary course of business
litigation not involving the FRS, the Federal Deposit Insurance Corporation or
any other Government Agency, which, if adversely decided, would not have a
material effect on the financial condition or operations of the Borrower and its
Subsidiaries taken as a whole; and
(iv) promptly after the occurrence thereof, notice of any
other matter which has resulted in a materially adverse change in the financial
condition or operations of the Borrower and its Subsidiaries taken as a whole;
(b) within forty-five (45) days after the end of each calendar
quarter, deliver to the Bank a certificate signed by the Chief Financial Officer
of the Borrower, containing a computation of the then current financial ratios
specified in Article 6 of this Agreement, and stating that to his knowledge no
Default or unmatured Default has occurred or is continuing, or, if there is any
such event, describing such event, the steps, if any, that are being taken to
cure it, and the time within which such cure will occur;
(c) promptly pay and discharge all taxes, assessments and other
governmental charges imposed upon the Borrower or any of its Subsidiaries, upon
the income, profits, or property of the Borrower or any of its Subsidiaries, and
all claims for labor, material or supplies which, if unpaid, might by law become
a lien or charge upon the property of the Borrower or any of its Subsidiaries,
provided, however, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim, so long as the validity thereof is being contested
in good faith by appropriate proceedings, and reserves therefor are maintained
on the books of the Borrower or any of its Subsidiaries, as the case may be;
(d) maintain its own corporate existence and good standing and that
of each of its Subsidiaries in all jurisdictions in which it or they are doing
business, except where the failure to so qualify would not have a material
adverse effect on the Borrower and its Subsidiaries taken as a whole;
(e) maintain bonds and insurance for its and each of its Subsidiaries
with responsible and reputable insurance companies or associations in such
amounts and covering such risk as is usually carried by owners of similar
businesses and properties in the same general area in which the Borrower
operates;
(f) file or cause to be filed in a timely manner all filings of it
and each of its Subsidiaries with all Governmental Agencies and cause such
filings to be true and correct in all material respects;
20
<PAGE>
(g) maintain or cause to be maintained its books, accounts and
records and those of each of its Subsidiaries in the usual, regular and ordinary
manner, on a basis consistent with prior years and in material compliance with
any legal requirements;
(h) comply and cause each of its Subsidiaries to comply with each
federal, state, local, municipal, foreign, international or other administrative
order, law, ordinance, principle of common law, regulation or statute applicable
to it or to the conduct or operation of its respective business or the ownership
or use of any of its respective assets where the failure to be in such full
compliance would reasonably be expected to have a material adverse effect on the
Borrower and its Subsidiaries taken as a whole;
(i) and shall cause each Subsidiary to, permit the Bank and its duly
authorized representatives and agents to visit and inspect the corporate books
and financial records of the Borrower and each of its Subsidiaries, to examine
and make copies of the books of accounts and other financial records of the
Borrower and each of its Subsidiaries, and to discuss the affairs, finances and
accounts of the Borrower and each of its Subsidiaries with, and to be advised as
to the same by, its officers, employees and independent public accountants (and
by this provision the Borrower hereby authorizes such accountants to discuss
with the Bank the finances and affairs of the Borrower and of each of its
Subsidiaries) at such reasonable times and reasonable intervals as the Bank may
designate; provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to make available to the Bank any customer lists
or other proprietary information unless such information is required by the Bank
to determine the financial condition of the Borrower or any of its Subsidiaries
or to determine the ability of either to meet its obligations hereunder; and
(j) provide promptly to the Bank other information concerning the
business, operations, financial condition and regulatory status of the Borrower
and its Subsidiaries as the Bank may from time to time reasonably request.
Section 5.3 Additional Actions. Promptly upon its issuance, the Borrower
------------------
agrees to deliver to the Bank pursuant to this Agreement and the Pledge
Agreement stock certificates representing 100% of the outstanding capital stock
of PrivateBank St. Louis.
ARTICLE 6
DEFAULT
Section 6.1 Events of Default. The happening or occurrence of any of the
-----------------
following events or acts shall each constitute a Default hereunder, and any such
Default shall also constitute a Default under the Note (or any replacement or
substitute note therefor) and the Pledge Agreement and any other Loan Document,
without right to notice or time to cure in favor of the Borrower except as
indicated below:
(a) if the Borrower fails to make any payment of principal or
interest on any Loan or any other payment required under the terms of the Loan
Documents when due and such payment remains unpaid for ten (10) days after the
due date thereof;
21
<PAGE>
(b) if the Borrower shall fail to perform or observe any material
covenants or obligations under this Agreement, other than those set forth in the
immediately preceding subsection, and including all material affirmative and
negative covenants set forth in this Agreement, or under any of the other Loan
Documents, and the same remains uncured for thirty (30) days after any executive
officer of the Borrower has knowledge of such failure;
(c) if any material representation or warranty made in any of the
Loan Documents shall be false when made or, for whatever reason, becomes
materially false or inaccurate at any time during the term of this Agreement,
including at the time of any Loan;
(d) if at any time any of the Loan Documents becomes void or
unenforceable in whole or in part;
(e) if the Borrower fails to perform or observe any material covenant
or agreement contained in any other agreement between the Borrower and the Bank,
or if any material condition contained in any agreement between the Borrower and
the Bank is not fulfilled and such failure remains uncured for thirty (30) days
after any executive officer of the Borrower has knowledge of such failure;
(f) if prior to the Expiry Date, there is a change in the ownership
or control (by merger, purchase, consolidation or otherwise) of more than 20% of
the issued and outstanding voting stock of the Borrower or any of its
Subsidiaries and such change in ownership or control would be required under
applicable law to be the subject of any filing with any Government Agency;
(g) if at any time any of the Banking Subsidiaries is not deemed to
be "well capitalized" (in accordance with the regulations of the FDIC);
(h) if the Pledged Security, as defined in the Pledge Agreement, is
attached, seized, subjected to a writ of distress warrant, or is levied upon or
becomes subject to any lien or comes within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors;
(i) if the ratio of any Banking Subsidiary's nonperforming assets to
its total stockholders' equity and reserves is at any time more than twenty-five
percent (25%) (for purposes of this paragraph, "nonperforming assets" shall
include, but not be limited to, the sum of all non-accrual loans and loans on
which any payment is ninety (90) days or more past due);
(j) if the aggregate annual net income of the Banking Subsidiaries,
determined in accordance with GAAP, for their most recently ended fiscal year,
shall be less than $2.0 million;
22
<PAGE>
(k) if the FRS, the FDIC, the Commissioner or other Governmental
Agency charged with the regulation of the Borrower or any of its Subsidiaries:
(i) issues to the Borrower or any of its Subsidiaries, or
initiates any action, suit or proceeding to obtain against, impose on or require
from the Borrower or any of its Subsidiaries, a cease and desist order or
similar regulatory order, the assessment of civil monetary penalties, articles
of agreement, a memorandum of understanding, a capital directive, a capital
restoration plan, restrictions that prevent or as a practical matter materially
impair the payment of dividends by any Subsidiary, the effect of which
materially and adversely affects the ability to repay the Loan, or the payments
of any debt by the Borrower, restrictions that make the payment of dividends by
any Subsidiary, the effect of which materially and adversely affects the ability
to repay the Loan, or the payment of debt by the Borrower subject to prior
regulatory approval, a notice or finding under Section 8(a) of the Federal
Deposit Insurance Act, as amended, or any similar enforcement action, measure or
proceeding; or
(ii) issues to any officer or director of the Borrower or any
of its Subsidiaries, or initiates any action, suit or proceeding to obtain
against, impose on or require from any such officer or director, a cease and
desist order or similar regulatory order, a removal order or suspension order or
the assessment of civil monetary penalties the effect of which would materially
and adversely affect the ability to prepay the Loan;
(l) if any Banking Subsidiary is notified that it is considered an
institution in "troubled condition" within the meaning of 12 U.S.C. Section
1831i and the regulations promulgated thereunder, or if a conservator or
receiver is appointed for any Banking Subsidiary;
(m) if the Borrower or any of its Subsidiaries becomes insolvent or
is unable to pay its debts as they mature; or makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts as they
mature; or suspends transaction of its usual business, or if a trustee of any
substantial part of the assets of the Borrower or any of its Subsidiaries is
applied for or appointed, and if appointed in a proceeding brought against the
Borrower or any of its Subsidiaries, the Borrower or any of its Subsidiaries,
respectively, by any action or failure to act indicates its approval of, consent
to or acquiescence in such appointment, or within thirty (30) days such
appointment is not vacated or stayed on appeal or otherwise, or shall not
otherwise have ceased to continue in effect;
(n) if any proceedings involving the Borrower or any of its
Subsidiaries are commenced by or against the Borrower or any of its Subsidiaries
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law or statute of the federal government or any
state government and if such proceedings are instituted against the Borrower or
any of its Subsidiaries, the Borrower or any of its Subsidiaries, respectively,
by any action or failure to act indicates its approval of, consent to or
acquiescence therein, or an order shall be entered approving the petition in
such proceedings and within thirty (30) days after the entry thereof such order
is not vacated or stayed on appeal or otherwise, or shall not otherwise have
ceased to continue in effect; or
23
<PAGE>
(o) if the Borrower or any of its Subsidiaries defaults or continues
to be in default in any payment of principal or interest for any other
obligation, or in the performance of any other term, condition or covenant
contained in any agreement (including an agreement in connection with the
acquisition of capital equipment on a title retention or net lease basis), under
which any such obligation is created which results in a material adverse effect
on the operations of the Borrower and its Subsidiaries taken as a whole.
Section 6.2 Remedies of the Bank. Upon the occurrence of a Default, the
--------------------
Bank shall have all rights and remedies provided by applicable law and, without
limiting the generality of the foregoing, may, at its option, declare its
commitments under the Loan Documents to be terminated and the Note shall
thereupon be and become forthwith, due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower, anything contained herein or in the Note or the Pledge
Agreement to the contrary notwithstanding, and may, also without limitation,
appropriate and apply toward the payment of any amounts due under this Agreement
or the Note or the Pledge Agreement any indebtedness of the Bank to the Borrower
however created or arising, and may also, without limitation, exercise any and
all rights in and to the Pledged Security and any other collateral held by the
Bank. There shall be no obligation to liquidate any such collateral in any order
or with any priority or to exercise any remedy available to the Bank in any
order.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Waiver by the Bank. No failure or delay on the part of the
------------------
Bank in exercising any right, power or remedy hereunder shall operate as a
waiver thereof. No single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Time is of the
essence in the performance of the covenants, agreements and obligations of the
Borrower and the Bank.
Section 7.2 Entire Agreement; Modification of the Agreement. This
-----------------------------------------------
Agreement and the other Loan Documents constitute the entire agreement between
the parties and supersedes all prior agreements between the Bank and the
Borrower with respect to the subject matter hereof. No amendment, modification,
termination or waiver of any provision in this Agreement, the Note or the Pledge
Agreement, or consent to any departure by the Borrower therefrom, shall be
effective except for the specific purpose for which given and only then if in
writing and signed by the party intending to be bound. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
Section 7.3 Notices. All notices, requests, demands and other
-------
communications provided for hereunder shall be: (a) in writing; (b) made in one
of the following manners; and
24
<PAGE>
(c) deemed given (i) if and when personally delivered, (ii) on the next business
day if sent by nationally recognized overnight courier addressed to the
appropriate party as set forth below or (iii) on the fifth business day after
being deposited in United States certified or registered mail, and addressed as
follows:
(x) If to the Borrower:
PrivateBancorp, Inc.
10 N. Dearborn
Chicago, Illinois 60602
Attention: Mr. Ralph B. Mandell
(y) If to the Bank:
LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Mr. John C. Giuffre, First Vice President
or, as to each party, at such other address as shall be designated by such party
in a notice to each other party complying as to delivery with the terms of this
subsection.
Section 7.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so constitute but one and the same instrument.
Section 7.5 Successors and Assigns. This Agreement shall become effective
----------------------
when it shall have been executed by the Borrower and the Bank and thereafter
shall be binding upon and inure to the benefit of the Borrower and the Bank and
their respective successors and assigns, provided, that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Bank, which consent may be given or denied in the
Bank's sole and absolute discretion.
Section 7.6 Jurisdiction; Service of Process; Waiver. THIS AGREEMENT AND
----------------------------------------
THE OTHER LOAN DOCUMENTS HAVE BEEN NEGOTIATED, EXECUTED AND DELIVERED AT, AND
SHALL BE DEEMED TO HAVE BEEN MADE AT, CHICAGO, ILLINOIS. THE LOANS PROVIDED FOR
HEREIN ARE TO BE FUNDED AND REPAID AT, AND THIS AGREEMENT IS OTHERWISE TO BE
PERFORMED AT, CHICAGO, ILLINOIS AND THIS AGREEMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO: (a) ITS JUDICIALLY
OR STATUTORILY PRONOUNCED RULES REGARDING CONFLICT OF LAWS OR CHOICE OF LAW; (b)
WHERE ANY OTHER AGREEMENT IS EXECUTED OR DELIVERED; (c) WHERE ANY PAYMENT OR
OTHER PERFORMANCE REQUIRED BY ANY SUCH AGREEMENT IS MADE OR REQUIRED
25
<PAGE>
TO BE MADE; (d) WHERE ANY BREACH OF ANY PROVISION OF ANY SUCH AGREEMENT OCCURS,
OR ANY CAUSE OF ACTION OTHERWISE ACCRUES; (e) WHERE ANY ACTION OR OTHER
PROCEEDING IS INSTITUTED OR PENDING; (f) THE NATIONALITY, CITIZENSHIP, DOMICILE,
PRINCIPAL PLACE OF BUSINESS, OR JURISDICTION OR ORGANIZATION OR DOMESTICATION OF
ANY PARTY; (g) WHETHER THE LAWS OF THE FORUM JURISDICTION OTHERWISE WOULD APPLY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS; OR (h) ANY
COMBINATION OF THE FOREGOING. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS
DAY RECEIVED, THE BORROWER RECOGNIZES THAT THE BANK'S PRINCIPAL OFFICE IS
LOCATED IN CHICAGO, ILLINOIS, AND THAT THE BANK MAY BE IRREPARABLY HARMED IF
REQUIRED TO INSTITUTE OR DEFEND ANY ACTIONS AGAINST THE BORROWER IN ANY
JURISDICTION OTHER THAN THE NORTHERN DISTRICT OF ILLINOIS OR COOK COUNTY,
ILLINOIS; THEREFORE, THE BORROWER IRREVOCABLY: (i) AGREES THAT ANY SUIT, ACTION
OR OTHER LEGAL PROCEEDING RELATING TO THE LOANS OR ANY OF THE LOAN DOCUMENTS MAY
BE BROUGHT IN THE NORTHERN DISTRICT OF ILLINOIS, IF FEDERAL JURISDICTION IS
AVAILABLE, AND, OTHERWISE, IN THE CIRCUIT COURT OF COOK COUNTY, AT THE BANK'S
OPTION; (ii) CONSENTS TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH SUIT,
ACTION OR PROCEEDING; (iii) WAIVES ANY OBJECTION WHICH THE BORROWER MAY HAVE TO
THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING IN EITHER SUCH COURT;
AND (iv) AGREES TO JOIN THE BANK IN ANY PETITION FOR REMOVAL TO EITHER SUCH
COURT BROUGHT BY THE BANK. THE BORROWER WAIVES TRIAL BY JURY AND ANY OBJECTION
TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND AGREES NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. NOTHING CONTAINED
HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION OR
PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
Section 7.7 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. Wherever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law.
Section 7.8 Survival of Representations and Warranties. All covenants,
------------------------------------------
agreements, representations and warranties made by the Borrower herein shall,
notwithstanding any investigation by or knowledge on the part of the Bank, be
deemed material and relied on by the Bank and shall survive the making of this
Agreement, and execution and delivery of the Note and the Pledge Agreement and
shall be deemed to be continuing representations and warranties until such time
as the Borrower has satisfied all of its
26
<PAGE>
obligations to the Bank, including the obligation to pay in full all principal,
interest and other amounts due in accordance with the terms of this Agreement,
the Note and the Pledge Agreement.
Section 7.9 Extensions and Renewals. This Agreement shall govern the
-----------------------
terms of any extensions or renewals to the Note, subject to any additional terms
and conditions imposed by the Bank in connection with any such extension or
renewal.
Section 7.10 Interest Rate Regulation. The Borrower hereby represents
------------------------
that the indebtedness evidenced hereby constitutes a loan made by the Bank to
enable the Borrower to carry on a commercial enterprise for the purpose of
investment or profit; and that such loan is a loan for business purposes under
the intent and purview of Ill. Rev. Stat. Ch. 17, Section 6404(c).
Section 7.11 Participations; Assignments. The Bank reserves the right to
---------------------------
sell participations in the Loans. With the Borrower's prior consent, which
consent shall not be unreasonably withheld, the Bank may also otherwise assign,
transfer or hypothecate all or any part of the Loans along with the
corresponding rights in the Loan Documents. The Bank is authorized by the
Borrower to disclose information publicly available about it and its
Subsidiaries to prospective participants and assignees.
Section 6.13 Additional Actions. The Borrower agrees to do such further
------------------
acts and things and to execute and deliver to the Bank such additional
assignments, agreements, powers and instruments, as the Bank may reasonably
require or deem advisable to carry into effect the purposes of this Agreement,
the Note, the Pledge Agreement or any other agreement or instrument in
connection herewith.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PRIVATEBANCORP, INC. LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Donald A. Roubitchek By: /s/ John Giuffre
----------------------------- ------------------------------
Name: Donald A. Roubitchek Name: John Giuffre
------------------------ ---------------------------
Title: Chief Financial Officer Title: First Vice President
------------------------ ---------------------------
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SCHEDULE 4.1
SUBSIDIARIES OF THE BORROWER
<PAGE>
EXHIBIT A
REVOLVING NOTE
$18,000,000.00 Chicago, Illinois
_____________, 2000
FOR VALUE RECEIVED, the undersigned, PrivateBancorp, Inc., a Delaware
corporation with its principal place of business located at 10 N. Dearborn,
Chicago, Illinois 60602 (the "Borrower"), hereby promises to pay to the order of
LaSalle Bank National Association, a national banking association with its main
office located in Chicago, Illinois (the "Bank"), the principal sum of Eighteen
Million United States Dollars (US$18,000,000.00), or whatever lesser amount of
principal remains unpaid and owing from time to time under the terms of this
Revolving Note.
This Revolving Note is referred to in, and was executed and delivered
pursuant to, that certain Loan Agreement of even date herewith between the
Borrower and the Bank (as amended, restated, supplemented or modified from time
to time, the "Agreement"), to which reference is hereby made for a statement of
the terms and conditions under which the loan evidenced hereby is to be repaid
and for a statement of remedies upon the occurrence of a "Default" as defined
therein. The Agreement is incorporated herein by reference in its entirety.
All terms which are capitalized and used herein (which are not otherwise
specifically defined herein) and which are defined in the Agreement shall be
used in this Revolving Note as defined in the Agreement.
The Borrower agrees that in any action or proceeding instituted to collect
or enforce collection of this Revolving Note, the amount shown on the Bank's
books and records with respect to the Borrower shall be prima facie evidence of
the unpaid principal balance of this Revolving Note.
The unpaid principal balance plus all accrued but unpaid interest hereunder
shall be due and payable on the second anniversary of the date of this Revolving
Note, or such earlier date on which such amount shall become due and payable on
account of acceleration by the Bank.
The Borrower shall make all payments of principal due under the terms of
this Revolving Note at the times, in the manner and in the amounts provided in
the Agreement. The Borrower promises to pay to the Bank interest on the
outstanding unpaid principal amount hereof from the date hereof until payment in
full at the rates and payable at the times provided in the Agreement. Interest
shall be calculated on the basis of a 360-day year, counting the actual number
of days elapsed.
Upon the occurrence of any Default, the interest rate as provided in
Section 2.6 of the Agreement shall apply. Interest due hereunder may, at the
Bank's option and subject to the terms
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of the Agreement, be charged to any account maintained by the Borrower with the
Bank.
It is the intention of the parties hereto to conform strictly to applicable
usury laws as in effect from time to time during the term of the Loan.
Accordingly, if any transaction contemplated hereby would be usurious under
applicable law (including the laws of the United States of America, or of any
other jurisdiction whose laws may be mandatorily applicable), then, in that
event, notwithstanding anything to the contrary in the Agreement or this
Revolving Note, it is agreed that the aggregate of all consideration that
constitutes interest under applicable law that is contracted for, charged or
received under the Agreement or this Revolving Note or otherwise in connection
with the Agreement or this Revolving Note shall under no circumstances exceed
the maximum amount of interest allowed by applicable law, and any excess shall
be credited to the Borrower by the Bank (or if such consideration shall have
been paid in full, such excess refunded to the Borrower by the Bank). All sums
paid, or agreed to be paid, to the Bank for the use, forbearance and detention
of the indebtedness of the Borrower by the Bank shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that the actual rate of
interest is uniform during the full term thereof.
To the extent permitted by applicable law and except as provided in the
Agreement, the Borrower, for itself and its legal representatives, predecessors,
successors and assigns, expressly waives presentment, demand, protest, notice of
dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection
and the benefit of any exemption under the homestead exemption laws, if any, or
any other exemption or insolvency laws, and further agrees that the Bank may
release or surrender, exchange or substitute any real estate and/or personal
property or other collateral security now held or which may hereafter be held as
security for the payment of this Revolving Note, and may extend the time for
payment or (with the consent of Borrower) otherwise modify the terms of payment
for any part or the whole of the indebtedness evidenced hereby.
This Revolving Note may be prepaid in whole or in part only as provided in
the Agreement. Upon or at any time after the occurrence or existence of a
Default, the Bank shall be entitled, at its option, to accelerate the then
outstanding indebtedness hereunder and take such other action as provided for in
the Agreement.
THIS REVOLVING NOTE HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT, AND
SHALL BE DEEMED TO HAVE BEEN MADE AT, CHICAGO, ILLINOIS. THE LOAN REFERENCED
HEREIN IS TO BE FUNDED AND REPAID AT, AND THIS REVOLVING NOTE IS OTHERWISE TO BE
PERFORMED AT, CHICAGO, ILLINOIS, AND THIS REVOLVING NOTE SHALL BE INTERPRETED,
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO: (i) ITS
JUDICIALLY OR STATUTORILY PRONOUNCED RULES REGARDING CONFLICT OF LAWS OR CHOICE
OF LAW; (ii) WHERE ANY OTHER INSTRUMENT IS EXECUTED OR DELIVERED; (iii) WHERE
ANY PAYMENT OR OTHER PERFORMANCE REQUIRED BY ANY SUCH INSTRUMENT IS MADE OR
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REQUIRED TO BE MADE; (iv) WHERE ANY BREACH OF ANY PROVISION OF ANY SUCH
INSTRUMENT OCCURS, OR ANY CAUSE OF ACTION OTHERWISE ACCRUES; (v) WHERE ANY
ACTION OR OTHER PROCEEDING IS INSTITUTED OR PENDING; (vi) THE NATIONALITY,
CITIZENSHIP, DOMICILE, PRINCIPAL PLACE OF BUSINESS, OR JURISDICTION OR
ORGANIZATION OR DOMESTICATION OF ANY PARTY; (vii) WHETHER THE LAWS OF THE FORUM
JURISDICTION OTHERWISE WOULD APPLY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF ILLINOIS; OR (viii) ANY COMBINATION OF THE FOREGOING. AS PART OF THE
CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, THE BORROWER RECOGNIZES THAT THE
BANK'S PRINCIPAL OFFICE IS LOCATED IN CHICAGO, ILLINOIS, AND THAT THE BANK MAY
BE IRREPARABLY HARMED IF REQUIRED TO INSTITUTE OR DEFEND ANY ACTIONS AGAINST THE
BORROWER IN ANY JURISDICTION OTHER THAN THE NORTHERN DISTRICT OF ILLINOIS OR
COOK COUNTY, ILLINOIS; THEREFORE, THE BORROWER IRREVOCABLY (a) AGREES THAT ANY
SUIT, ACTION OR OTHER LEGAL PROCEEDING RELATING TO THE REVOLVING NOTE AND/OR THE
LOAN EVIDENCED HEREBY MAY BE BROUGHT IN THE NORTHERN DISTRICT OF ILLINOIS, IF
FEDERAL JURISDICTION IS AVAILABLE, AND, OTHERWISE, IN THE CIRCUIT COURT OF COOK
COUNTY, AT THE BANK'S OPTION; (b) CONSENTS TO THE JURISDICTION OF EACH SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; (c) WAIVES ANY OBJECTION WHICH THE
BORROWER MAY HAVE TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING
IN EITHER SUCH COURT; AND (d) AGREES TO JOIN THE BANK IN ANY PETITION FOR
REMOVAL TO EITHER SUCH COURT BROUGHT BY THE BANK. THE BORROWER WAIVES TRIAL BY
JURY AND ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED
HEREUNDER AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR
VENUE. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE
LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO
BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be duly
executed as of the date first above written.
PrivateBancorp, Inc.
By:___________________________
Name:______________________
Title:_____________________
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EXHIBIT B
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Pledge Agreement"), dated as of
February 11, 2000, is made by PrivateBancorp, Inc., a Delaware corporation (the
"Pledgor"), for the benefit of LaSalle Bank National Association, a national
banking association with its main office located in Chicago, Illinois (the
"Bank").
RECITALS
A. The Pledgor desires to borrow from the Bank, and the Bank has agreed
to loan to the Pledgor, the principal sum of Eighteen Million Dollars
($18,000,000), all in accordance with the terms, subject to the conditions and
in reliance on the representations, warranties and covenants set forth in that
certain Loan Agreement dated as of February 11, 2000, between the Bank and the
Pledgor (including any and all modifications, amendments or renewals, the "Loan
Agreement").
B. The Pledgor owns Eighty-Eight Thousand Four Hundred Fifty (88,450)
shares of the common stock, $20.00 par value per share of PrivateBank and Trust
Company, an Illinois state bank with its main office located in Chicago,
Illinois ("PrivateBank"), which represents 100% of outstanding capital stock of
the Private Bank (the "PrivateBank Shares").
C. Upon the completion of the formation of The PrivateBank of St. Louis,
a federal savings bank with its main office to be located in St. Louis, Missouri
("PrivateBank St. Louis"), the Borrower will own Forty Thousand (40,000) shares
of the common stock, $100.00 par value per share of PrivateBank St. Louis, which
will represent 100% of the outstanding capital stock of PrivateBank St. Louis
(the "PrivateBank St. Louis Shares").
D. The Pledgor has agreed to provide security for its indebtedness under
the Loan Agreement in accordance with the terms of this Pledge Agreement.
AGREEMENTS
NOW, THEREFORE, in order to induce the Bank to advance funds to the Pledgor
as described in the Loan Agreement, and in consideration of the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Grant of Security Interest. To secure the Obligations (as
--------------------------
defined below) and subject to the immediately following sentence, the Pledgor
hereby pledges and grants to the Bank a security interest in and hereby
transfers and delivers to the Bank the following property and documents,
provided, however, that with respect to all such documents or property related
to PrivateBank St. Louis, the Pledgor agrees to transfer and make delivery of
such documents and property promptly upon the completion of the formation of
PrivateBank
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St. Louis: (a) the PrivateBank Shares and the PrivateBank St. Louis Shares; (b)
any and all PrivateBank Shares and PrivateBank St. Louis Shares the Pledgor
subsequently acquires, directly or indirectly; (c) any and all other shares of
capital stock hereinafter issued by either or both of PrivateBank or PrivateBank
St. Louis, whether now or hereafter in the possession of the Pledgor or the
Bank, including all substitutions of, and additions to, such stock; (d)
certificates representing the shares of capital stock described in (a), (b) and
(c) above; (e) duly executed and undated, irrevocable stock powers for the
capital stock described in (a), (b) and (c) above, in form and content
satisfactory to the Bank, and all requisite federal and state stock transfer tax
stamps, if any (the items described in (a), (b) and (c) above may collectively
be referred to as the "Pledged Stock"); (f) all income and profits thereof, all
distributions thereon, all other proceeds thereof and all rights, benefits and
privileges pertaining to or arising from the Pledged Stock; and (g) such other
collateral that may be provided after the date hereof to secure the Obligations.
All property at any time pledged with the Bank hereunder or in which the Bank is
granted a security interest hereunder (whether described herein or not), and
subject to the provisions of Section 3 below, all income therefrom and proceeds
thereof, may be referred to collectively as the "Pledged Security."
Section 2. Obligations. The obligations secured by this Pledge Agreement
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are the following (referred to collectively as the "Obligations"):
(a) all obligations and agreements of the Pledgor contained in
(including, but not limited to, the payment of all indebtedness of the Pledgor
in respect of) the Loan Agreement;
(b) all principal, interest and other amounts due to the Bank under
that certain Revolving Note of even date herewith in the principal amount of
Eighteen Million Dollars ($18,000,000) from the Pledgor to the Bank and
including any and all modifications, extensions, renewals or refinancings
thereof (the "Note");
(c) all sums advanced by, or on behalf of, the Bank in connection
with, or relating to, the Loan Agreement, the Note or the Pledged Security
including, but not limited to, any and all sums advanced to preserve the Pledged
Security, or to perfect the Bank's security interest in the Pledged Security;
(d) in the event of any proceeding to enforce the satisfaction of the
Obligations, or any of them, or to preserve and protect its rights under the
Loan Agreement, the Note, this Pledge Agreement or any other agreement, document
or instrument relating to the transactions contemplated in the Loan Agreement,
the reasonable expenses of retaking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Pledged Security, or of any exercise
by the Bank of its rights, together with reasonable attorneys' fees, expenses
and court costs; and
(e) any indebtedness, obligation or liability of the Pledgor to the
Bank, whether direct or indirect, joint or several, absolute or contingent, now
or hereafter existing, however created or arising and however evidenced.
Section 3. Additional Terms. (a) The Pledgor agrees that the Bank shall
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have full and irrevocable right, power and authority, to collect, withdraw or
receipt for all amounts due
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or to become due and payable upon, in connection with, or relating to, the
Pledged Security, to execute any withdrawal receipts respecting the Pledged
Security and to endorse the name of the Pledgor on any or all documents,
instruments or commercial paper given in payment thereof, and at the Bank's
discretion to take any other action, including, but not limited to, the transfer
of any Pledged Security into the Bank's own name or the name of any nominee for
the Bank, which the Bank may reasonably deem necessary or appropriate to
preserve or protect the Bank's interest in any of the Pledged Security.
(b) Unless a Default (as defined below) shall have occurred, the
Pledgor shall be entitled to vote any and all shares of the Pledged Stock and to
give consents, waivers and ratifications in respect thereof, provided that no
vote shall be cast, no consent, waiver or ratification shall be given and no
action shall be taken by the Pledgor which would violate or be inconsistent with
any of the terms of the Loan Agreement, the Note or this Pledge Agreement, or
which would have the effect of impairing the position or interests of the
Pledgor or any holder of the Note. All such rights of the Pledgor to vote and
to give consents, waivers and ratifications shall cease upon the occurrence of a
Default.
(c) Unless a Default shall have occurred, all dividends and other
distributions payable in respect of the Pledged Security shall be paid to the
Pledgor. Upon the occurrence of a Default, all such dividends and other
distributions and payments shall be paid to the Bank. After a Default shall
have occurred, all such amounts paid in respect of the Pledged Security shall,
until paid or delivered to the Bank, be held in trust for the benefit of the
Bank as additional Pledged Security to secure the Obligations.
Section 4. Representations and Warranties. The Pledgor further
------------------------------
represents and warrants, as of the date hereof, that:
(a) The Pledgor is the legal, record and beneficial owner of, and has
good and marketable title to, the Pledged Security, subject to no lien, claim,
security interest or other encumbrance, except the security interest created by
this Pledge Agreement or otherwise in favor of Bank, provided, however, that the
Pledgor will be the legal, record and beneficial owner of, and have good and
marketable title to, the PrivateBank St. Louis Shares upon the completion of the
formation of PrivateBank St. Louis.
(b) The Pledged Security is genuine and in all respects represents
what it purports to be and all the shares of the Pledged Security have been duly
and validly issued, and are fully paid and non-assessable.
(c) The pledge, assignment and delivery of the Pledged Security
pursuant to this Pledge Agreement creates a valid perfected security interest in
the Pledged Security, and the proceeds thereof, subject to no prior lien, claim,
security interest or other encumbrance or to any agreement purporting to grant
to any third party a security interest in the assets of the Pledgor which would
include any of the Pledged Security (except as may exist in favor of the Bank).
(d) The Pledgor has full right, power and authority to enter into, to
execute and to deliver this Pledge Agreement and this Pledge Agreement is
binding upon, and enforceable against the Pledgor in accordance with its terms,
subject to applicable bankruptcy,
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insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally, and general principles of equity.
(e) None of the Pledged Stock constitutes margin stock, as defined in
Regulation U promulgated by the Board of Governors of the Federal Reserve
System.
Section 5. Covenants. The Pledgor further agrees that:
---------
(a) Without the prior written consent of the Bank, the Pledgor will
not sell, assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Pledged Security, nor will it create, incur or
permit to exist any lien, claim, security interest or other encumbrance with
respect to any of the Pledged Security, or any interest therein, or any proceeds
thereof, except for the security interest provided for by this Pledge Agreement.
(b) The Pledgor will at all times defend the Bank's right, title and
security interest in and to the Pledged Security and the proceeds thereof
against any and all claims and demands of any person adverse to the claims of
the Bank.
(c) The Pledgor will take such action and execute such documents as
the Bank may from time to time request relating to the Pledged Security or the
proceeds thereof, including, but not limited to, the filing of UCC-1 financing
statements, in form reasonably satisfactory to the Bank and its counsel, with
the Secretaries of State of Illinois and Missouri in favor of the Bank with
respect to the Pledged Security and the proceeds thereof.
(d) The Pledgor shall pay any fees, assessments, charges or taxes
arising with respect to the Pledged Security. In case of failure by the Pledgor
to pay any such fees, assessments, charges or taxes, the Bank shall have the
right, but shall not be obligated, to pay such fees, assessments, charges or
taxes, as the case may be, and, in that event, the cost thereof shall be payable
by the Pledgor to the Bank immediately upon demand together with interest at the
applicable rate set forth in the Note from the date of disbursement by the Bank
to the date of payment by the Pledgor.
Section 6. Default. The Pledgor shall be in default under this Pledge
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Agreement upon the occurrence of any one or more of the following events or
conditions (each a "Default"):
(a) any "Default" under the terms of and as defined in the Loan
Agreement;
(b) nonpayment of any of the Obligations when due, whether by
acceleration or otherwise; and
(c) the claim or creation of any lien, claim, security interest or
other encumbrance upon any of the Pledged Security or the making of any levy,
judicial seizure, or attachment thereof or thereon which is not contested in
good faith by appropriate legal or other action by Pledgor in a manner
diligently pursued and any action or failure to act does not indicate its
approval of, or consent to, or acquiescence of, such lien, claim, levy, judicial
seizure or attachment
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Section 7. Rights of Parties upon Default. (a) In the event of the
------------------------------
occurrence of a Default, in addition to all the rights, powers and remedies the
Bank shall be entitled to exercise, whether vested in the Bank by the terms of
this Pledge Agreement, the Loan Agreement or the Note, or by law, equity or
statute (including, but not limited to, Article 9 of the Illinois Uniform
Commercial Code) or otherwise, for the protection and enforcement of its rights
in respect of the Pledged Security, the Bank may be entitled to, without
limitation (but is under no obligation to the Pledgor so to do):
(i) transfer all or any part of the Pledged Security into
the Bank's name or the name of its nominee or nominees;
(ii) after first obtaining all necessary regulatory
approvals, vote all or any part of the Pledged Security (whether or not
transferred into the name of the Bank or any nominee) and give all consents,
waivers and ratifications in respect of the Pledged Security and otherwise act
with respect thereto as though it were the outright owner thereof;
(iii) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the Pledged Security,
or any interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the time or
place of sale or adjournment thereof or to redeem or otherwise (all of which are
hereby waived by the Pledgor), for cash, on credit or for other property, for
immediate or future delivery without any assumption of credit risk and for such
price or prices and on such terms as the Bank in its absolute discretion may
determine, provided that unless, in the sole discretion of the Bank, any of the
Pledged Security threatens to decline in value or is or becomes a type sold on a
recognized market, the Bank will give the Pledgor reasonable notice of the time
and place of any public sale thereof, or of the time after which any private
sale or other intended disposition is to be made. Any requirements of reasonable
notice shall be met if such notice is mailed to the Pledgor in accordance with
the notice requirements set forth in the Loan Agreement, at least ten days
before the time of the sale or disposition. Any sale of any of the Pledged
Security conducted in conformity with customary practices of banks, insurance
companies or other financial institutions disposing of property similar to the
Pledged Security shall be deemed to be commercially reasonable. Any remaining
Pledged Security shall remain subject to the terms of this Pledge Agreement; and
(iv) collect any and all money due or to become due and
enforce in the Pledgor's name all rights with respect to the Pledged Security.
(b) Unless prohibited by law, Pledgor agrees to give the Bank, any
prospective purchaser (pursuant to Section 6(a)(iii) above) of the Pledged
Security and their respective representatives, full access to further
information (including, but not limited to, records, files, correspondence, tax
work papers and audit work papers) relating to or concerning the Pledgor.
Section 8. Remedies Cumulative. Each right, power and remedy of the
-------------------
Bank provided in this Pledge Agreement or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this Pledge
Agreement or now or hereafter existing at law or in equity or by statute or
otherwise. The exercise or partial exercise by the Bank of any one or
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more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by the Bank of all such other rights, powers or remedies, and no
failure or delay on the part of the Bank to exercise any such right, power or
remedy shall operate as a waiver thereof.
Section 9. Waiver of Defenses. No renewal or extension of the time of
------------------
payment of the Obligations; no release or surrender of, or failure to perfect or
enforce, any security interest for the Obligations; no release of any person
primarily or secondarily liable on the Obligations (including any maker,
endorser or guarantor); no delay in enforcement of payment of the Obligations;
and no delay or omission in exercising any right or power with respect to the
Obligations or any security agreement securing the Obligations shall affect the
rights of the Bank in the Pledged Security.
Section 10. Other Waivers. Waiver by the Bank of any Default hereunder,
-------------
or of any breach of the provisions of this Pledge Agreement by the Pledgor, or
any right of the Bank hereunder, shall not constitute a waiver of any other
Default or breach or right, nor the same Default or breach or right on a future
occasion.
Section 11. Severability. Whenever possible, each provision of this
------------
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but, if any provision of this Pledge Agreement shall
be held to be prohibited or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.
Section 12. Pledgor's Obligations Absolute. The obligations of the
------------------------------
Pledgor under this Pledge Agreement shall be absolute and unconditional and
shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way impaired by any circumstance whatsoever,
including without limitation: (a) any amendment or modification of the Note, the
Loan Agreement or any document or instrument provided for herein or therein or
related thereto, or any assignment, transfer or other disposition of any
thereof; (b) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such document or instrument or any exercise
or non-exercise of any right, remedy, power or privilege under or in respect of
any such document or instrument or this Pledge Agreement; (c) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or similar proceeding with respect to the Pledgor or any of its properties or
creditors; or (d) any limitation on the Pledgor's liabilities or obligations
under any such instrument or any invalidity or unenforceability, in whole or in
part of any such document or instrument or any term thereof; whether or not the
Pledgor shall have notice or knowledge of the foregoing.
Section 13. Termination. This Pledge Agreement shall terminate upon the
-----------
receipt by the Bank of evidence satisfactory to the Bank in the Bank's sole and
absolute discretion of the payment in full of the Obligations. At the time of
such termination, the Bank, at the request and expense of the Pledgor, will
execute and deliver to the Pledgor a proper instrument or instruments
acknowledging the satisfaction and termination of this Pledge Agreement and any
necessary documents to release any UCC-1 financing statements filed in
connection with the Pledged Security, and will duly assign, transfer and deliver
to the Pledgor such of the
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Pledged Security as has not yet theretofore been sold or otherwise applied or
released pursuant to this Pledge Agreement.
Section 14. Further Assurances. The Pledgor, at its expense, will duly
------------------
execute, acknowledge and deliver all such instruments and take all such action
as the Bank from time to time may reasonably request in order further to
effectuate the purposes of this Pledge Agreement and to carry out the terms
hereof. The Pledgor, at its expense, will at all times cause this Pledge
Agreement (or a proper notice or statement, in respect hereof) to be duly
recorded, published and filed and rerecorded, republished and refiled in such
manner and in such places, if any, and will pay or cause to be paid all such
recording, filing and other taxes, fees and charges, if any, and will comply
with all such statutes and regulations, if any, as may be required by law in
order to establish, perfect, preserve and protect the rights and security
interests of the Bank hereunder.
Section 15. Notices. All communications provided for or related hereto
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shall be given in accordance with the notice requirements of the Loan Agreement.
Section 16. Amendments. Any term of this Pledge Agreement may be amended
----------
only with the written consent of the Pledgor and the Bank. Any amendment
effected in accordance with this Section shall be binding upon each holder of
the Note at the time outstanding, each future holder of the Note and the
Pledgor.
Section 17. Assigns. This Pledge Agreement and all rights and liabilities
-------
hereunder and in and to any and all Pledged Security shall inure to the benefit
of the Bank and its successors and assigns, and shall be binding on the Pledgor
and the Pledgor's successors and assigns; provided, however, the Pledgor may not
assign its rights or liabilities hereunder or to any of the Pledged Security
without the written consent of the Bank.
Section 18. Miscellaneous. This Pledge Agreement embodies the entire
-------------
agreement and understanding between the Bank and the Pledgor and supersedes all
prior agreements and understandings relating to the subject matter hereof. The
headings in this Pledge Agreement are for purposes of reference only and shall
not limit or otherwise affect the meaning hereof. Capitalized terms contained
herein and otherwise undefined shall have the meanings given them in the Loan
Agreement.
Section 19. Governing Law. THIS PLEDGE AGREEMENT HAS BEEN NEGOTIATED,
-------------
EXECUTED AND DELIVERED AT, AND SHALL BE DEEMED TO HAVE BEEN MADE AT, CHICAGO,
ILLINOIS. THE LOANS REFERENCED HEREIN ARE TO BE FUNDED AND REPAID AT, AND THIS
PLEDGE AGREEMENT IS OTHERWISE TO BE PERFORMED AT, CHICAGO, ILLINOIS AND THIS
PLEDGE AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
ILLINOIS WITHOUT REFERENCE TO: (I) ITS JUDICIALLY OR STATUTORILY PRONOUNCED
RULES REGARDING CONFLICT OF LAWS OR CHOICE OF LAW; (II) WHERE ANY OTHER
AGREEMENT IS EXECUTED OR DELIVERED; (III) WHERE ANY PAYMENT OR OTHER PERFORMANCE
REQUIRED BY ANY SUCH AGREEMENT IS MADE OR REQUIRED TO BE MADE; (IV) WHERE ANY
BREACH OF ANY PROVISION OF ANY SUCH AGREEMENT OCCURS, OR ANY
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CAUSE OF ACTION OTHERWISE ACCRUES; (V) WHERE ANY ACTION OR OTHER PROCEEDING IS
INSTITUTED OR PENDING; (VI) THE NATIONALITY, CITIZENSHIP, DOMICILE, PRINCIPAL
PLACE OF BUSINESS, OR JURISDICTION OR ORGANIZATION OR DOMESTICATION OF ANY
PARTY; (VII) WHETHER THE LAWS OF THE FORUM JURISDICTION OTHERWISE WOULD APPLY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS; OR (VIII) ANY
COMBINATION OF THE FOREGOING. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS
DAY RECEIVED, PLEDGOR RECOGNIZES THAT THE BANK'S PRINCIPAL OFFICE IS LOCATED IN
CHICAGO, ILLINOIS AND THAT THE BANK MAY BE IRREPARABLY HARMED IF REQUIRED TO
INSTITUTE OR DEFEND ANY ACTIONS AGAINST PLEDGOR IN ANY JURISDICTION OTHER THAN
THE NORTHERN DISTRICT OF ILLINOIS OR COOK COUNTY, ILLINOIS; THEREFORE, PLEDGOR
IRREVOCABLY (A) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING RELATING
TO THE PLEDGE AGREEMENT AND/OR THE LOANS REFERENCED HEREIN MAY BE BROUGHT IN THE
NORTHERN DISTRICT OF ILLINOIS, IF FEDERAL JURISDICTION IS AVAILABLE, AND,
OTHERWISE, IN THE CIRCUIT COURT OF COOK COUNTY, AT THE BANK'S OPTION; (B)
CONSENTS TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH SUIT, ACTION OR
PROCEEDING; (C) WAIVES ANY OBJECTION WHICH PLEDGOR MAY HAVE TO THE LAYING OF
VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING IN EITHER SUCH COURT; AND (D)
AGREES TO JOIN THE BANK IN ANY PETITION FOR REMOVAL TO EITHER SUCH COURT BROUGHT
BY THE BANK. PLEDGOR WAIVES TRIAL BY JURY AND ANY OBJECTION TO JURISDICTION AND
VENUE OF ANY ACTION INSTITUTED HEREUNDER AND AGREES NOT TO ASSERT ANY DEFENSE
BASED ON LACK OF JURISDICTION OR VENUE. NOTHING CONTAINED HEREIN SHALL AFFECT
THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE
PLEDGOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
[THIS SPACE LEFT INTENTIONALLY BLANK]
8
<PAGE>
The Pledgor acknowledges that this Pledge Agreement is and shall be
effective upon execution by the Pledgor and delivery to and acceptance hereof by
the Bank, and it shall not be necessary for the Bank to execute any acceptance
hereof or otherwise to signify or express its acceptance hereof to the Pledgor.
PRIVATEBANCORP, INC. LASALLE BANK NATIONAL ASSOCIATION
By:_______________________________ By:____________________________
Name: _________________________ Name:_______________________
Title:_________________________ Title:______________________
9
<PAGE>
EXHIBIT C
COLLATERAL SAFEKEEPING AGREEMENT
THIS COLLATERAL SAFEKEEPING AGREEMENT (this "Agreement"), dated as of
February 11, 2000, is entered into by PrivateBancorp, Inc., a Delaware
corporation (the "Borrower"), and LaSalle Bank National Association, a national
banking association with its main office located in Chicago, Illinois (the
"Bank"), and European American Bank, a New York state banking corporation (the
"Custodian").
A. The Bank and the Borrower have previously entered into that certain
Loan Agreement dated as of February 11, 2000 (the "Loan Agreement"), and a
related Pledge and Security Agreement dated as of February 11, 2000 (the "Pledge
Agreement"), in connection with a revolving credit in the amount of $18,000,000
(collectively, and as the same are extended, modified or reviewed, the "Loan");
B. The Loan is secured by, among other things, Eighty-Eight Thousand Four
Hundred Fifty (88,450) shares of the common stock, $20.00 par value per share of
PrivateBank and Trust Company, an Illinois state bank with its main office
located in Chicago, Illinois, and a wholly-owned subsidiary of the Borrower (the
"PrivateBank Shares").
C. Upon the completion of the formation of The PrivateBank, a federal
savings bank with its main office to be located in St. Louis, Missouri
("PrivateBank St. Louis"), the Borrower has further agreed to secure the Loan
with Forty Thousand (40,000) shares of the common stock, $100.00 par value per
share of PrivateBank St. Louis, which will represent 100% of the outstanding
capital stock of PrivateBank St. Louis (the "PrivateBank St. Louis Shares").
D. The Borrower has requested the aforesaid collateral shares of stock be
held by the Custodian, and the Bank has agreed to such request, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
1. Collateral Shares. (a) As security for the payment of the obligations
-----------------
of the Borrower to the Bank, whether now or hereafter existing and howsoever
evidenced, or any extension or renewal thereof, including, without limitation,
all obligations under the Loan Agreement, the related Revolving Note dated as of
February 11, 2000, and the Pledge Agreement (collectively, the "Obligations"),
the Borrower has previously pledged and assigned to the Bank under the Loan
Agreement and the Pledge Agreement, as the same may be amended from time to
time, among other things, the PrivateBank Shares and the PrivateBank St. Louis
Shares and the Pledged Security, as defined in the Pledge Agreement
(collectively with all income and profits thereof, all distributions thereon,
all other proceeds thereof and all rights, benefits and privileges pertaining or
arising thereunder, the "Collateral Shares"); and
(b) The Collateral Shares are concurrently herewith being delivered
to the Custodian for safekeeping.
<PAGE>
2. Collateral Shares. Until the Custodian shall receive written notice
-----------------
from the Bank that all of the Obligations have been fully paid and satisfied,
the parties hereto agree as follows:
(a) The Custodian is hereby appointed as agent for the Bank, as
secured party, and the Custodian shall hold and retain possession of the
Collateral Shares for the Bank as security for the payment of the Obligations;
(b) The Borrower shall be unable to withdraw any of the Collateral
Shares without the Bank's prior written consent;
(c) The Custodian shall deliver all or any part of the Collateral
Shares to the Bank upon its request at any time; and
(d) The Bank's receipt for any of the Collateral Shares so delivered
by the Custodian shall be a full and complete receipt and acquittance to the
Custodian as fiduciary for the Collateral Shares.
3. Acceptance. The Custodian hereby acknowledges that the Collateral
----------
Shares have been pledged as Collateral for the Obligations, and the Custodian
hereby accepts appointment as agent for the Bank, as secured party, and agrees
to act in accordance with the terms and provisions hereof. Until the termination
of this Agreement, the Custodian agrees that it shall not have or assert, and
waives any right, whether created by contract, statute or otherwise, to assert
any right of offset against or lien or interest in any of the Collateral Shares.
The Collateral Shares have been coded as assigned in the records of the
Custodian, and none of the Collateral Shares will be released by the Custodian
without the prior written consent of the Bank.
4. Indemnity; Assumption of Risk. (a) To the fullest extent permitted by
-----------------------------
law, the Borrower shall defend, indemnify and hold harmless each of the Bank and
the Custodian, and their respective officers, directors, agents, employees,
members and affiliated companies (collectively, the "Indemnitees"), from and
against all claims, judgments, damages, losses, penalties, liabilities, costs
and expenses of investigation and defense of any claim and of any good faith
settlement of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, including, without limitation,
reasonable attorneys' fees and expenses, any of which are incurred at any time
as a result of, or in connection with, the entering into of this Agreement or
the transactions contemplated thereby.
(b) The Borrower and the Borrower's counsel have requested that the
Bank and the Custodian enter into this Agreement. None of the Indemnitees shall
be liable for any expense, cost, loss or damage of any kind or nature resulting
or sustained by the Borrower as a result of the entering into of this Agreement,
including, without limitation, any franchise or other taxes payable as a result
thereof, and the Borrower expressly assumes all risk of loss or damage by
entering into this Agreement. Notwithstanding anything herein to the contrary,
the Custodian shall remain liable for the actual losses incurred by the Borrower
for the Custodian's failure to return the Collateral Shares to the Bank within a
reasonable period of time following receipt of a proper request to do so from
the Bank, unless the Custodian is prohibited or restrained from delivering the
Collateral Shares by virtue of any judicial order, decree or other legal
process.
2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed as of the date first
above appearing.
ATTEST: LASALLE BANK NATIONAL ASSOCIATION
By: ____________________________ By:____________________________
Name: ______________________ Name: _____________________
Title:______________________ Title:_____________________
ATTEST: PRIVATEBANCORP, INC.
By:____________________________ By:____________________________
Name: _____________________ Name: _____________________
Title:_____________________ Title:_____________________
ATTEST: EUROPEAN AMERICAN BANK
By:____________________________ By:____________________________
Name: _____________________ Name: _____________________
Title:_____________________ Title:_____________________
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 31, 2000 (except with respect to the matter discussed in
Note 20 as to which the date is February 11, 2000), included in the
PrivateBancorp, Inc. Annual Report on Form 10-K for the year end December 31,
1999, into the Corporation's previously filed Form S-8 Registration Statement
File No. 333-88289.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,940
<INT-BEARING-DEPOSITS> 20,000
<FED-FUNDS-SOLD> 9,243
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,134
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 397,277
<ALLOWANCE> (4,510)
<TOTAL-ASSETS> 518,697
<DEPOSITS> 453,092
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 3,525
<LONG-TERM> 0
0
0
<COMMON> 4,590
<OTHER-SE> 42,490
<TOTAL-LIABILITIES-AND-EQUITY> 518,697
<INTEREST-LOAN> 26,597
<INTEREST-INVEST> 5,141
<INTEREST-OTHER> 330
<INTEREST-TOTAL> 32,068
<INTEREST-DEPOSIT> 15,674
<INTEREST-EXPENSE> 16,605
<INTEREST-INCOME-NET> 15,463
<LOAN-LOSSES> 1,208
<SECURITIES-GAINS> 57
<EXPENSE-OTHER> 12,087
<INCOME-PRETAX> 4,172
<INCOME-PRE-EXTRAORDINARY> 4,172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,915
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> .076
<LOANS-NON> 600
<LOANS-PAST> 223
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 946
<ALLOWANCE-OPEN> 3,410
<CHARGE-OFFS> 108
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 4,510
<ALLOWANCE-DOMESTIC> 4,510
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 829
</TABLE>
