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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________ to ________
Commission File Number: 000-25887
PRIVATEBANCORP, INC.
(Exact name of Registrant as specified in its charter.)
DELAWARE 36-3681151
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
TEN NORTH DEARBORN STREET
CHICAGO, ILLINOIS 60602
(Address of principal executive offices) (Zip Code)
(312) 683-7100
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
===============================================================================
CLASS OUTSTANDING AS OF MAY 12, 2003
- -------------------------------------------------------------------------------
Common, no par value 7,768,134
===============================================================================
PRIVATEBANCORP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
Number
------
Selected Financial Data..........................................................................................2
PART I
Item 1. Financial Statements....................................................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................35
Item 4. Controls and Procedures................................................................................37
PART II
Item 1. Legal Proceedings......................................................................................38
Item 2. Changes in Securities and Use of Proceeds..............................................................38
Item 3. Defaults upon Senior Securities........................................................................38
Item 4. Submission of Matters to a Vote of Security Holders....................................................38
Item 5. Other Information......................................................................................38
Item 6. Exhibits and Reports on Form 8-K.......................................................................38
Signatures......................................................................................................40
SELECTED FINANCIAL DATA
The following table summarizes certain selected unaudited consolidated
financial information of PrivateBancorp, Inc. at or for the periods indicated.
This information should be read in conjunction with the unaudited consolidated
financial statements and related notes included pursuant to Item 1 of this
report.
QUARTER ENDED
-------------------------------------------------------------
03/31/03 12/31/02 09/30/02 06/30/02 03/31/02
--------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED STATEMENT OF INCOME DATA:
Interest income:
Loans, including fees........................ $15,167 $14,043 $13,704 $12,665 $12,148
Federal funds sold and interest-bearing
deposits..................................... 25 63 38 8 17
Securities............................... 5,379 5,507 4,557 4,886 4,206
------- ------- ------- ------- -------
Total interest income........................ 20,571 19,613 18,299 17,559 16,371
------- ------- ------- ------- -------
Interest expense:
Interest-bearing demand deposits.......... 128 129 168 168 171
Savings and money market deposit accounts 1,709 1,923 1,923 1,763 1,719
Other time deposits....................... 3,940 4,037 3,976 3,810 4,323
Funds borrowed............................ 1,312 1,226 1,304 1,353 1,309
Trust preferred interest expense.......... 485 485 485 485 485
------- ------- ------- ------- -------
Total interest expense................. 7,574 7,800 7,856 7,579 8,007
------- ------- ------- ------- -------
Net interest income....................... 12,997 11,813 10,443 9,980 8,364
Provision for loan losses................. 956 914 828 1,609 511
------- ------- ------- ------- -------
Net interest income after provision for
loan losses............................ 12,041 10,899 9,615 8,371 7,853
------- ------- ------- ------- -------
Non-interest income:
Banking, wealth management services and
other income........................... 2,701 1,975 1,763 1,802 1,542
Securities (losses) gains, net............ (55) (313) 280 274 (230)
Trading losses on swap................... (230) (282) (662) -- --
------- ------- ------- ------- -------
Total non-interest income.............. 2,416 1,380 1,381 2,076 1,312
------- ------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits............ 4,778 3,903 3,393 3,469 3,214
Occupancy expense, net.................... 1,419 1,319 1,227 1,206 1,139
Data processing........................... 393 393 433 374 308
Marketing................................. 486 557 351 374 365
Amortization of other intangibles......... 42 -- -- -- --
Professional fees......................... 1,284 774 997 1,027 891
Insurance................................. 168 137 118 106 93
Other expense................................ 849 851 569 557 462
------- ------- ------- ------- -------
Total non-interest expense................ 9,419 7,934 7,088 7,113 6,472
------- ------- ------- ------- -------
Minority Interest expense................. 38 -- -- -- --
Income before income taxes................ 5,000 4,345 3,908 3,334 2,693
------- ------- ------- ------- -------
Income tax provision...................... 1,397 1,125 875 724 549
------- ------- ------- ------- -------
Net income................................... $ 3,603 $ 3,220 $ 3,033 $ 2,610 $ 2,144
======= ======= ======= ======= =======
PER SHARE DATA:
Basic earnings............................... $ 0.47 $ 0.43 $ 0.41 $ 0.35 $ 0.29
Diluted earnings............................. 0.44 0.41 0.39 0.33 0.28
Dividends.................................... 0.040 0.027 0.027 0.020 0.020
Book value (at end of period)................ 12.29 11.56 10.71 9.71 8.80
All previously reported share and per share data has been
restated to reflect the 3-for-2 stock split which
occurred on January 17, 2003.
2
QUARTER ENDED
-------------------------------------------------------------
03/31/03 12/31/02 09/30/02 06/30/02 03/31/02
--------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL DATA (AT END OF PERIOD):
Total securities (1)......................... $505,877 $487,020 $403,192 $392,090 $388,728
Total loans.................................. 1,018,196 965,641 913,197 865,778 782,434
Total assets................................. 1,628,995 1,543,414 1,404,326 1,332,008 1,231,208
Total deposits............................... 1,365,344 1,205,271 1,163,327 1,074,475 981,865
Funds borrowed............................... 124,933 209,954 125,422 154,499 155,523
Trust preferred securities................... 20,000 20,000 20,000 20,000 20,000
Total stockholders' equity................... 95,373 89,092 79,281 71,697 64,926
Wealth management assets under management.... 1,204,239 1,239,779 693,869 733,939 758,242
Lodestar assets under management............. 501,276 481,904 -- -- --
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin(2) (8)............... 3.68% 3.56% 3.46% 3.53% 3.18%
Net interest spread(3).................... 3.53 3.37 3.27 3.34 2.96
Non-interest income to average assets..... 0.62 0.38 0.41 0.65 0.36
Non-interest expense to average assets.... 2.41 2.16 2.08 2.24 2.07
Net overhead ratio(4)..................... 1.80 1.78 1.68 1.59 1.71
Efficiency ratio (5)...................... 58.5 57.3 56.3 55.4 61.1
Return on average assets (6).............. 0.92 0.88 0.89 0.82 0.73
Return on average equity (7).............. 15.49 15.99 15.86 15.07 13.35
Dividend payout ratio..................... 8.62 6.14 6.51 5.66 6.88
Asset Quality Ratios:
Non-performing loans to total loans....... 0.35% 0.14% 0.33% 0.37% 0.37%
Allowance for loan losses to:
total loans............................ 1.22 1.20 1.17 1.14 1.12
non-performing loans................... 355 828 357 313 303
Net charge-offs (recoveries) to average
total loans............................ 0.03 (0.01) 0.04 0.24 0.01
Non-performing assets to total assets..... 0.22 0.09 0.21 0.24 0.24
Non-accrual loans to total loans.......... 0.15 0.08 0.05 0.07 0.19
Balance Sheet Ratios:
Loans to deposits......................... 74.6% 80.1% 78.5% 80.6% 79.7%
Average interest-earning assets to
average interest-bearing liabilities... 107.1 108.2 108.0 107.8 107.5
Capital Ratios:
Total equity to total assets.............. 5.85% 5.77% 5.65% 5.38% 5.27%
Total risk-based capital ratio............ 8.30 8.29 9.10 9.37 9.93
Tier 1 risk-based capital ratio........... 6.99 6.91 7.61 7.84 8.37
Leverage ratio............................ 5.27 5.47 5.91 6.07 6.25
- ------------------
(1) The entire securities portfolio was classified as "available-for-sale"
for the periods presented.
(2) Net interest income, on a tax-equivalent basis, divided by average
interest-earning assets.
(3) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(4) Non-interest expense less non-interest income divided by average total
assets.
(5) Non-interest expense divided by the sum of net interest income (tax
equivalent) plus non-interest income.
(6) Net income divided by average total assets.
(7) Net income divided by average common equity.
(8) The company adjusts GAAP reported net interest income by the tax
equivalent adjustment amount to account for the tax attributes on
federally tax exempt municipal securities. For GAAP purposes, tax
benefits associated with federally tax exempt municipal securities are
reflected in income tax expense. The following table reconciles
reported net interest income to net interest income on a tax equivalent
basis for the periods presented:
RECONCILIATION OF NET INTEREST INCOME TO NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
1Q03 4Q02 3Q02 2Q02 1Q02
--------------------------------------------------------------
Net interest income............................ $12,997 $11,813 $10,443 $9,980 $8,364
Tax equivalent adjustment to net interest
income....................................... 695 661 756 790 687
-------- ------- ------- ------- ------
Net interest income, tax equivalent basis $13,692 $12,474 $11,199 $10,770 $9,051
-------- ------- ------- ------- ------
3
PART I
ITEM 1. FINANCIAL STATEMENTS
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks................................. $ 46,643 $ 34,529 $ 25,852
Federal funds sold and other short-term investments..... 7,415 258 3,558
---------- ---------- ----------
Total cash and cash equivalents...................... 54,058 34,787 29,410
---------- ---------- ----------
Loans held for sale..................................... 12,591 14,321 1,785
Available-for-sale securities, at fair value............ 505,877 487,020 388,728
Loans, net of unearned discount......................... 1,018,196 965,641 782,434
Allowance for loan losses............................... (12,471) (11,585) (8,790)
---------- ---------- ----------
Net loans............................................... 1,005,725 954,056 773,644
---------- ---------- ----------
Goodwill and other intangibles.......................... 21,743 21,742 10,805
Premises and equipment, net............................. 6,516 6,851 4,026
Accrued interest receivable............................. 7,258 9,427 8,307
Other assets............................................ 15,227 15,210 14,503
---------- ---------- ----------
Total assets............................................ $1,628,995 $1,543,414 $1,231,208
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing.................................. $ 88,243 $ 88,986 $ 62,359
Interest-bearing..................................... 73,699 64,893 54,214
Savings and money market deposit accounts............... 476,100 488,941 369,811
Brokered deposits....................................... 387,006 279,806 278,918
Other time deposits..................................... 340,296 282,645 216,563
---------- ---------- ----------
Total deposits....................................... 1,365,344 1,205,271 981,865
Funds borrowed.......................................... 124,933 209,954 155,523
Trust preferred securities.............................. 20,000 20,000 20,000
Accrued interest payable................................ 3,779 4,986 2,812
Other liabilities....................................... 19,566 14,111 6,082
---------- ---------- ----------
Total liabilities....................................... 1,533,622 1,454,322 1,166,282
---------- ---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized............ -- -- --
Common stock, without par value, $1 stated value;
12,000,000 shares authorized; 7,762,014, 7,704,203,
and 7,375,530 shares issued and outstanding as of
March 31, 2003, December 31, 2002 and March 31,
2002, respectively................................... 7,762 7,704 7,376
Surplus................................................. 45,594 45,367 39,813
Retained earnings....................................... 31,076 27,784 19,465
Accumulated other comprehensive income.................. 11,403 8,826 31
Deferred compensation................................... (462) (589) (809)
Loans to officers....................................... -- -- (950)
---------- ---------- ----------
Total stockholders' equity.............................. 95,373 89,092 64,926
---------- ---------- ----------
Total liabilities and stockholders' equity.............. $1,628,995 $1,543,414 $1,231,208
========== ========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these statements. All previously reported
share and per share data has been restated to reflect
the 3-for-2 stock split which occurred on January 17, 2003.
4
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------
2003 2002
--------- --------
INTEREST INCOME
Loans, including fees........................................................ $15,167 $12,148
Taxable securities........................................................... 3,792 2,862
Securities exempt from federal income taxes.................................. 1,587 1,344
Federal funds sold and interest bearing deposits............................. 25 17
------- -------
Total interest income..................................................... 20,571 16,371
------- -------
INTEREST EXPENSE
Deposits:
Interest-bearing demand................................................... 128 171
Savings and money market deposit accounts................................. 1,709 1,719
Brokered deposits and other time deposits................................. 3,940 4,323
Funds borrowed............................................................... 1,312 1,309
Trust preferred securities................................................... 485 485
------- -------
Total interest expense.................................................... 7,574 8,007
------- -------
Net interest income.......................................................
12,997 8,364
Provision for loan losses.................................................... 956 511
------- -------
Net interest income after provision for loan losses....................... 12,041 7,853
------- -------
NON-INTEREST INCOME
Banking, wealth management services and other income...................... 2,701 1,542
Securities losses, net.................................................... (55) (230)
Trading losses, net....................................................... (230) --
------- -------
Total non-interest income.............................................. 2,416 1,312
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits............................................... 4,778 3,214
Occupancy expense, net....................................................... 1,419 1,139
Professional fees............................................................ 1,284 891
Amortization of other intangibles............................................ 42 --
Other non-interest expense................................................... 1,896 1,228
------- -------
Total non-interest expense................................................ 9,419 6,472
------- -------
Minority interest............................................................ 38 --
------- -------
Income before income taxes................................................... 5,000 2,693
------- -------
Income tax provision......................................................... 1,397 549
------- -------
Net income................................................................ $ 3,603 $ 2,144
======= =======
Basic earnings per share..................................................... $0.47 $0.29
Diluted earnings per share................................................... $0.44 $0.28
The accompanying notes to consolidated financial statements are
an integral part of these statements. All previously reported
share and per share data has been restated to reflect
a 3-for-2 stock split which occurred on January 17, 2003.
5
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
OTHER LOANS TOTAL
COMMON RETAINED COMPREHENSIVE DEFERRED TO STOCKHOLDERS'
STOCK SURPLUS EARNINGS INCOME COMPENSATION OFFICERS EQUITY
-------- ------- -------- ------------- ------------ -------- -------------
BALANCE, JANUARY 1,
2002 $7,206 $39,114 $17,468 $ 323 $ (857) $(950) $62,304
Net income............. -- -- 2,144 -- -- -- 2,144
Net decrease in fair
value of securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- (292) -- -- (292)
------ ------- ------ ------ ------- ----- ------
Total comprehensive
income.............. -- -- 2,144 (292) -- -- 1,852
------ ------- ------ ------ ------- ----- ------
Cash dividends
declared ($0.02 per
share).............. -- -- (147) -- -- -- (147)
Issuance of common
stock............... 530 699 -- -- -- -- 869
Awards granted......... -- -- -- -- (39) -- (39)
Amortization of
deferred
compensation........ -- -- -- -- 87 -- 87
Repayment of loans to
officers............ -- -- -- -- -- -- --
------ ------- ------- ------- ------- ----- ------
BALANCE, MARCH 31, 2002 $7,736 $39,813 $19,465 $ 31 $ (809) $(950) $64,926
====== ======= ======= ======= ======= ===== =======
BALANCE, JANUARY 1,
2003 $7,704 $45,367 $27,784 $ 8,826 $ (589) $-- $89,092
Net income............. -- -- 3,603 -- -- -- 3,603
Net increase in fair
value of securities
classified as
available-for-sale,
net of income taxes
and
reclassification
adjustments......... -- -- -- 2,577 -- -- 2,577
------ ------- ------ ------ ------- ----- ------
Total comprehensive
income.............. -- -- 3,603 2,577 -- -- 6,180
------ ------- ------ ------ ------- ----- ------
Cash dividends
declared ($0.04 per
share).............. -- -- (311) -- -- -- (311)
Issuance of common
stock............... 58 227 -- -- -- -- 285
Awards granted and
forfeited........... -- -- -- -- 119 -- 119
Amortization of
deferred
compensation........ -- -- -- -- 8 -- 8
------ ------- ------- ------- ------- ----- -------
BALANCE, MARCH 31, 2003 $7,762 $45,594 $31,076 $11,403 $(462) $ -- $95,373
====== ======= ======= ======= ======= ===== =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
All previously reported share and per
share data has been restated to
reflect the 3-for-2 stock split which
occurred on January 17, 2003.
6
PRIVATEBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 3,603 $ 2,144
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization............................................... 408 289
Johnson Bank Illinois purchase accounting fair value accretion, net......... (89) (73)
Amortization of deferred compensation, net of forfeitures................... 8 87
Provision for loan losses................................................... 956 511
Net losses on sale of securities............................................ 55 230
Trading losses on interest rate swap........................................ 230 --
Net proceeds on loans held for sale......................................... 1,729 9,550
Decrease in deferred loan fees.............................................. (132) (75)
Decrease (increase) in accrued interest receivable.......................... 2,169 (1,045)
(Decrease) increase in accrued interest payable............................. (1,207) 700
(Increase) decrease in other assets......................................... (5,511) 813
Increase (decrease) in other liabilities.................................... 9,585 (4,288)
-------- --------
Total adjustments........................................................... 8,201 6,699
-------- --------
Net cash provided by operating activities................................... 11,804 8,843
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, paydowns, and sales of securities.................... 13,232 31,366
Purchase of securities available-for-sale...................................... (28,468) (87,834)
Net loan principal advanced ................................................... (52,403) (1,567)
Investment in Lodestar Investment Counsel, LLC ................................ 36 --
Premises and equipment expenditures............................................ (86) (479)
-------- --------
Net cash used in investing activities....................................... (67,689) (58,514)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits................................................. 160,084 131,374
Proceeds from exercise of stock options........................................ 404 830
Dividends paid................................................................. (311) (147)
Net decrease in funds borrowed................................................. (85,021) (75,777)
-------- --------
Net cash provided by financing activities................................... 75,156 56,280
-------- --------
Net increase in cash and cash equivalents...................................... 19,271 6,609
Cash and cash equivalents at beginning of year................................. 34,787 22,801
-------- --------
Cash and cash equivalents at end of period..................................... $ 54,058 $ 29,410
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
All previously reported share and per
share data has been restated to
reflect the 3-for-2 stock split which
occurred on January 17, 2003.
7
PRIVATEBANCORP, INC. AND SUBSIDIARIES
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial information of PRIVATEBANCORP, Inc. (the
"Company") and its subsidiaries, The PrivateBank and Trust Company (the "Bank"
or "The PrivateBank (Chicago)") and The PrivateBank (St. Louis), included herein
is unaudited; however, such information reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation for the interim periods. The financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X.
The annualized results of operations for the three months ended March
31, 2003 are not necessarily indicative of the results expected for the full
year ending December 31, 2003. The accompanying consolidated financial
statements are unaudited and do not include information or footnotes necessary
for a complete presentation of financial condition, results of operations, or
cash flows in accordance with generally accepted accounting principles. The
March 31, 2003 consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes for the year ended December
31, 2002 included in the Company's Annual Report on Form 10-K (File No.
000-25887).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expense during the reported
period. Actual results could differ from these estimates.
Certain reclassifications have been made to prior periods' consolidated
financial statements to place them on a basis comparable with the current
period's consolidated financial statements.
Pursuant to FAS No. 148, Accounting for Stock-Based Compensation (FAS
No. 148), pro forma net income and pro forma earnings per share are presented in
the following table as if the fair value method of accounting for stock-based
compensation plans had been utilized.
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
(DOLLARS IN THOUSANDS)
Net income--
As reported............................ $3,603 $2,144
Pro forma.............................. 3,576 2,030
Basic earnings per share--
As reported............................ $0.47 $0.29
Pro forma.............................. 0.47 0.27
Diluted earnings per share--
As reported............................ $0.44 $0.28
Pro forma.............................. 0.44 0.27
Note: The pro forma results above may not be representative of the effect
reported in net income for future years.
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 made in 2002: dividend yield of 0.35%;
risk-free interest rate of 5.07%; expected lives of 10 years for the Stock
Incentive Plan options, for the compensation replacement options and for the
various director options;
8
and expected volatility of approximately 50%. No stock option grants have been
made in 2003 as of the date of the filing of this report.
NOTE 2 -- EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings
per share (in thousands except per share data):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
-------- --------
Net Income......................................... $ 3,603 $ 2,144
Average common shares outstanding.................. 7,601 7,287
Average common shares equivalent(1)................ 541 326
------- -------
Weighted average common shares and common share
equivalents..................................... 8,142 7,613
======= =======
Net income per average common share - basic........ $ 0.47 $ 0.29
Net income per average common share - diluted...... $ 0.44 $ 0.28
- ------------------
(1) Common shares equivalent result from stock options being treated as if
they had been exercised and are computed by application of the treasury
stock method.
NOTE 3 - NEW ACCOUNTING STANDARDS
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others. This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies that a guarantor is required to recognize, at the inception of the
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
the Company as of December 31, 2002, and require disclosure of the nature of the
guarantee, the maximum potential amount of future payments that the guarantor
could be required to make under the guarantee, and the current amount of the
liability, if any, for the guarantor's obligations under the guarantee. The
recognition requirements of FIN 45 are to be applied prospectively to guarantees
issued or modified after December 31, 2002. Significant guarantees that have
been entered into by the Company are disclosed in Note 14 to the audited
consolidated financial statements included in our report on Form 10-K for the
year ended December 31, 2002.
In December 2002, the FASB issued FAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure (FAS No. 148), which
provides guidance on how to transition from the intrinsic value method of
accounting for stock-based employee compensation under APB No. 25 to FAS No.
123's fair value method of accounting, if a company so elects. The statement
also amends the disclosure provisions of FAS No. 123 and APB No. 25 to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While FAS No. 148 does not amend FAS No. 123 to require companies to
account for employee stock options using the fair value method, the disclosure
provisions of FAS No. 148 are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of FAS No. 123 or the intrinsic value method of APB
No. 25. Although the recognition provisions of FAS No. 148 are not applicable to
the Company at this time, as it continues to account for
9
stock-based compensation using the intrinsic value method, the Company has
provided the required disclosures in Note 1 to these consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, noncontrolling
interest, and results of operations of a VIE need to be included in a company's
consolidated financial statements. Because the Company does not have any
interest in VIEs, the Company does not expect the adoption of FIN 46 to have a
material impact on its results of operations, financial position, or liquidity.
NOTE 4 - OPERATING SEGMENTS
For purposes of making operating decisions and assessing performance,
management regards The PrivateBank (Chicago), The PrivateBank (St. Louis),
Wealth Management and the Holding Company as four operating segments. The
Company's investment portfolios are included in total assets and reported in the
results of The PrivateBank (Chicago) and The PrivateBank (St. Louis). 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.
THE PRIVATEBANK (CHICAGO)
The PrivateBank (Chicago), through its main office located in downtown
Chicago as well as six full-service Chicago suburban locations, provides
personal and commercial banking services primarily to affluent individuals,
professionals, entrepreneurs and their business interests.
The PrivateBank (Chicago)'s commercial lending products include lines
of credit for working capital, term loans for equipment and letters of credit to
support the commitments made by its clients. Non-credit products include
lock-box, cash concentration accounts, merchant credit card processing,
electronic funds transfer, other cash management products and insurance. The
PrivateBank (Chicago) offers a full range of real estate lending products
including fixed and floating rate permanent and mini-permanent mortgages,
construction and commercial real estate loans. Personal loans include
installment loans and lines of credit, home equity loans and a wide variety of
home mortgage loans.
Individual banking services include interest bearing checking, money
market accounts, certificates of deposit, ATM/debit cards and investment
brokerage accounts. Additionally, The PrivateBank (Chicago) offers secured and
unsecured personal loans and lines of credit. Through The PrivateBank
(Chicago)'s affiliations with Mesirow Financial, Inc. and Sterling Investment
Services, Inc., clients have access to insurance products and securities
brokerage services. The PrivateBank (Chicago) also offers domestic and
international wire transfers and foreign currency exchange. During the second
quarter of 2002, the PrivateBank (Chicago) introduced an Index Powered
Certificate of Deposit product ("IPCD") with a five-year term. This non-fee
based, FDIC-insured product is a five-year certificate of deposit with a yield
based on the performance of the S&P 500. The PrivateBank (Chicago) balance sheet
reflects the goodwill and intangibles of $21.7 million at March 31, 2003, which
remained relatively flat compared to December 31, 2002 balances.
10
THE PRIVATEBANK (CHICAGO)
-----------------------------
MARCH 31,
-----------------------------
2003 2002
------------ ------------
(IN THOUSANDS)
Total gross loans.................. $ 903,579 $ 701,105
Total assets....................... 1,459,706 1,134,858
Total deposits..................... 1,216,101 915,111
Total borrowings................... 93,697 120,523
Total capital...................... 130,599 88,869
Net interest income................ 10,601 8,035
Net income......................... 4,153 2,666
THE PRIVATEBANK (ST. LOUIS)
The PrivateBank (St. Louis), through its main office located in St.
Louis, Missouri, provides personal and commercial banking services primarily to
affluent individuals, professionals, entrepreneurs and their business interests.
The PrivateBank (St. Louis) offers a full range real estate lending
products including fixed and floating rate permanent and mini-permanent
mortgages and construction loans. Personal loans include installment loans and
lines of credit, home equity loans and a wide variety of home mortgage loans.
Commercial lending products provided by The PrivateBank (St. Louis) include
lines of credit for working capital, term loans for equipment and letters of
credit to support the commitments made by its clients. Non-credit products
include lock-box, cash concentration accounts, merchant credit card processing,
electronic funds transfer, other cash management products and insurance.
Individual banking services include interest bearing checking, money market
deposit accounts, certificates of deposit, ATM/debit cards and investment
brokerage accounts. The PrivateBank (St. Louis) also offers domestic and
international wire transfers and foreign currency exchange.
THE PRIVATEBANK (ST. LOUIS)
---------------------------
MARCH 31,
---------------------------
2003 2002
--------- --------
(IN THOUSANDS)
Total gross loans................... $116,559 $82,278
Total assets........................ 180,177 96,661
Total deposits...................... 151,293 66,807
Total borrowings.................... 12,486 21,000
Total capital....................... 13,987 8,249
Net interest income................ 1,012 890
Net income.......................... 390 122
WEALTH MANAGEMENT
Wealth Management includes investment management, personal trust and
estate services, custodial services, retirement accounts and brokerage and
investment services. Investment management professionals work with wealth
management clients to define objectives, goals and strategies of the clients'
investment portfolios. Wealth Management personnel assist trust clients with the
selection of an outside portfolio manager to direct account investments. Trust
and estate account administrators work with clients and their attorneys to
establish estate plans. Consistent with the Company's philosophy, Wealth
Management emphasizes a high level of personal service, including prompt
collection and
11
reinvestment of interest and dividend income, weekly valuation, tracking of tax
information, customized reporting and ease of security settlement.
On December 30, 2002, The PrivateBank (Chicago) acquired a controlling
interest in Lodestar Investment Counsel LLC, a Chicago-based investment adviser
with $501.3 million of assets under management at March 31, 2003. Lodestar
manages equity, balanced, and fixed income accounts primarily for high net-worth
individuals, retirement plans and charitable organizations with investable
assets generally in excess of $1.0 million, and emphasizes highly personalized
client service.
WEALTH MANAGEMENT
----------------------------
MARCH 31,
----------------------------
2003 2002
---------- ---------
(IN THOUSANDS)
Wealth management assets under
management....................... $1,204,239 $758,242
Trust fee revenue................... 759 724
Lodestar assets under management
revenue.......................... 726 --
Net income.......................... 75 123
The following table indicates the breakdown of our wealth management
assets under management at March 31, 2003 by account classification and related
gross revenue for the three months ended March 31, 2003:
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, 2003
---------------------------
MARKET VALUE REVENUE
------------ -------
ACCOUNT TYPE (IN THOUSANDS)
------------
Personal trust--managed.............. $ 592,433 $ 889
Agency--managed...................... 172,455 280
Custody............................. 338,391 261
Employee benefits--managed........... 100,960 55
---------- ------
Total............................ $1,204,239 $1,485
========== ======
HOLDING COMPANY ACTIVITIES
Holding Company Activities consist of parent company only matters. The
Holding Company's most significant assets are its net investments in its two
banking subsidiaries, The PrivateBank (Chicago) and The PrivateBank (St. Louis).
During the first quarter 2002, in connection with the issuance of $20.0 million
of 9.50% trust preferred securities, the Holding Company issued $20.0 million of
subordinated debentures which are accounted for as long-term debt and also
qualify as Tier 1 and Tier 2 capital (see note 9). The Tier 1 qualifying amount
is limited to 25% of Tier 1 capital under Federal Reserve regulations. The
excess amount qualifies as Tier 2 capital. Holding Company Activities are
reflected primarily by interest expense on borrowings and operating expenses.
Recurring holding company operating expenses consist of compensation
(amortization of restricted stock awards, other salary expense) and
miscellaneous professional fees. In May of 2002, PrivateBancorp, Inc. acquired
an office building located in St. Charles, Illinois, for $1.8 million from Towne
Square Realty. The St. Charles location of The PrivateBank (Chicago) continues
to lease space in the building and pays rent to the Holding Company at the same
terms and conditions as was paid to the prior owner.
12
HOLDING COMPANY ACTIVITIES
--------------------------
MARCH 31,
--------------------------
2003 2002
-------- --------
(IN THOUSANDS)
Total assets....................... $149,311 $98,643
Total borrowings................... 33,750 14,000
Long-term debt - trust preferred
securities...................... 20,000 20,000
Interest expense................... 758 565
Total capital...................... 95,373 64,926
Net loss........................... (1,015) (767)
The following table reconciles the differences between the sum of the
reportable segments and the reported consolidated balance of total assets:
TOTAL ASSETS
----------------------------
MARCH 31,
----------------------------
2003 2002
----------- -----------
(IN THOUSANDS)
Sum of reportable segments.......... $1,789,194 $1,330,162
Adjustments......................... (160,199) (98,954)
---------- ----------
Consolidated PrivateBancorp, Inc.... $1,628,995 $1,231,208
========== ==========
The adjustments to total assets presented in the table above represent
the elimination of the net investment in banking subsidiaries in consolidation,
the elimination of the Company's cash that is maintained in a subsidiary bank
account, the elimination of fed funds purchased and sold between Chicago and St.
Louis, the reclassification of the unearned discount of loans and the
reclassification related to current and deferred taxes.
NOTE 5 -- ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments
as of March 31, 2003 have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 2002.
13
NOTE 6 -- OTHER COMPREHENSIVE INCOME
Change in the fair value of securities available-for-sale is presented
on a net basis on the Consolidated Statement of Changes in Stockholders' Equity.
The following table discloses the changes in other accumulated comprehensive
income for the three months ended March 31, 2003 and 2002, on a gross basis (in
thousands):
MARCH 31, 2003
-------------------------------------------
BEFORE NET OF
TAX TAX TAX
AMOUNT BENEFIT AMOUNT
-------- ------- ------
Unrealized gains on securities available-for-sale--
Unrealized holding gains, net..................... $ 3,850 $ 1,309 $ 2,541
Less: reclassification adjustment for net
losses, included in net income................. (55) (19) (36)
------- ------- -------
Unrealized gains, net............................. $ 3,905 $ 1,328 $ 2,577
======= ======= =======
MARCH 31, 2002
-------------------------------------------
BEFORE NET OF
TAX TAX TAX
AMOUNT BENEFIT AMOUNT
-------- ------- ------
Unrealized losses on securities
available-for-sale--
Unrealized holding losses, net.................... $ (597) $ (122) $ (475)
Less: reclassification adjustment for net gain
included in net income......................... (230) (47) (183)
------ -------- ------
Unrealized losses, net............................ $ (367) $ (75) $ (292)
====== ======== ======
14
NOTE 7 -- FUNDS BORROWED
A summary of all funds borrowed and outstanding at March 31, 2003,
December 31, 2002 and March 31, 2002 is presented in the table below:
FUNDS BORROWED: CURRENT RATE MATURITY 3/31/03 12/31/02 3/31/02
Subordinated note 3.35% 02/11/07 $ 5,000 $ 5,000 $ 5,000
FHLB fixed advance (1) 6.50% 10/23/05 26,648 26,616 24,698
FHLB fixed advance 1.61% 01/16/04 1,000 -- --
FHLB fixed advance 6.21% 12/05/03 30,000 30,000 30,000
FHLB fixed advance 1.73% 11/07/03 6,000 6,000 --
FHLB fixed advance 2.21% 07/17/03 1,000 1,000 --
FHLB fixed advance 2.74% 07/17/03 1,000 1,000 1,000
FHLB fixed advance 2.46% 06/16/03 500 500 --
FHLB fixed advance 2.70% 05/08/03 1,000 1,000 --
Borrowing under revolving line of credit
facility 3.50% 04/11/03 28,750 25,000 9,000
FHLB fixed advance 2.98% 03/10/03 -- 1,000 1,000
FHLB fixed advance 2.38% 01/13/03 -- 1,000 1,000
FHLB fixed advance 5.89% 12/20/02 -- -- 1,000
FHLB fixed advance 2.39% 11/12/02 -- -- 5,000
FHLB fixed advance 5.33% 07/22/02 -- -- 1,000
FHLB fixed advance 5.91% 06/21/02 -- -- 500
FHLB fixed advance 4.21% 05/13/02 -- -- 1,000
FHLB open line advance 1.48% daily -- 9,700 --
Fed funds purchased 1.56% daily 9,000 98,000 69,000
Demand repurchase agreements(2) 1.25% daily 15,035 4,138 6,325
-------- -------- --------
TOTAL FUNDS BORROWED $124,933 $209,954 $155,523
======== ======== ========
- -----------------------------------------------------------------------------------------------------------------
(1) This FHLB advance is subject to a fair value hedge utilizing an interest
rate swap with a fair value of $2.8 million at March 31, 2003. The
contractual par amount on the advance is $25.0 million.
(2) Demand repurchase agreements are a form of retail repurchase agreement
offered to certain clients of The PrivateBank. Funds are swept each
business day from the client's demand deposit account. These amounts are
not deposits and are not insured, but are secured by a pool of securities
pledged specifically for this purpose.
In February 2002, the Company renewed the term on an $18.0 million
revolving credit facility with a commercial bank originally entered into in
February 2000. On April 11, 2002, the loan agreement was amended and the
revolving line was increased to $25.0 million. On December 24, 2002, the loan
agreement was amended to increase the revolving line to $35.0 million and to
extend the maturity to December 1, 2003. The interest rate on borrowings under
this revolving line resets quarterly, and is based on, at our option, either the
lender's prime rate or three-month LIBOR plus 120 basis points with a floor of
3.50%. The Company has elected to pay interest based on the three-month LIBOR
rate plus 120 basis points. The initial rate of interest on the revolver was
7.20%, and most recently reset to 3.50% on March 1, 2003. The collateral for
this borrowing consists of the common stock of The PrivateBank (Chicago) and The
PrivateBank (St. Louis), which is held in custody by the lender. As of March 31,
2003, the outstanding balance on the revolving credit facility was $28.8
million.
In February 2000, the Company issued a subordinated note, in the
principal amount of $5.0 million as part of the purchase price for its
acquisition of Johnson Bank Illinois. The interest on the subordinated note is
reset each quarter based on the three-month LIBOR rate. The note is payable in
full on or before February 11, 2007, and provides for certain rate escalation
beginning after February 11, 2002. On February 11, 2002, the interest rate
increased from LIBOR +50 basis points to LIBOR +200
15
basis points. This pricing is in effect until February 11, 2004, at which point
the pricing increases to LIBOR +350 until maturity on February 11, 2007. The
average rate of interest on the subordinated note was 3.51% during the first
quarter of 2003 compared to 3.27% during 2002 and most recently reset to 3.35%
on February 11, 2003. The Company has the right to repay the subordinated note
at any time after giving at least 30 days, but not more than 60 days advance
notice.
NOTE 8 -- LONG TERM DEBT -- TRUST PREFERRED SECURITIES
Effective February 8, 2001, PrivateBancorp Capital Trust I, a newly
created Delaware business trust and wholly-owned finance subsidiary of the
Company, issued 2,000,000 shares (including the underwriters' over-allotment) of
9.50% trust preferred securities, which represent preferred undivided interests
in the assets of the trust. The sole assets of the trust are 9.50% junior
subordinated debentures issued by the Company with a maturity date of December
31, 2030.
Subject to certain limitations, the Company has the right to defer
payment of interest on the debentures at any time, or from time to time, for a
period not to exceed 20 consecutive quarters. The trust preferred securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
debentures at maturity or their earlier redemption. At the option of the
Company, the debentures may be redeemed in whole or in part prior to maturity on
or after December 31, 2005, if certain conditions are met, and only after the
Company has obtained Federal Reserve approval, if then required under applicable
guidelines or regulations.
The Company has guaranteed the payment of distributions and payments
upon liquidation or redemption of the trust preferred securities, in each case
to the extent of funds held by the trust. The Company and the trust believe
that, taken together, the obligations of the Company under the guarantee, the
debentures and other related agreements provide, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of all of the
obligations of the trust under the trust preferred securities.
The trust preferred securities are recorded as a liability of the
Company. The aggregate principal amount of the trust preferred securities
outstanding is $20 million. As of March 31, 2003, the entire amount of the
preferred securities is eligible for treatment as Tier I capital as allowed by
the Federal Reserve. At March 31, 2003, the unamortized balance of the
underwriting commissions paid and offering expenses was $1.1 million and is
classified as part of other assets on the balance sheet. This amount is being
amortized on a straight-line basis until maturity at $9,764 per quarter. The
amortization is recognized as interest expense on the income statement. In the
event the Company exercises its right to redeem the securities prior to
maturity, any unamortized commissions would be expensed upon redemption.
NOTE 9 -- SUBSEQUENT EVENT
In April 2003, The PrivateBank Chicago suffered a potential loss of
$400,000 in a check fraud scheme involving a new account deposit. The Company
expects to recoup the majority of the loss through insurance and will record a
second quarter pretax charge of $150,000, the amount of the insurance
deductible. Upon discovery of the fraud shortly after its occurrence, the
Company took steps to avoid further loss relating to the account and as a result
was able to assist law enforcement officials in apprehending one of the
perpetrators. Based on its investigation of the incident, the Bank is in the
process of implementing enhancements to its procedures designed to improve fraud
prevention efforts relating to new accounts.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PrivateBancorp, Inc. ("the Company") was organized as a Delaware
corporation in 1989 to serve as the holding company for a Chicago-based de novo
bank designed to provide highly personalized financial services primarily to
affluent individuals, professionals, entrepreneurs and their business interests.
Through the Company's banking subsidiaries, The PrivateBank and Trust Company
("The PrivateBank (Chicago)") and The PrivateBank (St. Louis), the Company
provides its clients with traditional personal and commercial banking services,
lending programs, and wealth management services. Using the European tradition
of "private banking" as the model, the Company strives to develop a unique
relationship with clients, utilizing a team of managing directors to serve the
clients' individual and corporate banking needs, and tailoring products and
services to meet such needs. Currently, the Company has seven Chicago-area
offices: Downtown Chicago, Wilmette, Oak Brook, St. Charles, Lake Forest,
Winnetka, and Geneva, Illinois. During 2000, the Company expanded to the St.
Louis market where it opened a new federal savings bank, The PrivateBank (St.
Louis). Currently, the Company operates one location in the St. Louis market.
Managing directors are strategically located at all of these locations. On
December 30, 2002, The PrivateBank (Chicago) acquired a controlling interest in
Lodestar Investment Counsel, LLC, a Chicago-based investment adviser with $501.3
million of assets under management at March 31, 2003. Lodestar manages equity,
balanced, and fixed income accounts primarily for high net-worth individuals,
retirement plans and charitable organizations with investable assets generally
in excess of $1.0 million, and shares a similar focus on highly personalized
client service.
For financial information regarding the Company's four separate lines
of business, The PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth
Management and Holding Company Activities, see "Note 4 -- Operating Segments" to
the unaudited consolidated financial statements of the Company included in this
report.
The profitability of our operations depends on our net interest income,
provision for loan losses, non-interest income, and non-interest expense. Net
interest income is dependent on the amounts and yields of interest-earning
assets as compared to the amounts and rates on interest-bearing liabilities. Net
interest income is sensitive to changes in market rates of interest as well as
to the execution of our asset/liability management strategy. The provision for
loan losses reflects the cost of credit risk in the loan portfolio and is
affected by changes in the loan portfolio, management's assessment of the
collectability of the loan portfolio, loss experience, as well as economic and
market factors.
Non-interest income consists primarily of net security gains (losses)
and wealth management fee income, and to a lesser extent, fees for ancillary
banking services. Non-interest income from fees and deposit service charges are
below peer group levels. This is largely the result of the profile of our
typical client. Our clients tend to have larger deposit account balances than
customers of traditional banks. Because average balances tend to be high, we do
not earn the high service charge income typical of many retail banks.
Non-interest expense includes salaries and employee benefits as well as
occupancy, data processing, marketing, professional fees, insurance and other
expenses. Non-interest expenses are influenced by the growth of operations. Our
growth directly affects the majority of our expense categories.
17
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require
management to apply significant judgment to various accounting, reporting and
disclosure matters. Management must use assumptions and estimates to apply these
principles where actual measurements are not possible or practical. The
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our unaudited consolidated
financial statements included herein. For a complete discussion of our
significant accounting policies, see the footnotes to our Consolidated Financial
Statements included on pages F-8 through F-13 in our Form 10-K for the fiscal
year ended December 31, 2002 (Commission file number 000-25887). Below is a
discussion of our critical accounting policies. These policies are critical
because they are highly dependent upon subjective or complex judgments,
assumptions and estimates. Changes in such estimates may have a significant
impact on the financial statements. Actual results could differ from those
estimates. Management has reviewed the application of these policies with the
Audit Committee of the Company's Board of Directors.
For PrivateBancorp, Inc., accounting policies that are viewed as
critical to us are those relating to estimates and judgments regarding the
determination of the adequacy of the reserve for loan losses and the estimation
of the valuation of goodwill and the useful lives applied to intangible assets.
ALLOWANCE FOR LOAN LOSSES
We maintain an allowance for loan losses at a level management believes
is sufficient to absorb credit losses inherent in our loan portfolio. The
allowance for loan losses represents our estimate of probable losses in the
portfolio at each balance sheet date and is based on review of available and
relevant information. The allowance contains provisions for probable losses that
have been identified relating to specific borrowing relationships as well as
probable losses inherent in our loan portfolio and credit undertakings that are
not specifically identified. Our allowance for probable loan losses is
reassessed monthly to determine the appropriate level of the reserve. The amount
of the allowance for loan losses is determined based on a variety of factors,
including assessment of the credit risk of the loans in the portfolio, volume of
loans and commitments in the portfolio, delinquent loans, evaluation of current
economic conditions in the market area, actual charge-offs during the period and
historical loss experience. The unallocated portion of the reserve involves the
exercise of judgment by management and reflects various considerations,
including management's view that the reserve should have a margin that
recognizes the imprecision inherent in the process of estimating credit losses.
Management adjusts the allowance for loan losses by recording a
provision for loan losses in an amount sufficient to maintain the allowance at
the level determined appropriate. Loans are charged-off when deemed to be
uncollectible by management. We believe that the allowance for loan losses is
adequate to provide for estimated probable credit losses inherent in our loan
portfolio. The allowance for loan losses as a percentage of total loans was
1.22% as of March 31, 2003 compared to 1.20% as of December 31, 2002.
GOODWILL AND INTANGIBLE ASSETS
During 2001, the PrivateBank (Chicago) recorded approximately $12.2
million in goodwill in connection with the Johnson Bank Illinois acquisition.
During 2002, the Company recorded $8.4 million of goodwill and $2.5 million in
customer intangibles in connection with the Lodestar Investment Counsel LLC
acquisition. Intangible assets are amortized over an estimated useful life of 15
years. Effective January 1, 2002, the Company adopted FAS No. 142, which
requires that goodwill and intangible assets that have indefinite lives no
longer be amortized but be reviewed for impairment annually, or more frequently
if certain indicators arise. Prior to the adoption of FAS No. 142, goodwill was
being amortized using the straight-line method over a period of 15 years. The
Company did not incur any goodwill impairment in 2002 in adopting FAS 142. An
annual impairment test of goodwill is performed each year by the Company.
Impairment losses on recorded goodwill will be recorded as operating expenses.
18
Goodwill at March 31, 2003 was $ 21.7 million compared to a similar
amount of $21.7 million at December 31, 2002. The acquisition of Lodestar
Investment Counsel, LLC on December 30, 2002, increased goodwill by $ 8.4
million and Lodestar customer intangible assets by $2.5 million. Amortization
expense related to the Lodestar customer intangible assets is expected to be
recorded in the amount of $167,000 each year for 15 years.
19
RESULTS OF OPERATIONS -THREE MONTHS ENDED MARCH 31, 2003 AND 2002
NET INCOME
Net income for the first quarter ended March 31, 2003, was $3.6
million, up 68% compared to first quarter 2002 net income of $2.1 million.
Earnings per diluted share increased 57% to $0.44 per diluted share in the first
quarter 2003 compared to $0.28 per diluted share in the first quarter 2002. The
improvement in earnings per diluted share in the first quarter 2003 as compared
to the prior year first quarter reflects improvements in net interest income and
non-interest income, which grew at a higher rate than non-interest expenses. The
acquisition of Lodestar Investment Counsel, LLC in December 2002 contributed to
higher non-interest income.
NET INTEREST INCOME
Net interest income is the difference between interest income and fees
on earning assets and interest expense on deposits and borrowings. Net interest
margin represents net interest income on a tax equivalent basis as a percentage
of average earning assets during the period. Net interest margin reflects the
spread between average yields earned on interest earning assets and the average
rates paid on interest bearing deposits and borrowings. Interest income includes
amortization of loan origination fees recorded from loans. Interest expense
includes amortization of prepaid fees on brokered deposits and issuance costs of
trust preferred securities. The volume of non-interest bearing funds, largely
comprised of demand deposits and capital, also affects the net interest margin.
Net interest income was $13.0 million during the three months ended
March 31, 2003 compared to $8.4 million for the first quarter 2002, an increase
of 55%. Average earning assets during the first quarter 2003 were $1.5 billion,
compared to $1.1 billion in the prior year quarter, an increase of 31%. Compared
to fourth quarter 2002, average earning assets increased by $110.3 million, or
8% during the first quarter of 2003. Average earning loans during the first
quarter 2003 increased to $1.0 billion compared to $946.8 million during the
fourth quarter of 2002. Net interest margin (on a tax equivalent basis) was
3.68% in the first quarter 2003, up from 3.18% in the prior year first quarter
and 3.56% in the fourth quarter of 2002. The improvement in net interest margin
compared to the fourth quarter 2002 is primarily attributable to continued
reductions in the rate paid on interest bearing liabilities, which more than
offset lower interest earning asset yields in a modestly lower rate environment.
A changing interest rate environment has an effect on our net interest
margin. A large portion of our loan portfolio is based on floating interest
rates and will likely reprice faster than our deposits and floating rate
borrowings. For the remainder of 2003, we expect our net interest margin to
improve if market interest rates increase relative to 2002 levels.
Alternatively, if market interest rates decrease, we expect our net interest
margin to continue to experience pressure.
20
The following tables present a summary of our net interest income and
related net interest margin, calculated on a tax equivalent basis (dollars in
thousands):
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------
2003 2002
----------------------------------- ------------------------------------
AVERAGE AVERAGE
BALANCE(1) INTEREST RATE BALANCE INTEREST RATE
----------- --------- ---- ---------- -------- ----
Fed funds sold and other
short-term investments......... $ 11,833 $ 25 0.85% $ 3,737 $ 17 1.79%
Investment securities (taxable)... 351,486 3,792 4.35% 243,782 2,863 4.73%
Investment
securities(non-taxable) (2).... 128,942 2,282 7.08% 109,831 2,031 7.40%
Loans, net of unearned
discount(3)....................... 1,000,312 15,167 6.10% 781,059 12,147 6.26%
---------- -------- ---------- --------
Total earning assets.............. $1,492,573 $ 21,266 5.73% $1,138,409 $ 17,058 6.02%
========== ======== ========== ========
Interest-bearing deposits......... $1,181,714 $ 5,777 1.98% $ 902,915 $ 6,213 2.79%
Funds borrowed.................... 191,897 1,312 2.73% 135,979 1,309 3.85%
Trust preferred securities........ 20,000 485 9.70% 20,000 485 9.70%
---------- -------- ---------- --------
Total interest-bearing liabilities $1,393,611 7,574 2.20% $1,058,894 8,007 3.06%
========== -------- ========== --------
Tax equivalent net interest income $ 13,692 $ 9,051
======== ========
Net interest spread (4)........... 3.53% 2.96%
Net interest margin (5) (6)....... 3.68% 3.18%
- ------------------
(1) Average balances were generally computed using daily balances.
(2) Interest income on tax-advantaged investment securities reflects a tax
equivalent adjustment based on a marginal federal corporate tax rate of
34%. The total tax equivalent adjustment reflected in the above table
is approximately $695,428 and $687,109 in the first quarters of 2003
and 2002, respectively.
(3) Nonaccrual loans are included in the average balances and do not have a
material effect on the average yield. Interest due on non-accruing
loans was not material for the periods presented.
(4) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(5) Net interest income, on a tax-equivalent basis, divided by average
interest-earning assets.
(6) The company adjusts GAAP reported net interest income by the tax
equivalent adjustment amount to account for the tax attributes on
federally tax exempt municipal securities. For GAAP purposes, tax
benefits associated with federally tax-exempt municipal securities are
reflected in income tax expense. The following table reconciles
reported net interest income to net interest income on a tax equivalent
basis for the periods presented:
RECONCILIATION OF NET INTEREST INCOME TO
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
1Q03 1Q02
--------- --------
Net interest income............................ $ 12,997 $ 8,364
Tax equivalent adjustment to net interest
income........................................ 695 687
--------- --------
Net interest income, tax equivalent basis $ 13,692 $ 9,051
--------- --------
The following table shows the dollar amount of changes in interest
income (tax-equivalent) and interest expense by major categories of
interest-earning assets and interest-bearing liabilities attributable to changes
in volume or rate, or a mix of both, for the periods indicated. Volume variances
are computed using the change in volume multiplied by the previous period's
rate. Rate variances are computed using the changes in rate multiplied by the
previous period's volume.
21
THREE MONTHS ENDED MARCH 31, 2003
COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
CHANGE CHANGE CHANGE
DUE TO DUE TO DUE TO TOTAL
RATE VOLUME MIX CHANGE
(DOLLARS IN THOUSANDS)
INTEREST INCOME/ EXPENSE FROM:
Fed funds sold and other short-term
investments........................ $ (9) $ 36 $ (19) $ 8
Investment securities (taxable)....... (228) 1,256 (98) 930
Investment securities (non-taxable)(1) (87) 349 (11) 251
Loans, net of unearned discount....... (308) 3,384 (57) 3,019
------- ------- ------ ------
Total tax equivalent interest
income (1)...................... (632) 5,025 (185) 4,208
------- ------- ------ ------
Interest-bearing deposits............. (1,803) 1,918 (551) (436)
Funds borrowed........................ (376) 531 (152) 3
Trust Preferred Securities............ -- -- -- --
------- ------- ------ ------
Total interest expense............. (2,179) 2,449 (703) (433)
------- ------- ------ ------
Net tax equivalent interest income
(1)................................ $ 1,547 $ 2,576 $ 518 $4,641
======= ======= ====== ======
(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 $695,428 and $687,109 in the first quarters of 2003
and 2002, respectively.
PROVISION FOR LOAN LOSSES
Our provision for loan losses was $956,000 for the first quarter of
2003, compared to $511,000 for the comparable period in 2002. Net charge-offs
totaled $70,000 in the quarter ended March 31, 2003 versus net recoveries of
$29,000 in the fourth quarter 2002 and net charge-offs of $27,000 for the
quarter ended March 31, 2002.
A discussion of the allowance for loan losses and the factors
management considers in assessing the adequacy of the allowance begins on page
26.
NON-INTEREST INCOME
Non-interest income was $2.4 million in the first quarter of 2003,
reflecting an increase of approximately $1.1 million or 84% from the first
quarter of 2002. The increase in fee income was attributable primarily to the
inclusion of the full quarter operating results of Lodestar Investment Counsel,
LLC and increases in fee income from the sale of residential mortgages in the
secondary market. PrivateBancorp, Inc. acquired a controlling interest in
Lodestar Investment Counsel in late 2002.
22
The following table presents the breakdown of banking, wealth
management services and other income for the periods presented (dollars in
thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
---------- -----------
Residential real estate secondary
market fees........................ $ 782 $ 402
Trust fee revenue..................... 759 724
Lodestar assets management revenue.... 726 --
Banking and other services............ 308 273
Bank owned life insurance............. 126 143
------ ------
Total................................. $2,701 $1,542
====== ======
Sales of residential real estate loans generated $782,000 of income
during the first quarter 2003 compared to $402,000 during the prior year quarter
primarily due to increased volume of loans sold.
Trust fee revenue increased by 5% to $759,000 during the first quarter
2003 as compared to the prior year quarter. Lodestar asset management revenue
totaled approximately $726,000 for the first quarter ended March 31, 2003.
Wealth management assets under management were $1.2 billion at March 31, 2003
compared to $758.2 million at March 31, 2002 and $1.2 billion at December 31,
2002. Lodestar had $501.3 million of assets under management at March 31, 2003.
During the first quarter of 2003, we recognized income of $126,000
related to the increased cash surrender value of a bank owned life insurance
(BOLI) policy that was entered into in the fourth quarter of 2001 as compared to
$142,500 of income in the first quarter 2002. This policy covers certain
higher-level employees who are deemed to be significant contributors to the
company. All employees included in this policy are aware and have consented to
the coverage. The cash surrender value of BOLI at March 31, 2003 was $10.8
million and is included in other assets on the balance sheet.
Noninterest income for the first quarter of 2003 also reflects the
fair market value adjustment on a previously disclosed $25.0 million 10-year
treasury rate for 3-month LIBOR interest rate swap which resulted in losses of
$230,000 during the first quarter of 2003. During the first quarter 2003, the
Company recognized $55,000 of net securities losses compared to net securities
losses of $230,000 during the first quarter of 2002. The securities losses for
the current quarter include a permanent impairment write-down of $330,000. The
Company wrote down $300,000 on the Company's interest-only collateralized
mortgage obligation ("CMO") portfolio and $30,000 on an investment that
qualifies for CRA purposes. Continued low levels of market interest rates during
the first quarter 2003 led to accelerated mortgage prepayments, which impaired
the fair value of our interest-only CMO security portfolio. Also included in net
security losses of $55,000 are net security gains of $275,000.
23
NON-INTEREST EXPENSE
THREE MONTHS ENDED
MARCH 31,
--------------------
2003 2002
------ --------
(IN THOUSANDS)
Salaries and employee benefits........ $ 4,778 $ 3,214
Occupancy............................. 1,419 1,139
Professional fees..................... 1,284 891
Marketing............................. 486 365
Data processing....................... 393 308
Postage, telephone and delivery....... 211 178
Office supplies and printing.......... 159 67
Insurance............................. 168 93
Amortization of intangibles........... 42 --
Other expense......................... 479 217
------- -------
Total non-interest expense............ $ 9,419 $ 6,472
======= =======
Non-interest expense increased to $9.4 million in the first quarter of
2003 from $6.5 million in the first quarter of 2002, an increase of 46%. The
increase in non-interest expense between quarters reflects the continued growth
of the organization during the twelve-month period ended March 31, 2003. Our
efficiency ratio improved to 58.5% for the first quarter 2003 as compared to
62.5% for the first quarter 2002. On a tax-equivalent basis, this ratio
indicates that in the first quarter of 2003, we spent 58.5 cents to generate
each dollar of revenue, compared to 62.5 cents in the first quarter of 2002.
During the remainder of 2003, we expect the operating efficiency to remain at a
similar level as reported in the first quarter 2003. The efficiency ratio is
equal to non-interest expense divided by the sum of net interest income on a tax
equivalent basis plus non-interest income. Please refer to footnote 6 on page 22
for a reconciliation of net interest income to net interest income on a tax
equivalent basis.
Salaries and benefits increased to $4.8 million, or 49% during the
first quarter 2003 as compared to the year ago quarter, reflecting the increased
level of full-time equivalent employees to 194 people at March 31, 2003 as
compared to 162 people at March 31, 2002. The increase is due primarily to
overall growth in the organization and the addition of six Lodestar Investment
Counsel employees in the fourth quarter of 2002.
Occupancy expense increased to $1.4 million during the first quarter
2003, reflecting an increase of 25% over the prior year quarter. Occupancy
expense during the first quarter 2003 reflects the addition of additional floor
space that is being leased in our downtown Chicago location as well as the
Lodestar office space.
Professional fees, which include legal, accounting, consulting services
and investment management fees, increased to $1.3 million during the first
quarter of 2003, reflecting an increase of 44% over the prior year quarter. The
increase in professional fees is primarily attributable to higher legal,
accounting and information systems consultation services as well as consulting
fees paid for the management of our investment portfolio.
Insurance expense increased 81% over prior year quarter due to the
increased cost of insurance in the marketplace, and the renewal of our annual
insurance coverage, which was previously under a three-year contract that
expired in June 2002.
24
In 2003, we amortized $42,000 in intangible assets related to the
acquisition of a controlling interest in Lodestar Investment Counsel.
INCOME TAXES
The following table shows our income before income taxes, applicable
income taxes and effective tax rate for the three months ended March 31, 2003
and 2002, respectively (in thousands):
THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
-------- -------
Income before taxes.......... $5,000 $2,693
Income tax provision......... 1,397 549
Effective tax rate........... 27.9% 20.4%
The effective income tax rate varies from statutory rates principally
due to certain interest income, which is tax-exempt for federal or state
purposes, and certain expenses, which are disallowed for tax purposes. The
higher effective tax rate for the first quarter 2003 as compared to the prior
year first quarter reflects growth in pretax income of 85.7% that has outpaced
the growth on our federally tax-exempt municipal bonds income. Federally
tax-exempt municipal bonds increased to $149.2 million as of March 31, 2003, a
22.3% increase from $122.0 million at March 31, 2003. In addition, the higher
effective tax rate for the first quarter 2003 as compared to the prior year
quarter is also attributable to the increased profitability of The PrivateBank
St. Louis for 2003 relative to 2002 and has resulted in increased Missouri state
tax expense requirements.
25
FINANCIAL CONDITION
TOTAL ASSETS
Total assets increased to $1.6 billion at March 31, 2003, an increase
of $85.6 million, or 6% over total assets of $1.5 billion at December 31, 2002,
and an increase of $397.8 million, or 32% over $1.2 billion of total assets at
March 31, 2002. The balance sheet growth during the three months ended March 31,
2003 was accomplished mainly through loan growth throughout the Company and
growth in the investment securities portfolio. The growth in assets was funded
primarily through increases in brokered deposits and to a lesser extent, from
growth in core deposits.
LOANS
Total loans increased to $1.0 billion, an increase of $52.6 million, or
5%, from $965.6 million at December 31, 2002 and an increase of $235.8 million,
or 30%, from $782.4 million at March 31, 2002.
Loan growth since March 31, 2002 has occurred primarily in the
commercial real estate and construction loan categories. The PrivateBank (St.
Louis) had loans outstanding of $116.6 million as of March 31, 2003, which
reflects growth of $34.3 million since March 31, 2002. The remaining loan growth
of $201.5 million experienced by the Company since March 31, 2002 was generated
by The PrivateBank (Chicago). All of The PrivateBank (Chicago) offices posted
strong gains in loan volume as compared to March 31, 2002 loan levels.
The following table sets forth the composition of our loan portfolio
net of unearned discount by category (in thousands) at the following dates:
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
---------- ------------ ---------
LOANS
Commercial real estate....... $ 492,952 $452,703 $330,348
Residential real estate...... 76,885 72,289 80,423
Commercial................... 158,227 165,993 153,340
Personal(1).................. 152,043 151,452 126,316
Construction................. 138,089 123,204 92,007
---------- -------- --------
Total loans, net of
unearned discount.... $1,018,196 $965,641 $782,434
========== ======== ========
- ------------------
(1) Includes home equity loans and overdraft lines.
ALLOWANCE FOR LOAN LOSSES
Loan quality is continually monitored by management and reviewed by the
loan/investment committees of the boards of directors of the banks on a monthly
basis. In determining the adequacy of the allowance for loan losses, management
considers a variety of factors, including assessment of the credit risk of the
portfolio, delinquent loans, evaluation of current economic conditions in the
market area, actual charge-offs during the year and historical loss experience.
The unallocated portion of the reserve involves the exercise of judgment by
management and reflects various considerations, including management's view that
the reserve should have a margin that recognizes the imprecision inherent in the
process of estimating credit losses.
We maintain an allowance for loan losses at a level management believes
is sufficient to absorb credit losses inherent in our loan portfolio. The
allowance for loan losses represents our estimate of probable losses in the
portfolio at each balance sheet date based on review of available and relevant
information, including probable losses that have been identified relating to
specific borrowing relationships, as well as probable losses inherent in the
loan portfolio and credit undertakings that are not specifically identified. The
allowance for loan losses as a percentage of total loans was 1.22% at March
26
31, 2003, 1.20% at December 31, 2002 and 1.12% at March 31, 2002. Management
believes that the allowance for loan losses is adequate to provide for estimated
probable credit losses inherent in the loan portfolio as of March 31, 2003.
Net charge-offs totaled $70,000 for the quarter ended March 31, 2003
versus net charge-offs of $27,000 in the year earlier period. The provision for
loan losses was $956,000 in the first quarter of 2003, versus $511,000 in the
first quarter of 2002. Management judges the adequacy of the allowance by
formally reviewing and analyzing potential problem credits, which entails
assessing current and historical loss experience, loan portfolio trends,
prevailing economic and business conditions, specific loan review and other
relevant factors.
Following is a summary of changes in the allowance for loan losses for
the three months ended March 31, 2003 and 2002 (in thousands):
2003 2002
--------- --------
Balance, January 1.......................... $11,585 $8,306
Provisions charged to earnings.............. 956 511
Loans charged-off, net of recoveries........ (70) (27)
------- ------
Balance, March 31........................... $12,471 $8,790
======= ======
NONPERFORMING LOANS
The following table classifies our non-performing loans as of the dates shown:
3/31/03 12/31/02 9/30/02 6/30/02 3/31/02
------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Nonaccrual loans...................... $1,483 $ 749 $ 430 $ 649 $1,458
Loans past due 90 days or more........ 2,032 650 2,549 2,518 1,448
------ ------ ------ ------ ------
Total nonperforming loans............. 3,515 1,399 2,979 3,167 2,906
------ ------ ------ ------ ------
Total nonperforming assets............ $3,515 $1,399 $2,979 $3,167 $2,906
====== ====== ====== ====== ======
Total nonaccrual loans to total loans. 0.146% 0.078% 0.047% 0.075% 0.186%
Total nonperforming loans to total
loans.............................. 0.35% 0.14% 0.33% 0.37% 0.37%
Total nonperforming assets to total
assets............................. 0.22% 0.09% 0.21% 0.24% 0.24%
Nonperforming loans include nonaccrual loans and accruing loans, which
are 90 days or more delinquent. Loans in this category include those with
characteristics such as past maturity more than 90 days, those that have recent
adverse operating cash flow or balance sheet trends, or loans that have general
risk characteristics that management believes might jeopardize the future timely
collection of principal and interest payments. The balance in this category at
any reporting period can fluctuate widely based on the timing of cash
collections, renegotiations and renewals.
Nonaccrual loans were $1.5 million at March 31, 2003 as compared to
$749,000 at December 31, 2002 and $1.5 million at March 31, 2002. Nonaccrual
loans increased by $734,000 since December 31, 2002. The increase relates
primarily to two commercial credit relationships and a letter of credit at The
PrivateBank (Chicago). Loans delinquent over 90 days increased by $1.4 million
since December 31, 2002.
27
INVESTMENT SECURITIES
The amortized cost and the estimated fair value of securities at March
31, 2003 and December 31, 2002, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
---------------------------------------------------------
MARCH 31, 2003
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
U.S. government agency mortgage
backed securities and collateralized
mortgage obligations.................. $159,456 $3,898 $(65) $163,289
Corporate collateralized mortgage
obligations........................... 14,093 471 (2) 14,562
Tax exempt municipal securities.......... 137,993 11,254 (17) 149,230
Taxable municipal securities............. 3,865 5 -- 3,870
Federal Home Loan Bank stock............. 159,975 -- -- 159,975
Other.................................... 13,217 1,734 -- 14,951
-------- ------- ---- --------
Total.................................... $488,599 $17,362 $(84) $505,877
======== ======= ==== ========
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE
---------------------------------------------------------
DECEMBER 31, 2002
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
U.S. government agency mortgage backed
securities and collateralized
mortgage obligations.................. $155,510 $ 3,132 $(248) $158,394
Corporate collateralized mortgage
obligations........................... 18,166 509 -- 18,675
Tax exempt municipal securities.......... 126,504 8,332 -- 134,836
Taxable municipal securities............. 4,583 114 -- 4,697
Federal Home Loan Bank stock............. 155,606 -- -- 155,606
Other.................................... 13,279 1,533 -- 14,812
-------- ------- ---- --------
Total.................................... $473,648 $13,620 $(248) $487,020
======== ======= ===== ========
All securities are classified as available-for-sale and may be sold as
part of our asset/liability management strategy in response to changes in
interest rates, liquidity needs or significant prepayment risk. Securities
available-for-sale are carried at fair value, with related unrealized net gains
or losses, net of deferred income taxes, recorded as an adjustment to equity
capital. At March, 31, 2003, net unrealized gains of $17.3 million resulted in
an increase of $11.4 million in reported stockholders' equity. This was an
increase of $2.6 million from net unrealized gains of $8.8 million recorded as
part of equity at December 31, 2002. The credit quality of the investment
portfolio remains strong. The vast majority of investments are rated "AAA" by
bond rating agencies. It is our policy not to take any undue credit risk with
the investment portfolio.
Securities available for sale increased to $505.9 million at March 31,
2003, up 4% from $487.0 million at December 31, 2002. The growth in the
investment security portfolio since December 31, 2002 resulted from the
continued implementation of our asset/liability management strategy. Tax exempt
municipal securities increased by $14.4 million. These securities provide net
interest margin protection in a falling interest-rate environment. Investments
in Federal Home Loan Bank stock increased by $4.4 million due to stock dividends
received in the first quarter 2003.
28
DEPOSITS AND FUNDS BORROWED
The following table presents the balances of deposits by category and
each category as a percentage of total deposits at March 31, 2003 and December
31, 2002:
MARCH 31, DECEMBER 31,
2003 2002
---------------------- -----------------------
PERCENT PERCENT
BALANCE OF TOTAL BALANCE OF TOTAL
---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Demand..................... $ 88,243 7% $ 88,986 7%
Savings.................... 8,251 1% 6,344 1%
Interest-bearing demand.... 73,699 5% 64,893 5%
Money market............... 467,849 34% 482,597 40%
Brokered deposits ......... 387,006 28% 279,806 23%
Other time deposits........ 3