-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIpkVKmx17VhNVxHQ758BAOI/3/p7DpYpKBq/KnhTdUro1YVYJqR1Lgoh6R1UDrF 9Q9hjNcQSMEyMVVtLkk59A== 0000913849-00-000096.txt : 20000516 0000913849-00-000096.hdr.sgml : 20000516 ACCESSION NUMBER: 0000913849-00-000096 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIVATEBANCORP INC CENTRAL INDEX KEY: 0000889936 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363681151 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25887 FILM NUMBER: 635263 BUSINESS ADDRESS: STREET 1: TEN NORTH DEARBORN SUITE 900 CITY: CHICAGO STATE: IL ZIP: 60602 MAIL ADDRESS: STREET 1: TEN NORTH DEARBORN STREET CITY: CHICAGO STATE: IL ZIP: 60602 10-Q 1 FORM 10-Q 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, 2000 or |_| 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 of (I.R.S. Employer Identification Number) incorporation organization) 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 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 10, 2000 - -------------------------------------------------------------------------------- Common, no par value 4,590,332 ================================================================================ PRIVATEBANCORP, INC. FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS Page Number ----------- Selected Financial Data .......................................................1 PART I Item 1. Financial Statements.................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................12 Item 3. Quantitative and Qualitative Disclosures about Market Risk..........21 PART II Item 1. Legal Proceedings...................................................23 Item 2. Changes in Securities and Use of Proceeds...........................23 Item 3. Defaults upon Senior Securities.....................................23 Item 4. Submission of Matters to a Vote of Security Holders.................24 Item 5. Other Information...................................................24 Item 6. Exhibits and Reports on Form 8-K....................................24 Signature Page................................................................25 Exhibit Index.................................................................26 i 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 unaudited consolidated financial statements and related notes included pursuant to Item 1 of this report.
QUARTER ENDED ----------------------------------------------------------------- 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 ----------- ------------ ------------- ------------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SELECTED STATEMENT OF INCOME DATA: Interest income: Loans, including fees ....................... $ 9,475 $ 7,737 $ 7,006 $ 6,218 $ 5,636 Federal funds sold and interest-bearing deposits .................................. 387 115 134 33 48 Securities .................................. 1,385 1,088 1,189 1,294 1,570 --------- --------- --------- --------- --------- Total interest income .................... $ 11,247 $ 8,940 $ 8,329 $ 7,545 $ 7,254 --------- --------- --------- --------- --------- Interest expense: Interest-bearing demand deposits ............ 191 178 144 140 142 Savings and money market deposit accounts .................................. 3,098 2,152 2,000 1,719 1,800 Other time deposits ......................... 2,766 2,066 1,852 1,729 1,752 Funds borrowed .............................. 296 257 170 360 144 --------- --------- --------- --------- --------- Total interest expense .................... $ 6,351 $ 4,653 $ 4,166 $ 3,948 $ 3,838 --------- --------- --------- --------- --------- Net interest income ....................... 4,896 4,287 4,163 3,597 3,416 Provision for loan losses ..................... 311 437 273 213 285 --------- --------- --------- --------- --------- Net interest income after provision for loan losses .............................. 4,585 3,850 3,890 3,384 3,131 --------- --------- --------- --------- --------- Non-interest income: Banking and trust services .................. 627 535 504 512 396 Securities gains ............................ 95 (1) 8 4 46 --------- --------- --------- --------- --------- Total non-interest income ..................... $ 722 $ 534 $ 512 $ 516 $ 442 --------- --------- --------- --------- --------- Non-interest expense: Salaries and employee benefits .............. 1,877 1,753 1,309 1,088 1,115 Occupancy ................................... 613 437 401 373 352 Data processing ............................. 163 96 135 116 131 Marketing ................................... 304 263 144 132 153 Amortization of goodwill .................... 113 -- -- -- -- Professional fees ........................... 575 404 487 226 178 Insurance ................................... 68 82 53 38 41 Towne Square Financial Corporation acquisition ............................... -- -- 1,300 -- -- Other expense ............................... 324 181 517 406 285 --------- --------- --------- --------- --------- Total non-interest expense ................ 4,037 3,216 4,237 2,379 2,255 --------- --------- --------- --------- --------- Income before income taxes ................ 1,270 1,168 165 1,521 1,318 Income tax provision ........................ 421 191 366 409 291 --------- --------- --------- --------- --------- Net income ................................ $ 849 $ 977 $ (201) $ 1,112 $ 1,027 ========= ========= ========= ========= ========= PER SHARE DATA: Basic earnings .............................. $ 0.18 $ 0.21 $ (0.05) $ 0.32 $ 0.30 Diluted earnings ............................ 0.18 0.20 (0.05) 0.30 0.28 Dividends ................................... 0.025 0.025 0.025 0.025 0.025 Book value (at end of period) ............... 10.57 10.26 10.11 8.68 8.71 1 QUARTER ENDED ----------------------------------------------------------------- 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 ----------- ------------ ------------- ------------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SELECTED FINANCIAL DATA (AT END OF PERIOD): Total securities .............................. $ 89,924 $ 71,134 $ 77,269 $ 89,026 $ 105,136 Total loans ................................... 521,188 397,277 352,236 335,306 307,766 Total assets .................................. 656,981 518,697 449,838 438,169 431,055 Total deposits ................................ 578,557 453,092 386,157 375,032 384,454 Funds borrowed ................................ 23,328 15,000 15,000 31,000 10,000 Total stockholders' equity .................... 48,498 47,080 46,351 29,966 30,054 Trust assets under administration ............. 799,000 729,904 699,000 666,636 637,400 SELECTED FINANCIAL RATIOS AND OTHER DATA: Performance Ratios: Net interest margin(1) ...................... 3.59% 3.85% 3.87% 3.61% 3.57% Net interest spread(2) ...................... 2.97 3.11 3.17 3.08 3.02 Non-interest income to average assets ....... 0.49 0.44 0.45 0.48 0.43 Non-interest expense to average assets ...... 2.72 2.65 3.70 2.19 2.18 Net overhead ratio(3) ....................... 2.23 2.21 3.25 1.72 1.75 Efficiency ratio(4)(7) ...................... 69.2 57.5 57.5 57.2 54.9 Return on average assets(5)(7) .............. 0.57 0.98 1.04 1.02 0.97 Return on average equity(6)(7) .............. 7.20 10.06 10.17 14.82 13.84 Dividend payout ratio ....................... 13.52 11.75 NM 7.76 8.40 Asset Quality Ratios: Non-performing loans to total loans ......... 0.30 0.21 0.20 0.24 0.12 Allowance for loan losses to: total loans ............................... 1.09 1.14 1.16 1.16 1.20 non-performing loans ...................... 360 548 579 485 1,024 Net charge-offs to average total loans ...... 0.003 0.002 0.11 0.002 -- Non-performing assets to total assets ....... 0.24 0.16 0.16 0.18 0.08 Balance Sheet Ratios: Loans to deposits ........................... 90.08 87.68 91.22 89.41 80.05 Average interest-earning assets to average interest-bearing liabilities ...... 114.0 116.7 115.6 115.3 114.2 Capital Ratios: Total equity to total assets ................ 7.38 9.08 10.30 6.83 6.97 Total risk-based capital ratio .............. 9.56 13.96 15.22 10.77 11.21 Tier 1 risk-based capital ratio ............. 7.56 12.84 14.09 9.63 10.05 Leverage ratio .............................. 6.76 10.77 11.19 7.63 7.53
- ---------------- (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 incurred in the third quarter and fourth quarter, respectively. 2 PART I ITEM 1. FINANCIAL STATEMENTS PRIVATEBANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, 2000 DECEMBER 31, 1999 MARCH 31,1999 -------------- ----------------- ------------- (UNAUDITED) (UNAUDITED) ASSETS Cash and due from banks ......................... $ 16,629 $ 14,940 $ 8,220 Short-term investments .......................... 10,632 29,243 7,759 --------- --------- --------- Total cash and cash equivalents ............... 27,261 44,183 15,979 --------- --------- --------- Available-for-sale securities, at fair value .... 89,924 71,134 105,136 --------- --------- --------- Loans ........................................... 521,188 397,277 307,766 Allowance for loan losses ....................... (5,670) (4,510) (3,695) --------- --------- --------- Net loans ....................................... 515,518 392,767 304,071 --------- --------- --------- Goodwill ........................................ 12,237 -- -- --------- --------- --------- Bank premises and equipment, net ................ 3,211 2,028 1,528 --------- --------- --------- Accrued interest receivable ..................... 3,945 2,870 2,685 --------- --------- --------- Other assets .................................... 4,885 5,715 1,656 --------- --------- --------- Total assets .................................... $ 656,981 $ 518,697 $ 431,055 --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Demand deposits: Noninterest-bearing ........................... $ 51,451 $ 36,771 $ 28,178 Interest-bearing .............................. 36,926 33,400 31,794 Savings and money market deposit accounts ....... 277,747 204,068 180,871 Brokered deposits ............................... 5,000 21,696 -- Other time deposits ............................. 207,433 157,157 143,611 --------- --------- --------- Total deposits ................................ 578,557 453,092 384,454 Funds borrowed .................................. 23,328 15,000 10,000 Accrued interest payable ........................ 1,614 1,056 995 Other liabilities ............................... 4,984 2,469 5,552 --------- --------- --------- Total liabilities ............................... $ 608,483 $ 471,617 $ 401,001 --------- --------- --------- 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; 4,590,332; and 3,451,824 shares issued and outstanding as of March 31, 2000, December 31, 1999, and March 31, 1999, respectively ........ $ 4,590 $ 4,590 $ 3,451 Surplus ......................................... 39,761 39,761 22,600 Retained earnings ............................... 8,159 7,425 5,854 Accumulated other comprehensive income .......... (2,292) (2,812) (58) Deferred compensation ........................... (695) (759) (843) Loans to officers ............................... (1,025) (1,125) (950) --------- --------- --------- Total stockholders' equity ...................... 48,498 47,080 30,054 --------- --------- --------- Total liabilities and stockholders' equity ...... $ 656,981 $ 518,697 $ 431,055 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 PRIVATEBANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 --------- --------- INTEREST INCOME Loans, including fees ............................. $ 9,475 $ 5,636 Federal funds sold and interest bearing deposits .. 387 48 Securities ........................................ 1,385 1,570 ------- ------- Total interest income ........................... 11,247 7,254 ------- ------- INTEREST EXPENSE Deposits: Interest-bearing demand ......................... 191 142 Savings and money market deposit accounts ....... 3,098 1,800 Other time ...................................... 2,766 1,752 Funds borrowed .................................... 296 144 ------- ------- Total interest expense ............................ 6,351 3,838 ------- ------- Net interest income ............................... 4,896 3,416 Provision for loan losses ......................... 311 285 ------- ------- Net interest income after provision for loan losses 4,585 3,131 ------- ------- NON-INTEREST INCOME Banking and trust services ........................ 627 396 Securities gains and other income ................. 95 46 ------- ------- Total non-interest income ....................... 722 442 ------- ------- NON-INTEREST EXPENSE Salaries and employee benefits .................... 1,877 1,115 Occupancy expense, net ............................ 613 352 Professional fees ................................. 575 178 Goodwill amortization ............................. 113 -- Other non-interest expense ........................ 859 610 ------- ------- Total non-interest expense ...................... 4,037 2,255 ------- ------- Income before income taxes ........................ 1,270 1,318 Income tax provision .............................. 421 291 ------- ------- NET INCOME ........................................ $ 849 $ 1,027 ======= ======= Basic earnings per share .......................... $ 0.18 $ 0.30 Diluted earnings per share ........................ $ 0.18 $ 0.28 The accompanying notes to consolidated financial statements are an integral part of these statements. 4 PRIVATEBANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED OTHER COMPRE- DEFERRED TOTAL COMMON RETAINED HENSIVE COMPEN- LOANS TO STOCKHOLDERS' STOCK SURPLUS EARNINGS INCOME SATION OFFICERS EQUITY ------ ------- -------- ----------- -------- -------- ------------- Balance, December 31, 1998.... $3,431 $22,274 $4,913 $ 150 $(544) $ (950) $29,274 Net income.................. -- -- 1,027 -- -- -- 1,027 Net decrease in fair value of Securities classified as available-for-sale, net of income taxes and reclassification adjustments -- -- -- (208) -- -- (208) ------ ------- ------ ------- ----- ------- ------- Total comprehensive income.... -- -- 1,027 (208) -- -- 819 ------ ------- ------ ------- ----- ------- ------- Cash dividends declared ($0.025 -- per share).................. -- -- (86) -- -- (86) Issuance of common stock...... 20 326 -- -- -- -- 346 Awards granted................ -- -- -- -- (346) -- (346) Amortization of deferred compensation................ -- -- -- -- 47 -- 47 ------ ------- ------ ------- ----- ------- ------- Balance, March 31, 1999....... $3,451 $22,600 $5,854 $ (58) $(843) $ (950) $30,054 ====== ======= ====== ======= ===== ======= ======= Balance, December 31, 1999.... $4,590 $39,761 $7,425 $(2,812) $(759) $(1,125) $47,080 Net income.................... -- -- 849 -- -- -- 849 Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments -- -- -- 520 -- -- 520 ------ ------- ------ ------- ----- ------- ------- Total comprehensive income.... -- -- 849 520 -- -- 1,369 ------ ------- ------ ------- ----- ------- ------- Cash dividends declared -- ($0.025 per share).......... -- -- (115) -- -- (115) Issuance of common stock...... -- -- -- -- -- -- -- Awards granted................ -- -- -- -- -- -- -- Amortization of deferred compensation................ -- -- -- -- 64 -- 64 Repayment of loans to officers -- -- -- -- -- 100 100 ------ ------- ------ ------- ----- ------- ------- Balance, March 31, 2000....... $4,590 $39,761 $8,159 $(2,292) $(695) $(1,025) $48,498 ====== ======= ====== ======= ===== ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 PRIVATEBANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................................... $ 849 $ 1,027 ---------- ------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization........................................ 167 136 Goodwill amortization................................................ 113 -- Johnson Bank Illinois fair value accretion, net...................... (83) -- Amortization of deferred compensation................................ 64 47 Provision for loan losses............................................ 311 285 Gain on sale of securities........................................... (92) (46) Decrease in deferred income taxes.................................... 387 -- (Increase) in accrued interest receivable............................ (316) (421) (Decrease) Increase in accrued interest payable...................... (52) 273 Decrease (Increase) in other assets.................................. 652 (28) Increase in other liabilities........................................ 2,507 4,232 ---------- ------- Total adjustments.................................................. 3,658 4,478 ---------- ------- Net cash provided by operating activities.......................... 4,507 5,505 ---------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities, paydowns, and sales of securities.......... 11,770 14,917 Purchase of securities available-for-sale............................ (9,681) (3,456) Johnson Bank Illinois acquisition, net of cash received.............. (15,753) -- Net loan principal advanced.......................................... (37,530) (25,801) Bank premises and equipment expenditures............................. (1,116) (75) ---------- ------- Net cash used in investing activities.............................. (52,310) (14,415) ---------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in total deposits....................................... 33,908 19,461 Dividends paid....................................................... (115) (86) Net decrease in funds borrowed....................................... (2,912) (10,000) ---------- ------- Net cash provided by financing activities.......................... 30,881 9,375 ---------- ------- Net (decrease) increase in cash and cash equivalents................... (16,922) 465 Cash and cash equivalents at beginning of year......................... 44,183 15,514 ---------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 27,261 $15,979 ========== =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 NOTE 1 -- BASIS OF PRESENTATION The consolidated financial information of PRIVATEBANCORP, Inc. (the "Company") and Subsidiary, The PrivateBank and Trust Company (the "Bank" or "PrivateBank"), 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, 2000, are not necessarily indicative of the results expected for the full year ending December 31, 2000. The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in accordance with generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 1999 included in the Company's Annual Report on Form 10-K (File No. 000-25887). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reported period. Actual results could differ from these estimates. NOTE 2 -- EARNINGS PER SHARE The following table shows the computation of basic and diluted earnings per share (in thousands except per share data):
THREE MONTHS ENDED MARCH 31, --------------------- 2000 1999 ------ ------ NET INCOME $ 849 $1,027 Average common shares outstanding.................................... 4,590 3,437 Average common shares equivalent1................................... 187 246 Weighted average common shares and common share equivalents.......... 4,777 3,683 Net income per average common share - basic.......................... 0.18 0.30 Net income per average common share - diluted........................ 0.18 0.28
NOTE 3 - NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Related Hedging Activities", amended by SFAS No. 137 "Accounting for Derivative 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. - -------- 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. 7 Effective January 1, 2000, Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", allows mortgage loans that are securitized to be classified as trading, available for sale, or in certain circumstances, held to maturity. Since the Company has not securitized loans, this Statement does not currently impact the Company. NOTE 4 - OPERATING SEGMENTS The Company 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 PrivateBank and reported in the results of Private Banking Services. 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. PRIVATE BANKING SERVICES The Bank, through its main offices located in downtown Chicago as well as five Illinois full-service 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 real estate lending products including fixed and floating rate permanent and mini-permanent mortgages and construction loans. Personal loans include installment loans and lines of credit, home equity loans and a wide variety of home mortgage loans. Individual banking services include interest bearing checking, money market deposit accounts, certificates of deposit, ATM/debit cards and investment brokerage accounts. Additionally, PrivateBank offers secured and unsecured personal loans and lines of credit. Through PrivateBank's affiliation with Mesirow Financial, Inc. and Sterling Investment Services, Inc., clients have access to insurance products and securities brokerage services. PrivateBank also offers domestic and international wire transfers and foreign currency exchange. PRIVATE BANKING SERVICES ---------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (in thousands) Total gross loans............ $521,664 $308,089 Total assets................. 657,241 431,435 Total deposits............... 579,526 385,230 Total borrowings............. 10,828 10,000 Total capital................ 59,940 29,154 Net income................... 1,111 1,179 8 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. TRUST SERVICES --------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (in thousands) Trust assets under administration....... $799,000 $637,422 Net income (loss)....................... 53.0 (29.0) 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. HOLDING COMPANY ACTIVITIES --------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (in thousands) Total assets............................ $ 60,977 $ 29,993 Total borrowings........................ 12,500 -- Interest expense........................ 113 -- Total capital........................... 48,498 30,054 Net loss................................ (315.0) (123.4) The following table identifies the significant differences between the sum of the reportable segments and the reported consolidated results for total assets: TOTAL ASSETS --------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (in thousands) Sum of reportable segments................ $718,218 $461,428 Adjustments............................... (61,237) (30,373) -------- -------- Consolidated PrivateBancorp, Inc.......... $656,981 $431,055 ======== ======== 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. 9 NOTE 5 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and estimated fair values of financial instruments as of March 31, 2000, have not materially changed on a relative basis from the carrying values and estimated fair values of financial instruments disclosed as of December 31, 1999. NOTE 6 - OTHER COMPREHENSIVE INCOME Change in fair value of securities available-for-sale is presented on a net basis on the Consolidated Statement of Changes in Stockholders' Equity. The following table discloses the changes in other comprehensive income as of March 31, 2000 and 1999, on a gross basis (in thousands):
MARCH 31, 2000 --------------------------------- BEFORE TAX NET OF TAX (BENEFIT) TAX AMOUNT EXPENSE AMOUNT ------ ------- ------ Unrealized gains on securities available-for-sale-- Unrealized holding gains.............................. $ 870 $288 $ 582 Less: reclassification adjustment for gain included in net income.............................. 92 30 62 ----- ------ ------- Net unrealized gain................................... $ 778 $258 $ 520 ===== ==== ===== MARCH 31, 1999 --------------------------------- BEFORE TAX NET OF TAX (BENEFIT) TAX AMOUNT EXPENSE AMOUNT ------ ------- ------ Unrealized (losses) on securities available-for-sale-- Unrealized holding (losses)........................... $(267) $(59) $(208) Less: reclassification adjustment for gain included in net income.............................. -- -- -- ----- ---- ----- Net unrealized (losses)............................... $(267) $(59) $(208) ===== ==== =====
NOTE 7 - CAPITAL TRANSACTIONS During the third quarter of 1999, the Company completed its initial public offering of 1,035,000 shares of its common stock. The initial public offering price was $18 per share, and the Company received aggregate net proceeds of approximately $16.7 million after deducting underwriting commissions and offering expenses and including the underwriters' overallotment shares. During March and April 1999, the Company's Board of Directors and stockholders approved an increase in the number of authorized shares to 12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The Board also approved a change in the per share stated value of the common stock from $2.50 to $1.00 per share. Such change in authorized shares and change in stated value became effective prior to the effectiveness of the registration statement relating to the Company's initial public offering. On June 24, 1999, to effect a two-for-one stock split, the Company's Board of Directors declared a one-for-one stock dividend on its common stock payable on June 28, 1999, to stockholders of record as of the close of business on June 25, 1999. All references to number of shares, per share amounts and stock option data in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis. 10 NOTE 8 - ACQUISITIONS On August 3, 1999, in a stock for stock transaction the Company completed its acquisition of Towne Square Financial Corporation, a company in the process of forming a de novo bank. At closing, the Company issued 91,668 shares of common stock and recorded a one-time $1.3 million charge that is non-deductible for tax purposes. On 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. On February 11, 2000, the Company completed its acquisition of Johnson Bank Illinois, a unit of Johnson International, Inc., Racine, Wisconsin. At closing, Johnson Bank Illinois had total assets of approximately $113 million and total deposits of approximately $77 million. The purchase price was $20 million. $15 million was paid in cash and the remainder was paid in the form of a LIBOR-based, floating rate subordinated note issued to Johnson International in the principal amount of $5 million. The interest rate on the subordinated note is set each quarter based on the 90-day LIBOR rate. The note is payable in full on or before February 11, 2007, and provides for certain rate 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 transaction was accounted for as a purchase. All assets and liabilities were adjusted for fair value as of the effective date of the merger creating goodwill in the amount of $12.3 million, which was pushed-down to the Bank, and is being amortized on the straight line basis over 15 years. Premiums and discounts related to the Johnson Bank Illinois transaction were recorded on the balance sheet as fair value adjustments and amounted to $20,045 and $2,344,041, respectively. The following table summarizes the unaudited pro forma financial results for the first quarters 2000 and 1999 as if Johnson Bank Illinois had been acquired on January 1, 1999. MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- Net interest income after provision for loan losses.............................. $5,015 $3,275 Total non-interest income.................. 1,058 566 Total non-interest expense................. 4,628 2,852 Income taxes............................... 620 174 Net income................................. 824 815 Diluted earnings per share................. $0.17 $ 0.22 The pro forma information is not necessarily indicative of the actual results of operations which would have occurred had the acquisition of Johnson Bank Illinois been consummated on January 1, 1999, nor is it indicative of future operating results. 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- PRIVATEBANCORP, Inc. was organized as a Delaware corporation in 1989 to serve as the holding company for a de novo bank desinged to provide highly personalized financial services primarily to affluent individuals, professionals, entrepreneurs and their business interests. Through the Company's banking subsidiary, The PrivateBank and Trust Company, 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 and the Oak Brook facility in west suburban DuPage County was established in 1997. 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. 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 the new bank. 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. For financial information regarding the Company's three separate lines of business, Private Banking Services, Trust Services and Holding Company Activities, see "Note 4--Operating Segments" to the consolidated financial statements of the Company included in this report. The profitability of the Company's operations depends on net interest income, provision for possible 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. The provision for possible loan losses reflects the cost of credit risk in the loan portfolio. Non-interest income consists primarily of trust fee income, and to a lesser extent, net securities gains and fees for ancillary banking services. Noninterest expense includes salaries and employee benefits as well as occupancy, data processing, marketing, professional fees, insurance, and other expenses. Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts and rates on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and our asset/liability management procedures in coping with such changes. The provision for loan losses is dependent on increases in the loan portfolio, management's assessment of the collectability of the loan portfolio, loss experience, as well as economic and market factors. The Company earns trust fees for managing and administering investment funds for a variety of individuals, families and fiduciary relationships. Non-interest income consists primarily of trust fee income, and to a lesser extent, net securities gains and fees for ancillary banking services. Non-interest income from fees and deposit service charges are below peer group levels. This is largely the result of the profile of the Company's typical client. The 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. 12 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 have been negatively impacted in 2000 due to the start-up operation of St. Charles, the St. Louis initiative and the acquisition of Johnson Bank Illinois. It is expected that results for the remainder of 2000 will continue to be impacted to some extent by the start-up nature of operations in St. Charles, St. Louis and in the new offices acquired through the Johnson Bank Illinois transaction. 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 priced its initial public offering of 900,000 shares of its common stock at $18 per share. The shares are listed on the Nasdaq National Market System 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 offering expenses). Offering expenses payable by the Company were 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. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999 Income for the first quarter 2000 was $849,000, or $0.18 per diluted share, compared to first quarter 1999 net income of $1,027,000, or $0.28 per diluted share. At March 31, 2000, shares outstanding increased to 4,590,332 compared to 3,451,824 outstanding at March 31, 1999. The increase in shares outstanding is due primarily to the Company's initial public offering in June 1999. First quarter 2000 net income includes the financial results of the former Johnson Bank Illinois locations subsequent to their acquisition on February 11, 2000. 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 $4.9 million and $3.4 million during the three months ended March 31, 2000 and 1999, respectively, an increase of 43%. Average earning assets during the period were $572.5 million, an increase of 41% over the prior year first quarter. The Company's net interest margin (tax equivalent net interest income as a percentage of earning assets) was 3.59% for the three months ended March 31, 2000, compared to 3.66% for the prior year period. Although rising interest rates have improved the yield on average earning assets, interest expense on deposits and other borrowed funds has correspondingly increased, resulting in reduced net interest margin levels between periods. 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. To fund anticipated loan growth for the remainder of 2000, PrivateBank expects to continue to rely on growth in traditional deposit products supplemented by short-term borrowings and brokered deposits. 13 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):
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 -------------------------------- -------------------------------- AVERAGE INTEREST RATE AVERAGE INTEREST RATE -------- -------- ---- -------- -------- ---- Short-term investments..................... $ 27,376 $ 387 5.68% $ 4,167 $ 48 4.67% Investment securities(1)................... 92,515 1,605 6.98% 112,724 1,807 6.50% Loans, net of unearned discount............ 452,576 9,475 8.42% 288,322 5,636 7.93% -------- ------- -------- ------ Total earning assets....................... $572,467 $11,467 8.06% $405,213 $7,491 7.50% ======== ======= ======== ====== Interest bearing deposits.................. $486,015 $ 6,055 5.01% $344,311 $3,694 4.35% Funds borrowed............................. 16,201 296 7.35% 10,485 144 5.57% -------- ------- -------- ------ Total interest bearing liabilities......... $502,215 6,351 5.09% $354,796 3,838 4.39% ======== ------- ======== ------ Tax equivalent net interest income ........ $ 5,116 $3,653 ======= ====== Net interest spread........................ 2.97% 3.11% Net interest margin........................ 3.59% 3.66%
(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 $220,000 and $237,000 in the first three months of 2000 and 1999, 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. 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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999 (DOLLARS IN THOUSANDS) CHANGE CHANGE CHANGE TOTAL DUE TO RATE DUE TO VOLUME DUE TO MIX CHANGE ----------- ------------- ---------- ------ Short-term investments............... $ 10 $ 269 $ 60 $ 339 Investment securities................ 135 (327) (10) (202) Loans, net of unearned discount...... 351 3,239 249 3,839 ----- ------ ---- ------ Total interest income............. $ 496 $3,181 $299 $3,976 ----- ------ ---- ------ Interest bearing deposits............ 565 1,533 263 2,361 Funds borrowed....................... 46 79 27 152 ----- ------ ---- ------ Total interest expense............ 611 1,612 290 2,513 ----- ------ ---- ------ Net interest income.................. $(115) $1,569 $ 9 $1,463 ----- ------ ---- ------
PROVISION FOR LOAN LOSSES The Company's provision for loan losses was $311,000 for the first quarter of 2000, compared to $285,000 for the comparable period in 1999. Net charge-offs for the three months ended March 31, 2000 and 1999 were $15,000 and $0, 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 17. 14 NON-INTEREST INCOME - ------------------- Non-interest income for the quarter grew to $722,000, reflecting an increase of $280,000 or 63% higher than in the first quarter of 1999. The increase year over year is partially attributable to the recognition of $92,000 of gains related to the sale of investment securities during the first quarter of 2000. The sale was driven by the Company's realignment of its available for sale investment securities portfolio following the acquisition of Johnson Bank Illinois. Additionally, trust assets under administration increased to $799.0 million at March 31, 2000 compared to $637.4 million at March 31, 1999, an increase of 25%. Trust income increased by $123,000 to $539,000 for the quarter ended March 31, 2000, reflecting an increase of 30 % over the prior year quarter. The completion of the Johnson Bank Illinois acquisition increased trust assets under administration by approximately $50.0 million and expanded the Company's trust services beyond the Chicago office with the addition of trust staff to its suburban offices. NON-INTEREST EXPENSE THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 ------ ------ (IN THOUSANDS) Salaries and employee benefits................. $1,877 $1,115 Occupancy...................................... 613 352 Professional fees.............................. 575 178 Marketing...................................... 304 153 Data processing................................ 163 131 Postage, telephone and delivery................ 116 87 Office supplies................................ 113 48 Insurance...................................... 68 42 Goodwill....................................... 113 -- Other expense.................................. 95 149 ------ ------ Total non-interest expense..................... $4,037 $2,255 ====== ====== Non-interest expense for the first quarter of 2000 increased by 79% or $1.8 million as compared to the year earlier quarter. The increase from the prior year level is due to expenses incurred in connection with the Company's expansion initiatives. Non-interest expense for the first quarter 2000 includes operating expenses of $322,000 and $351,000 related to the St. Charles and the St. Louis offices, respectively. The Company expects start-up operating expenses to continue in 2000. Additionally, the first quarter 2000 results reflect the addition of the two new locations acquired through the Johnson Bank Illinois transaction which increased operating expenses by $337,000 as of March 31, 2000. Salaries and benefits increased by approximately $762,000 reflecting the Company's increased level of full time equivalent employees to 115 people versus 76 at March 31, 1999. The increase is due primarily to an increased number of employees, including the senior officers responsible for opening the St. Charles and St. Louis offices, as well as the addition of employees related to the Johnson Bank Illinois acquisition. During the quarter ended March 31, 2000, the Company recognized approximately $96,000 of consulting costs related to the Johnson Bank Illinois data processing system conversion. In addition, the Company recognized approximately $82,000 of legal expenses associated primarily with the establishment of the St. Louis office and the associated regulatory application process. The Company recognized additional professional fees of approximately $55,000 regarding computer networking and related information system consultation. The Company will continue to incur consulting expenses in the remainder of 2000 related to various information technology projects. 15 The addition of four new locations has increased occupancy expense by $140,000 and depreciation expense by $60,000. Marketing expenses related to the four new locations totaled approximately $98,000 during the first quarter of 2000. Office supplies increased by approximately $45,000 related to the four new locations. Postage, telephone and delivery expenses have increased by approximately $16,000 due to the Company's expansion. Insurance expense has increased by approximately $27,000 due to overall growth and expansion of the Company. Goodwill expense of $113,000 was recognized during the quarter in connection with the acquisition. INCOME TAXES The following table shows the Company's income before income taxes, applicable income taxes and effective tax rate for the three months ended March 31, 2000 and 1999, respectively (in thousands): THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 ------ ------ Income before taxes....................... $1,270 $1,318 Income tax provision...................... 421 291 Effective tax rate........................ 33.2% 22.1% 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 which are disallowed for tax purposes. During February 1999, the Company initiated a tax-advantaged investment program and increased the Company's municipal bond portfolio as a percentage of total investments. This tax strategy had the effect of lowering the Company's effective tax rate during the first quarter 1999 and throughout the entire year. The effective tax rate for 1999 was 30.1%. During the first quarter 2000, the Johnson Bank Illinois acquisition caused the Company's effective tax rate to increase since the acquired investment portfolio did not include federally tax-exempt municipal securities. FINANCIAL CONDITION Total assets were $657.0 million at March 31, 2000, an increase of $225.9 million, or 52.4% over the $431.1 million a year earlier, and $138.3 million, or 26.6% over the $518.7 million at December 31, 1999. The balance sheet growth was created mainly through the acquisition of Johnson Bank Illinois and loan growth. At closing, Johnson Bank Illinois had assets of approximately $113.0 million and liabilities of approximately $103.0 million. At closing, the Company recorded $12.3 million of goodwill which is being amortized over an estimated useful life of 15 years. LOANS Total loans increased $213.4 million, or 69.3%, from $307.8 million at March 31, 1999, and $123.9 million, or 31.2%, from $397.3 million at December 31, 1999. 16 The following table sets forth the Company's loan portfolio net of unearned discount by category (in thousands):
MARCH 31, DECEMBER 31, MARCH 31, 2000 1999 1999 --------- ------------ --------- GROSS LOANS: Commercial real estate.............. $167,809 $146,368 $108,599 Residential real estate............. 83,573 72,972 62,208 Commercial.......................... 137,660 67,026 53,834 Personal(1)......................... 100,921 81,893 64,982 Construction........................ 31,225 29,018 18,143 -------- -------- -------- Total gross loans................. $521,188 $397,277 $307,766 ======== ======== ========
- ---------- (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 committee of the Board of Directors of the Bank 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, evaluation of current 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 March 31, 2000, 1.1% as of December 31, 1999 and 1.2% as of March 31, 1999. 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. Following is a summary of changes in the allowance for loan losses for the three months ended March 31, 2000 and 1999 (in thousands):
2000 1999 ------ ------ Balance, January 1...................................... $4,510 $3,410 Johnson Bank Illinois acquisition allowance for loan loss............................................ 864 -- Provision charged to operations......................... 311 285 Loans charged-off (net)................................. (15) -- ------ ------ Balance, March 31....................................... $5,670 $3,695 ====== ======
NONACCRUAL AND NONPERFORMING LOANS Nonaccrual loans were $1.2 million as of March 31, 2000, $600,000 as of December 31, 1999 and zero as of March 31, 1999. Management does not believe that the increase in nonaccrual loans represents a decline in the overall quality of the loan portfolio at this time. The increase in nonaccrual loans as of March 31, 2000 compared to December 31, 1999 is primarily attributable to a commercial credit in the amount of $395,000 which was placed on nonaccrual status during the quarter. 17 Nonperforming loans include nonaccrual loans and accruing loans which are 90 days or more delinquent. Nonperforming loans were $1.6 million as of March 31, 2000, compared to $823,000 at December 31, 1999 and $361,000 at March 31, 1999. Nonperforming loans were .30%, .21% and .12% of total loans as of March 31, 2000, December 31, 1999 and March 31, 1999, respectively. Nonperforming loans were .24%, .16% and .08% of total assets as of March 31, 2000, December 31, 1999 and March 31, 1999, respectively. INVESTMENT SECURITIES The amortized cost and the estimated fair value of securities as of March 31, 2000 and December 31, 1999, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE -------------------------------------------------------- MARCH 31, 2000 -------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- U.S. Treasury............................. $ 1,001 $-- $ (1) $ 1,000 U.S. Government Agency Obligation......... 42,933 1 (532) 42,402 Municipals................................ 37,017 4 (2,927) 34,094 Other(1).................................. 12,734 -- (306) 12,428 ------- --- ------- ------- $93,685 $ 5 $(3,766) $89,924 ======= === ======= ======= INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE -------------------------------------------------------- DECEMBER 31, 1999 -------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- U.S. Government Agency Obligation......... $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 ======= === ======= =======
- ---------- (1) Represents corporate and equity 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 March 31, 2000, net unrealized losses resulted in a $2.3 million decrease in equity. This was a decrease of $0.5 million from net unrealized losses of $2.8 million recorded as part of equity at December 31, 1999. Securities available-for-sale increased 26.4% to $89.9 million as of March 31, 2000, from $71.1 million as of December 31, 1999. The general increase in investment securities is the result of the acquisition of the Johnson Bank Illinois portfolio. Following the acquisition of Johnson Bank Illinois, the Company sold approximately $9.7 million of the former Johnson Bank Illinois investment securities portfolio as part of the Company's realignment of its available-for-sale investment securities portfolio. The sale resulted in the recognition of $92,000 of investment security gains. Additionally, $1.0 million of U.S. Treasury securities were acquired in connection with the Johnson Bank Illinois acquisition. U.S. government agency securities and collateralized mortgage obligations increased 58.8% to $42.4 million as of March 31, 2000, from $26.7 million as of December 31, 1999. The increase in U.S. government agency securities resulted primarily from the Johnson Bank Illinois acquisition. Municipal securities remain relatively unchanged as of March 31, 2000 as compared to December 31, 1999. The decrease in unrealized losses of $849,000 is primarily due to 18 the change in value of the Company's municipal investment securities. During the first quarter 2000, long-term interest rates decreased causing the values of the Company's municipal investment securities to increase relative to the December 31, 1999 fair values. Corporate and equity securities increased slightly due to the Johnson Bank Illinois acquisition. Management does not consider any of these changes to represent a change in the management philosophy of the investment portfolio. DEPOSITS AND FUNDS BORROWED Total deposits of $578.6 million as of March 31, 2000 represent an increase of $125.5 million or 27.7% from $453.1 million as of December 31, 1999, and a 50.5% increase from $384.5 million as of March 31, 1999. Non-interest-bearing deposits were $51.5 million as of March 31, 2000, approximately $14.7 million more than the $36.8 million reported as of December 31, 1999, and $23.3 million more than at March 31, 1999. Interest-bearing demand deposits increased 10.6% to $36.9 million as of March 31, 2000 compared to December 31, 1999, and a 16.1% increase over March 31, 1999. Savings and money market deposit accounts increased by approximately $73.7 million to $277.7 million at March 31, 2000 as compared to December 31, 1999, and $96.8 million more than the amount reported as of March 31, 2000. Other time deposits increased by approximately $50.2 million to $207.4 million as compared with the December 31, 1999 balance of $157.2 million, and $63.8 million greater than the March 31, 1999 balance of $143.6 million. Brokered deposits decreased from $16.7 million at December 31, 1999 to $5.0 million as of March 31, 2000. There were no brokered deposits as of March 31, 1999. The Company'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. The Company has periodically used services of the FHLB for short-term funding needs and other correspondent services. As of March 31, 2000, the Company had $8.0 million of FHLB borrowings outstanding as follows: DEBT TYPE AMOUNT CONTRACTUAL RATE MATURITY ------------- ---------- ---------------- -------- Fixed advance $2,000,000 5.83% 5/22/00 Fixed advance 2,000,000 5.40% 8/ 8/02 Fixed advance 4,000,000 5.40% 8/27/04 FHLB borrowings totaled $15.0 million and $10.0 million as of December 31, 1999 and March 31, 1999, respectively. As of March 31, 2000, repurchase agreements of approximately $2.6 million, acquired in connection with the Johnson Bank Illinois transaction, were outstanding. On February 11, 2000, to effect the Johnson Bank Illinois acquisition, the Company borrowed $7.5 million under a new, two-year, $18.0 million revolving credit facility at an initial rate of 7.20%. 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 Company also entered into a subordinated note issued to Johnson International in the principal amount of $5.0 million as part of the $20.0 million purchase price. The interest rate on the subordinated note is set each quarter based on the 90-day LIBOR rate. The initial rate of interest on the subordinated note is 6.60%. CAPITAL RESOURCES Stockholders' equity rose to $48.5 million, an increase of $1.4 million from the 1999 year-end level, due to first quarter 2000 net income and to an increase in Accumulated Other Comprehensive Income. The change in the fair value of the available-for-sale investment portfolio increased stockholders' equity by $0.5 million net of tax as of March 31, 2000 as compared to December 31, 1999. The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and 19 classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors, and the regulators can lower classifications in certain areas. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If the Bank is adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion and plans for capital restoration are required. The following table reflects various consolidated measures of capital at March 31, 2000 and December 31, 1999:
MARCH 31, 2000 DECEMBER 31, 1999 MARCH 31,1999 -------------- ----------------- ------------- Leverage ratio................................. 6.76% 10.77% 7.53% Tier 1 risk-based capital ratio................ 7.56% 12.84% 10.05% Total risk-based capital ratio................. 9.56% 13.96% 11.21% Total equity to total assets................. 7.38% 9.08% 6.97%
At March 31, 2000, the Company continued to exceed the minimum levels of all regulatory capital requirements, and was considered "adequately-capitalized" under regulatory standards. At March 31, 2000, the Company's total risk based capital ratio fell to 9.56%. This was the result of the recognition of $12.3 million of goodwill from the Johnson Bank Illinois transaction. With the exception of the total risk-based capital ratio, the Company exceeded the well capitalized levels of all regulatory capital requirements, and the Bank was considered "well-capitalized" under all regulatory standards, including total risk based capital ratio. 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%. LIQUIDITY 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 its ability to borrow funds in the money or capital markets. Net cash inflows provided by operations were $4.5 million in the first three months of 2000 compared to a net inflow of $5.5 million a year earlier. Net cash outflows from investing activities were $52.3 million in the first three months of 2000 compared to a net cash outflow of $14.4 a year earlier. Cash inflows from financing activities in the first three months of 2000 were $30.9 million compared to a net inflow of $9.4 million in the first three months of 1999. In the event of short-term liquidity needs, the Bank may purchase federal funds from correspondent banks. The Company's membership in the Federal Home Loan Bank System gives it the ability to borrow funds from the FHLB for short- or long-term purposes under a variety of programs. 20 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ASSET/LIABILITY MANAGEMENT POLICY As a continuing part of its financial strategy, the Company 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 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 compliments 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. The following table illustrates the estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of March 31, 2000:
TIME TO MATURITY OR REPRICING ----------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 0-90 DAYS 91-365 DAYS 1-5 YEARS OVER 5 YEARS TOTAL --------- ----------- --------- ------------ -------- INTEREST-EARNING ASSETS Loans................................. $285,892 $ 42,853 $175,753 $ 16,690 $521,188 Investments........................... 5,428 3,773 26,026 54,697 89,924 Federal funds sold.................... 10,632 -- -- -- 10,632 -------- --------- -------- -------- -------- Total interest-earning assets......... $301,952 $ 46,626 $201,779 $ 71,387 $621,744 ======== ========= ======== ======== ======== INTEREST-BEARING LIABILITIES Interest-bearing demand............... $ -- $ -- $ -- $ 36,926 $ 36,926 Savings and money market.............. 171,725 103,569 -- 2,453 277,747 Time deposits......................... 112,236 89,534 7,106 3,557 212,433 Funds borrowed........................ 19,228 4,100 -- -- 23,328 -------- --------- -------- -------- -------- Total interest-bearing liabilities.... $303,189 $ 197,203 $ 7,106 $ 42,936 $550,434 ======== ========= ======== ======== ======== CUMULATIVE Rate sensitive assets (RSA)......... $301,952 $ 348,578 $550,357 $621,744 Rate sensitive liabilities (RSL).... $303,189 $ 505,392 $507,498 $550,434 GAP (GAP=RSA-RSL)................ $ (1,237) $(151,814) $ 42,859 $ 71,310 RSA/RSL............................... 99.6% 69.7% 108.4% 113.0% RSA/Total assets...................... 46.0% 53.1% 83.8% 94.6% RSL/Total assets...................... 46.1% 76.2% 77.2% 83.8% GAP/Total assets...................... 0.2% 23.1% (6.5)% (10.9)% GAP/Total RSA......................... 0.2% 24.4% (6.9)% (11.5)%
21 The following table illustrates the estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of March 31, 1999:
TIME TO MATURITY OR REPRICING ----------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 0-90 DAYS 91-365 DAYS 1-5 YEARS OVER 5 YEARS TOTAL --------- ----------- --------- ------------ -------- INTEREST-EARNING ASSETS Loans................................. $163,231 $ 22,535 $107,224 $ 14,732 $307,722 Investments........................... 9,717 27,096 30,736 37,682 105,231 Federal funds sold.................... 7,759 -- -- -- 7,759 -------- --------- -------- -------- -------- Total interest-earning assets......... $180,707 $ 49,631 $137,960 $ 52,414 $420,712 ======== ========= ======== ======== ======== INTEREST-BEARING LIABILITIES Interest-bearing demand............... $ -- $ -- $ -- $ 27,390 $ 27,390 Savings and money market.............. 138,109 42,263 -- 499 180,871 Time deposits......................... 100,815 39,452 3,344 -- 143,611 Funds borrowed........................ 10,000 -- -- -- 10,000 -------- --------- -------- -------- -------- Total interest-bearing liabilities.... $248,924 $ 81,715 $ 3,344 $ 27,889 $361,872 ======== ========= ======== ======== ======== CUMULATIVE Rate sensitive assets (RSA)......... $180,707 $ 230,338 $368,298 $420,712 Rate sensitive liabilities (RSL).... $248,924 $ 330,639 $333,983 $361,872 GAP (GAP=RSA-RSL)................ $(68,217) $(100,310) $ 34,315 $ 58,840 RSA/RSL............................... 72.6% 69.7% 110.3% 116.3% RSA/Total assets...................... 41.9% 53.4% 85.4% 97.6% RSL/Total assets...................... 57.7% 76.7% 77.4% 84.0% GAP/Total assets...................... 15.8% 23.3% 8.0% 13.7% GAP/Total RSA......................... 16.2% 23.8% 8.2% 14.0%
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. The following table shows the impact of an immediate 200 basis point change in interest rates, assessed through the use of a simulation model, that attempts to measure the effect of rising and falling interest rates over the next two-year horizon in a rapidly changing rate environment.
MARCH 31, 2000 MARCH 31, 1999 --------------------------- ---------------------------- +200 BASIS -200 BASIS +200 BASIS -200 BASIS POINTS POINTS POINTS POINTS ---------- ---------- ---------- ---------- Percentage change in net interest income due to an immediate 200 basis point change in interest rates over a two-year time horizon.... -3.8% 9.3% -8.7% 10.3%
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 3.8% and 8.7% over a two-year horizon based on its net earning asset portfolio as of March 31, 2000 and March 31, 1999, respectively. Conversely, a like shift of -200 basis points would increase net interest income by 9.3% over a two-year horizon based on March 31, 2000 balances, down from 10.3% measured on the basis of the March 31, 1999 portfolio. 22 Changes in the effect on net interest income from a 200 basis point movement as of March 31, 2000 as compared to March 31, 1999 reflect the addition of assets and liabilities from the Johnson Bank Illinois acquisition. As these assets and liabilities are more fixed rate in nature, changing rates over a two-year horizon show a reduced effect at March 31, 2000 as compared to March 31, 1999. In addition, management's likely reaction to changes in interest rates is incorporated in assumptions made in these calculations. Differences in these assumptions between the reporting periods have also had the effect of reducing the impact of a changing interest rate environment. The preceding sensitivity analysis is based on numerous assumptions including: the nature and timing of interest rate levels including the shape of the yield curve, prepayments on loans and securities, changes in deposit levels, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how client preferences or competitor influences might change. 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. Factors which could have a material adverse effect on the operations and future prospects of the Company 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; lower than expected business levels or higher than anticipated costs relating to the Company's newly established St. Charles, Illinois and St. Louis, Missouri offices; significant increases in competition; 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); and the possible dilutive effect of potential acquisitions or expansions. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. PART II ITEM 1. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or its subsidiary is a party other than ordinary routine litigation incidental to their respective businesses. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 10.1 - Sublease Agreement dated as of December 13, 1999, by and between PrivateBancorp, Inc., Union Planters Bank, National Association and St. Louis Brentwood Associates, L.P. Exhibit 27 - Financial Data Schedule. (b) Filings on Form 8-K. (1) Current Report on Form 8-K dated January 31, 2000, filed with the SEC on January 31, 2000. Item 5. Other Events -- The Company announced its earnings results for the quarter ended December 31, 1999. (2) Current Report on Form 8-K dated February 11, 2000, filed with the SEC on February 17, 2000. Item 5. Other Events -- The Company announced the completion of its acquisition of Johnson Bank Illinois on February 11, 2000. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIVATEBANCORP, INC. (Registrant) By: /s/ Ralph B. Mandell ---------------------------------------- Ralph B. Mandell, Chairman, President and Chief Executive Officer By: /s/ Donald A. Roubitchek ---------------------------------------- Donald A. Roubitchek, Chief Financial Officer (principal financial officer) By: /s/ Lisa M. O'Neill ---------------------------------------- Lisa M. O'Neill, Controller (principal accounting officer) Date: May 15, 2000 25 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 Sublease Agreement dated as of December 13, 1999, by and between PrivateBancorp, Inc., Union Planters Bank, National Association and St. Louis Brentwood Associates, L.P. 27 Financial Data Schedule 26 EX-10.1 2 SUBLEASE AGREEMENT 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. 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 fully 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, Sublandlord 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 provided. In such event, however, Sublandlord agrees to use commercially reasonable efforts to cause Primary Landlord to provide such service. -2- 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" 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. -3- 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 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 -4- 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, Insignia/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 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), -5- 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 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. -6- 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. 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, -7- 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. 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. -8- 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, Representations 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. 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. -9- 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 injury of any kind, or property damage arising directly or indirectly, out of or from or on account of any occurrence in, 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. -10- 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. 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 -11- 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. 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. -12- 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 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. -13- 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. 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. -14- 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 S. 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, 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 -15- HAVE TO A JURY TRIAL IN THE EVENT OF 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 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] -16- IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of the day and year first above written. SUBLANDLORD: UNION PLANTERS BANK, NATIONAL ASSOCIATION By: /s/ M. Kirk Walters -------------------------------------- Printed Name: /s/ M. Kirk Walters ---------------------------- Title: Senior Vice President ----------------------------------- 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 -17- EXHIBIT A --------- Prime Lease -18- EXHIBIT B --------- Subleased Premises -19- EXHIBIT C --------- Personal Property -20- EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 16,629 36,926 10,632 0 89,924 93,685 89,924 521,188 (5,670) 656,981 578,557 10,828 4,984 12,500 0 0 4,590 44,358 656,981 9,475 1,385 387 11,247 6,055 6,351 4,896 311 95 4,037 1,270 1,270 0 0 849 0.18 0.18 8.06 1,222 355 0 228 4,510 20 5 5,670 0 0 265
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