-----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, P0JMsYZJ+yPAuvabSlkwDTYti0ppsYGwyccbgD2xvzhiG1/RWQP3mf5xGDSbI/wz Os+F54zk/MZlpiQh715W9Q== 0000913849-03-000563.txt : 20031114 0000913849-03-000563.hdr.sgml : 20031114 20031114154540 ACCESSION NUMBER: 0000913849-03-000563 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 1934 Act SEC FILE NUMBER: 000-25887 FILM NUMBER: 031004369 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 f10q_110303.txt 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 SEPTEMBER 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM ________ TO ________ Commission File Number: 000-25887 PRIVATEBANCORP, INC. (Exact name of Registrant as specified in its charter.) DELAWARE (State or other jurisdiction of 36-3681151 incorporation or organization) (I.R.S. Employer Identification Number) TEN NORTH DEARBORN STREET CHICAGO, ILLINOIS 60602 (Address of principal executive offices) (Zip Code) (312) 683-7100 (Registrant's telephone number, including area code) Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. =============================================================================== CLASS OUTSTANDING AS OF NOVEMBER 7, 2003 - ------------------------------------------------------------------------------- Common, no par value 9,840,034 =============================================================================== PRIVATEBANCORP, INC. FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS Page Number Selected Financial Data.......................................................2 Part I .....................................................................5 Item 1. Financial Statements........................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................19 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................41 Item 4. Controls and Procedures....................................44 Part II ....................................................................46 Item 1. Legal Proceedings..........................................46 Item 2. Changes in Securities and Use of Proceeds..................46 Item 3. Defaults upon Senior Securities............................46 Item 4. Submission of Matters to a Vote of Security Holders........46 Item 5. Other Information..........................................46 Item 6. Exhibits and Reports on Form 8-K...........................46 Signatures...................................................................48 1 SELECTED FINANCIAL DATA The following table summarizes certain selected unaudited consolidated financial information of PrivateBancorp, Inc. at or for the periods indicated. This information should be read in conjunction with the unaudited consolidated financial statements and related notes included pursuant to Item 1 of this report.
QUARTER ENDED -------------------------------------------------------------- 09/30/03 06/30/03 03/31/03 12/31/02 09/30/02 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SELECTED STATEMENT OF INCOME DATA: INTEREST INCOME: Loans, including fees..................... $15,830 $15,208 $15,167 $14,043 $13,704 Federal funds sold and interest-bearing deposits.............................. 6 31 25 63 38 Securities................................ 6,333 5,148 5,379 5,507 4,557 ------ ------ ------ ------ ------ Total interest income.................. 22,169 20,387 20,571 19,613 18,299 ------ ------ ------ ------ ------ INTEREST EXPENSE: Interest-bearing demand deposits.......... 134 148 128 129 168 Savings and money market deposit accounts. 1,375 1,644 1,709 1,923 1,923 Other time deposits....................... 4,346 4,348 3,940 4,037 3,976 Funds borrowed............................ 1,016 1,204 1,312 1,226 1,304 Trust preferred interest expense.......... 485 485 485 485 485 ------ ------ ------ ------ ------ Total interest expense................. 7,356 7,829 7,574 7,800 7,856 ------ ------ ------ ------ ------ Net interest income.................... 14,813 12,558 12,997 11,813 10,443 Provision for loan losses................. 1,092 730 956 914 828 ------ ------ ------ ------ ------ Net interest income after provision for loan losses........................ 13,721 11,828 12,041 10,899 9,615 ------ ------ ------ ------ ------ NON-INTEREST INCOME: Banking, wealth management services and other income........................... 3,657 3,181 2,701 1,975 1,763 Securities (losses), gains, net........... (333) 2,310 (55) (313) 280 Interest Rate Swap gains, (losses)........ 765 (1,054) (230) (282) (662) ------ ------ ------ ------ ------ Total non-interest income.............. 4,089 4,437 2,416 1,380 1,381 ------ ------ ------ ------ ------ NON-INTEREST EXPENSE: Salaries and employee benefits............ 5,338 5,070 4,778 3,903 3,393 Occupancy expense, net.................... 1,403 1,270 1,419 1,319 1,227 Data processing........................... 376 368 393 393 433 Marketing................................. 855 509 486 557 351 Amortization of intangibles............... 42 42 42 -- -- Professional fees......................... 1,130 1,069 1,284 774 997 Insurance................................. 186 146 168 137 118 Other expense............................. 1,273 1,282 849 851 569 ------ ------ ------ ------ ------ Total non-interest expense............. 10,603 9,756 9,419 7,934 7,088 ------ ------ ------ ------ ------ Minority interest expense.................... 59 44 38 -- -- Income before income taxes................ 7,148 6,465 5,000 4,345 3,908 ------ ------ ------ ------ ------ Income tax provision......................... 2,018 1,852 1,397 1,125 875 ------ ------ ------ ------ ------ Net income................................ $ 5,130 $ 4,613 $ 3,603 $ 3,220 $ 3,033 ======= ======= ======= ======= ======= PER SHARE DATA: Basic earnings............................... $ 0.57 $ 0.60 $ 0.47 $ 0.43 $ 0.41 Diluted earnings............................. 0.54 0.56 0.44 0.41 0.39 Dividends.................................... 0.040 0.040 0.040 0.027 0.027 Book value (at end of period)................ 16.37 12.89 12.29 11.56 10.71
All previously reported share and per share data has been restated to reflect the 3-for-2 stock split which occurred on January 17, 2003. 2
QUARTER ENDED -------------------------------------------------------------- 09/30/03 06/30/03 03/31/03 12/31/02 09/30/02 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SELECTED FINANCIAL DATA (AT END OF PERIOD): Total securities(1).......................... $ 647,433 $ 581,743 $ 505,877 $ 487,020 $ 403,192 Total loans.................................. 1,131,706 1,066,919 1,018,196 965,641 913,197 Total assets................................. 1,857,103 1,759,676 1,628,995 1,543,414 1,404,326 Total deposits............................... 1,476,047 1,445,590 1,365,344 1,205,271 1,163,327 Funds borrowed............................... 164,491 170,433 124,933 209,954 125,422 Trust preferred securities................... 20,000 20,000 20,000 20,000 20,000 Total stockholders' equity................... 161,105 100,340 95,373 89,092 79,281 Wealth management assets under management.... 1,320,175 1,264,955 1,204,239 1,239,779 693,869 SELECTED FINANCIAL RATIOS AND OTHER DATA: Performance Ratios: Net interest margin(2)(8)................. 3.64% 3.33% 3.68% 3.56% 3.46% Net interest spread(3).................... 3.43 3.16 3.53 3.37 3.27 Non-interest income to average assets..... 0.92 1.06 0.62 0.38 0.41 Non-interest expense to average assets.... 2.38 2.33 2.41 2.16 2.08 Net overhead ratio(4)..................... 1.46 1.27 1.80 1.78 1.68 Efficiency ratio(5)....................... 53.9 55.0 58.5 57.3 56.3 Return on average assets(6)............... 1.15 1.10 0.92 0.88 0.89 Return on average equity(7)............... 14.57 18.81 15.49 15.99 15.86 Dividend payout ratio..................... 7.67 6.75 8.62 6.14 6.51 Asset Quality Ratios: Non-performing loans to total loans....... 0.17% 0.26% 0.35% 0.14% 0.33% Allowance for loan losses to: total loans............................ 1.23 1.22 1.22 1.20 1.17 non-performing loans................... 676 476 355 828 357 Net charge-offs (recoveries) to average total loans............................ 0.09 0.07 0.03 (0.01) 0.04 Non-performing assets to total assets..... 0.10 0.16 0.22 0.09 0.21 Non-accrual loans to total loans.......... 0.05 0.08 0.15 0.08 0.05 Balance Sheet Ratios: Loans to deposits......................... 76.7% 73.8% 74.6% 80.1% 78.5% Average interest-earning assets to average interest-bearing liabilities... 112.4 108.2 107.1 108.2 108.0 Capital Ratios: Total equity to total assets.............. 8.68% 5.70% 5.85% 5.77% 5.65% Total risk-based capital ratio............ 12.88 8.37 8.30 8.29 9.10 Tier 1 risk-based capital ratio........... 11.79 7.06 6.99 6.91 7.61 Leverage ratio............................ 8.52 5.23 5.27 5.91 5.91 - ------------------ (1) The entire securities portfolio was classified as "available-for-sale" for the periods presented. (2) Net interest income, on a tax-equivalent basis, divided by average interest-earning assets. (3) Yield on average interest-earning assets less rate on average interest-bearing liabilities. (4) Non-interest expense less non-interest income divided by average total assets. (5) Non-interest expense divided by the sum of net interest income (tax equivalent) plus non-interest income. (6) Net income divided by average total assets. (7) Net income divided by average common equity.
(footnotes continued on next page) 3 (8) The company adjusts GAAP reported net interest income by the tax equivalent adjustment amount to account for the tax attributes on federally tax exempt municipal securities. For GAAP purposes, tax benefits associated with federally tax-exempt municipal securities are reflected in income tax expense. The following table reconciles reported net interest income to net interest income on a tax equivalent basis for the periods presented:
RECONCILIATION OF NET INTEREST INCOME TO NET INTEREST INCOME ON A TAX EQUIVALENT BASIS 3Q03 2Q03 1Q03 4Q02 3Q02 ---- ---- ---- ---- ---- Net interest income.................................. $14,813 $12,558 $12,997 $11,813 $10,443 Tax equivalent adjustment to net interest income..... 772 742 695 661 756 --- --- --- --- --- Net interest income, tax equivalent basis............ $15,585 $13,300 $13,692 $12,474 $11,199 ======= ======= ======= ======= =======
4 PART I ITEM 1. FINANCIAL STATEMENTS PRIVATEBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 2003 2002 2002 ---- ---- ---- (UNAUDITED) (UNAUDITED) ASSETS Cash and due from banks................................. $ 33,551 $ 34,529 $ 44,561 Federal funds sold and other short-term investments..... 1,999 258 3,848 --------- --------- --------- Total cash and cash equivalents...................... 35,550 34,787 48,409 --------- --------- --------- Loans held for sale..................................... 5,554 14,321 9,062 Available-for-sale securities, at fair value............ 647,433 487,020 403,192 Loans, net of unearned discount......................... 1,131,706 965,641 913,197 Allowance for loan losses............................... (13,865) (11,585) (10,642) --------- --------- --------- Net loans............................................... 1,117,841 954,056 902,555 --------- --------- --------- Goodwill................................................ 19,242 19,199 10,805 Premises and equipment, net............................. 6,334 6,851 6,378 Accrued interest receivable............................. 7,280 9,427 8,597 Other assets............................................ 17,869 17,753 15,328 --------- --------- --------- Total assets............................................ $1,857,103 $1,543,414 $1,404,326 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Demand deposits: Non-interest-bearing................................. $ 125,505 $ 88,986 $ 80,994 Interest-bearing..................................... 71,958 64,893 57,575 Savings and money market deposit accounts............... 484,662 488,941 431,455 Brokered deposits....................................... 454,264 279,806 324,977 Other time deposits..................................... 339,658 282,645 268,326 --------- --------- --------- Total deposits....................................... 1,476,047 1,205,271 1,163,327 Funds borrowed.......................................... 164,491 209,954 125,422 Trust preferred securities.............................. 20,000 20,000 20,000 Accrued interest payable................................ 4,376 4,986 4,997 Other liabilities....................................... 31,084 14,111 11,299 --------- --------- --------- Total liabilities....................................... 1,695,998 1,454,322 1,325,045 --------- --------- --------- STOCKHOLDERS' EQUITY Preferred Stock, 1,000,000 shares authorized............ -- -- -- Common stock, without par value, $1 stated value; 24,000,000 shares authorized; 9,840,034, 7,704,203, and 7,404,234 shares issued and outstanding as of September 30, 2003, December 31, 2002 and September 30, 2002, respectively..................... 9,840 7,704 7,404 Additional paid-in-capital.............................. 103,672 45,367 40,007 Retained earnings....................................... 40,114 27,784 24,760 Accumulated other comprehensive income.................. 10,420 8,826 8,721 Deferred compensation................................... (2,941) (589) (661) Loans to officers....................................... - - (950) ---------- ---------- ---------- Total stockholders' equity.............................. 161,105 89,092 79,281 ---------- ---------- ---------- Total liabilities and stockholders' equity.............. $1,857,103 $1,543,414 $1,404,326 ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. All previously reported share and per share data has been restated to reflect the 3-for-2 stock split which occurred on January 17, 2003. 5 PRIVATEBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- INTEREST INCOME Loans, including fees........................................... $15,830 $13,704 $46,205 $38,517 Taxable securities.............................................. 4,564 3,079 11,808 9,282 Securities exempt from federal income taxes..................... 1,769 1,478 5,052 4,367 Federal funds sold and interest-bearing deposits................ 6 38 62 63 ------- ------- ------- ------- Total interest income........................................ 22,169 18,299 63,127 52,229 ------- ------- ------- ------- INTEREST EXPENSE Deposits: Interest-bearing demand...................................... 134 168 410 507 Savings and money market deposit accounts.................... 1,375 1,923 4,728 5,405 Brokered deposits and other time deposits.................... 4,346 3,976 12,634 12,109 Funds borrowed.................................................. 1,016 1,304 3,532 3,967 Trust preferred securities...................................... 485 485 1,455 1,454 ------- ------- ------- ------- Total interest expense....................................... 7,356 7,856 22,759 23,442 ------- ------- ------- ------- Net interest income.......................................... 14,813 10,443 40,368 28,787 ------- ------- ------- ------- Provision for loan losses....................................... 1,092 828 2,778 2,948 ------- ------- ------- ------- Net interest income after provision for loan losses.......... 13,721 9,615 37,590 25,839 ------- ------- ------- ------- NON-INTEREST INCOME Banking, wealth management services and other income........... 3,657 1,763 9,539 5,107 Securities (losses), gains, net................................ (333) 280 1,922 324 Interest Rate Swap gains,(losses) ............................. 765 (662) (519) (662) ------- ------- ------- ------- Total non-interest income.................................... 4,089 1,381 10,942 4,769 ------- ------- ------- ------- NON-INTEREST EXPENSE Salaries and employee benefits.................................. 5,338 3,393 15,186 10,076 Occupancy expense, net.......................................... 1,403 1,227 4,092 3,572 Professional fees............................................... 1,130 997 3,483 2,915 Amortization of intangibles..................................... 42 -- 126 -- Other non-interest expense...................................... 2,690 1,471 6,891 4,110 ------- ------- ------- ------- Total non-interest expense................................... 10,603 7,088 29,778 20,673 ------- ------- ------- ------- Minority interest expense....................................... 59 -- 141 -- Income before income taxes................................... 7,148 3,908 18,613 9,935 ------- ------- ------- ------- Income tax provision............................................ 2,018 875 5,267 2,148 ------- ------- ------- ------- Net income................................................... $ 5,130 $ 3,033 $13,346 $ 7,787 ======= ======= ======= ======= Basic earnings per share........................................ $ 0.57 $ 0.41 $ 1.65 $ 1.06 Diluted earnings per share...................................... $ 0.54 $ 0.39 $ 1.55 1.01
The accompanying notes to consolidated financial statements are an integral part of these statements. All previously reported share and per share data has been restated to reflect the 3-for-2 stock split which occurred on January 17, 2003. 6 PRIVATEBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED ADDITIONAL OTHER LOANS TOTAL COMMON PAID-IN- RETAINED COMPREHENSIVE DEFERRED TO STOCKHOLDERS' STOCK CAPITAL EARNINGS INCOME COMPENSATION OFFICERS EQUITY ----- ------- -------- ------ ------------ -------- ------ BALANCE, JANUARY 1, 2002.. $7,206 $39,114 $17,468 $ 323 $ (857) $(950) $ 62,304 Net income................ -- -- 7,787 -- -- -- 7,787 Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments............ -- -- -- 8,398 -- -- 8,398 ----- ------ Total comprehensive income 16,185 ------ Cash dividends declared ($0.07 per share)...... -- -- (495) -- -- -- (495) Issuance of common stock.. 198 893 -- -- -- -- 1,091 Awards granted............ -- -- -- -- (38) -- (38) Amortization of deferred compensation........... -- -- -- -- 234 -- 234 ------ ------- ------- ------- ------- ----- -------- BALANCE, SEPTEMBER 30, 2002................... $7,404 $40,007 $24,760 $ 8,721 $ (661) $(950) $ 79,281 ====== ======= ======= ======= ======= ===== ======== BALANCE, JANUARY 1, 2003.. $7,704 $45,367 $27,784 $ 8,826 $ (589) $ -- $ 89,092 Net income................ -- -- 13,346 -- -- -- 13,346 Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments............ -- -- -- 1,594 -- -- 1,594 ------- Total comprehensive income 14,940 Cash dividends declared ------- ($0.12 per share)...... -- -- (1,016) -- -- -- (1,016) Issuance of common stock.. 2,136 58,305 -- -- -- -- 60,441 Awards granted and forfeited.............. -- -- -- -- (2,538) -- (2,538) Amortization of deferred compensation........... -- -- -- -- 186 -- 186 ------ ------- ------- ------- ------- ----- -------- BALANCE, SEPTEMBER 30, 2003................... $9,840 $103,672 $40,114 $10,420 $(2,941) $ -- $161,105 ====== ======== ======= ======= ======= ===== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. All previously reported share and per share data has been restated to reflect the 3-for-2 stock split which occurred on January 17, 2003. 7 PRIVATEBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income..................................................................... $ 13,346 $ 7,787 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................... 1,225 999 Amortization of deferred compensation, net of forfeitures................... 186 234 Provision for loan losses................................................... 2,778 2,948 Net gain on sale of securities.............................................. (1,922) (324) Trading losses on interest rate swap........................................ 519 662 Net proceeds on loans held for sale......................................... 8,767 2,273 (Decrease) increase in deferred loan fees................................... (552) 553 Decrease (increase) in accrued interest receivable.......................... 2,147 (1,335) (Decrease) increase in accrued interest payable............................. (609) 2,885 (Increase) decrease in other assets......................................... (248) 689 Increase (decrease) in other liabilities.................................... 16,151 (2,451) -------- -------- Total adjustments........................................................... 28,442 7,133 -------- -------- Net cash provided by operating activities................................... 41,788 14,920 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities, paydowns, and sales of securities.................... 80,380 102,890 Purchase of securities available-for-sale...................................... (236,976) (160,763) Net loan principal advanced.................................................... (165,921) (133,547) Premises and equipment expenditures............................................ (720) (3,569) -------- -------- Net cash used in investing activities....................................... (323,237) (194,989) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in total deposits................................................. 270,788 312,839 Proceeds from exercise of stock options........................................ 704 1,053 Proceeds from common stock offering............................................ 57,199 -- Dividends paid................................................................. (1,016) (495) Net decrease in funds borrowed................................................. (45,463) (107,720) -------- -------- Net cash provided by financing activities................................... 282,212 205,677 -------- -------- Net increase in cash and cash equivalents...................................... 763 25,608 Cash and cash equivalents at beginning of year................................. 34,787 22,801 -------- -------- Cash and cash equivalents at end of period..................................... $ 35,550 $ 48,409 ========= ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. All previously reported share and per share data has been restated to reflect the 3-for-2 stock split which occurred on January 17, 2003. 8 PRIVATEBANCORP, INC. AND SUBSIDIARIES NOTE 1--BASIS OF PRESENTATION The consolidated financial information of PRIVATEBANCORP, Inc. (the "Company") and its subsidiaries, The PrivateBank and Trust Company (the "Bank" or "The PrivateBank (Chicago)") and The PrivateBank (St. Louis), included herein is unaudited; however, such information reflects all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation for the interim periods. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The annualized results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the results expected for the full year ending December 31, 2003. The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in accordance with generally accepted accounting principles. The September 30, 2003 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2002 included in the Company's Annual Report on Form 10-K/A. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reported period. Actual results could differ from these estimates. Certain reclassifications have been made to prior periods' consolidated financial statements to place them on a basis comparable with the current period's consolidated financial statements. NOTE 2--ACCOUNTING FOR STOCK-BASED COMPENSATION Pursuant to SFAS No. 148, Accounting for Stock-Based Compensation (SFAS No. 148), pro forma net income and pro forma earnings per share are presented in the following table as if the fair value method of accounting for stock-based compensation plans had been utilized. NINE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- (DOLLARS IN THOUSANDS) Net income As reported...................... $13,346 $7,787 Pro forma........................ 12,368 7,445 Basic earnings per share As reported...................... $ 1.65 $ 1.06 Pro forma........................ 1.61 1.04 Diluted earnings per share As reported...................... $ 1.55 $ 1.01 Pro forma........................ 1.51 1.00 9 THREE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- (DOLLARS IN THOUSANDS) Net income As reported...................... $5,130 $3,033 Pro forma........................ 4,803 2,919 Basic earnings per share As reported...................... $ 0.57 $ 0.41 Pro forma........................ 0.57 0.41 Diluted earnings per share As reported...................... $ 0.54 $ 0.39 Pro forma........................ 0.54 0.39 Note: The pro forma results above may not be representative of the effect reported in net income for future years. In determining the fair value of each option grant for purposes of the above pro forma disclosures, the Company used an option pricing model with the following assumptions for grants made in 2003: dividend yield of 0.40%; risk-free interest rate of 4.55%; expected lives of 10 years for the Stock Incentive Plan options, for the compensation replacement options and for the various director options; and expected volatility of approximately 46%, based on the Company's historical stock price experience. On August 28, 2003, the Company granted 163,200 stock options with an exercise price of $34.46 to certain members of management that vest over 4 years. Additionally, on August 28, 2003, the Company granted 23,000 stock options with an exercise price of $34.46 to the Board of Directors of each of the Company, The PrivateBank (Chicago) and The PrivateBank (St. Louis) that vest on December 31, 2003. NOTE 3--EARNINGS PER SHARE The following table shows the computation of basic and diluted earnings per share (in thousands except per share data) for the three and nine months ended September 30, 2003:
THREE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- Net income................................................ $5,130 $3,033 Weighted average common shares outstanding................ 9,009 7,393 Weighted average common shares equivalent(1).............. 566 417 ------ ------ Weighted average common shares and common share equivalents............................................ 9,575 7,810 ====== ====== Net income per average common share - basic............... $ 0.57 $ 0.41 Net income per average common share - diluted............. $ 0.54 $ 0.39 - ------------------ (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.
10
NINE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- Net income................................................ $13,346 $7,787 Weighted average common shares outstanding................ 8,092 7,353 Weighted average common shares equivalent(1).............. 522 386 ------- ------ Weighted average common shares and common share equivalents............................................ 8,614 7,739 ======= ======= Net income per average common share - basic............... $ 1.65 $ 1.06 Net income per average common share - diluted............. $ 1.55 $ 1.01 - ------------------ (1) Common shares equivalent result from stock options being treated as if they had been exercised and are computed by application of the treasury stock method.
NOTE 4--NEW ACCOUNTING STANDARDS In May 2003, Statement of Financial Accounting Standards (SFAS No. 150), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" was issued, establishing standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify certain financial instruments, which may previously have been classified as equity, as a liability. This generally includes financial instruments which either 1) require mandatory redemption at a specified time other than upon liquidation or termination of the entity, 2) include an obligation to either repurchase the issuer's equity shares or is indexed to such an obligation and which may require settlement in cash or 3) require the issuance of a variable number of the issuer's shares based on a monetary amount which is generally unrelated to the value of those shares. The Statement was effective as of July 1, 2003 and is not expected to have a material impact on the Company's accounting and reporting. In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" was issued, amending and clarifying financial accounting and reporting for certain derivative instruments. This statement is generally effective for contracts entered into or modified after September 30, 2003. The statement is not expected to have a material impact on the Company's accounting and reporting for derivatives. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which provides guidance on how to transition from the intrinsic value method of accounting for stock-based employee compensation under APB No. 25 to SFAS No. 123's fair value method of accounting, if a company so elects. The statement also amends the disclosure provisions of SFAS No. 123 and APB No. 25 to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB No. 25. Although the recognition provisions of SFAS No. 148 are not applicable to the Company at this time, as it continues to account for stock-based compensation using the intrinsic value method, the Company has provided the required disclosures in Note 1 to these consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. The objective of this interpretation is to provide guidance on how to identify a variable 11 interest entity (VIE) and determine when the assets, liabilities, noncontrolling interest, and results of operations of a VIE need to be included in a company's consolidated financial statements. The Company does not expect the adoption of FIN 46 to have a material impact on its results of operations, financial position, or liquidity. NOTE 5--OPERATING SEGMENTS For purposes of making operating decisions and assessing performance, management regards The PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth Management and the Holding Company as four operating segments. The Company's investment securities portfolio is comprised of the two banks' portfolios and accordingly each portfolio is included in total assets and reported in the results of The PrivateBank (Chicago) and The PrivateBank (St. Louis). Compensation expense related to the management of the investment portfolios is allocated solely to The PrivateBank (Chicago). Insurance expense for the Company is allocated to The PrivateBank (Chicago), the Holding Company and the Wealth Management segments. The results for each business segment are summarized in the paragraphs below and included in the following segment tables. We apply the accrual basis of accounting for each reportable segment and for transactions between reportable segments. During the first nine months of 2003, there were no changes in the measurement methods used to determine reported segment profit or loss as compared to the same period in 2002. For the periods presented, there are no asymmetrical allocations to segments requiring disclosure. The accounting policies of the segments are generally the same as those described in Note 1 -- Basis of Presentation to the consolidated financial statements included in this report. THE PRIVATEBANK (CHICAGO) The PrivateBank (Chicago), through its main office located in downtown Chicago as well as six full-service Chicago suburban locations, provides personal and commercial banking services primarily to affluent individuals, professionals, entrepreneurs and their business interests. The PrivateBank (Chicago)'s commercial lending products include lines of credit for working capital, term loans for equipment and letters of credit to support the commitments made by its clients. Non-credit products include lock-box, cash concentration accounts, merchant credit card processing, electronic funds transfer, other cash management products and insurance. The PrivateBank (Chicago) offers a full range of real estate lending products including fixed and floating rate permanent and mini-permanent mortgages, construction and commercial real estate loans. Personal loans include installment loans and lines of credit, home equity loans and a wide variety of home mortgage loans. Individual banking services include interest-bearing checking, money market accounts, certificates of deposit, ATM/debit cards and investment brokerage accounts. Additionally, The PrivateBank (Chicago) offers secured and unsecured personal loans and lines of credit. Through The PrivateBank (Chicago)'s affiliations with Mesirow Financial, Inc. and Sterling Investment Services, Inc., clients have access to insurance products and securities brokerage services. The PrivateBank (Chicago) also offers domestic and international wire transfers and foreign currency exchange. The PrivateBank (Chicago) balance sheet reflects goodwill of $19.2 million and intangibles of $2.4 million at September 30, 2003, which remained relatively unchanged compared to December 31, 2002 balances. 12 THE PRIVATEBANK (CHICAGO) SEPTEMBER 30, ------------- 2003 2002 ---- ---- (IN THOUSANDS) Total loans........................ $ 992,003 $ 815,230 Total assets....................... 1,674,797 1,265,061 Total deposits..................... 1,371,706 1,055,224 Total borrowings................... 129,620 91,672 Total capital...................... 140,365 105,540 Net interest income................ 34,684 26,667 Non-interest income................ 6,349 3,684 Non-interest expense............... 18,465 15,146 Net income......................... 14,551 9,697 THE PRIVATEBANK (ST. LOUIS) The PrivateBank (St. Louis), through its main office located in St. Louis, Missouri, provides personal and commercial banking services primarily to affluent individuals, professionals, entrepreneurs and their business interests. The PrivateBank (St. Louis) offers a full range 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. Commercial lending products provided by The PrivateBank (St. Louis) include lines of credit for working capital, term loans for equipment and letters of credit to support the commitments made by its clients. Non-credit products include lock-box, cash concentration accounts, merchant credit card processing, electronic funds transfer and other cash management products. Individual banking services include interest-bearing checking, money market deposit accounts, certificates of deposit, ATM/debit cards and investment brokerage accounts. The PrivateBank (St. Louis) also offers domestic and international wire transfers and foreign currency exchange. 13 THE PRIVATEBANK (ST. LOUIS) ----------- SEPTEMBER 30, ------------- 2003 2002 ---- ---- (IN THOUSANDS) Total loans........................ $139,942 $ 99,538 Total assets....................... 179,665 132,986 Total deposits..................... 128,005 108,103 Total borrowings................... 34,872 11,500 Total capital...................... 15,515 12,068 Net interest income................ 3,882 2,397 Non-interest income................ 2,935 1,253 Non-interest expense............... 4,153 2,813 Net income......................... 1,419 527 WEALTH MANAGEMENT Wealth Management includes investment management, personal trust and estate services, custodial services, retirement accounts and brokerage and investment services. Investment management professionals work with wealth management clients to define objectives, goals and strategies of the clients' investment portfolios. Wealth Management personnel assist some trust clients with the selection of an outside portfolio manager to direct account investments. Trust and estate account administrators work with clients and their attorneys to establish estate plans. Consistent with the Company's philosophy, Wealth Management emphasizes a high level of personal service, including prompt collection and reinvestment of interest and dividend income, weekly valuation, tracking of tax information, customized reporting and ease of security settlement. A significant portion of the Company's wealth management business is conducted through its subsidiary, Lodestar Investment Counsel, LLC. The PrivateBank (Chicago) acquired an 80% controlling interest in Lodestar Investment Counsel, LLC on December 30, 2002. Lodestar manages equity, balanced, and fixed income accounts primarily for high net-worth individuals, retirement plans and charitable organizations with investable assets generally in excess of $1.0 million, and emphasizes highly personalized client service. The minority interest expense included in this segment relates to the 20% interest in Lodestar that is owned by Lodestar management. WEALTH MANAGEMENT ----------------- SEPTEMBER 30, ------------- 2003 2002 ---- ---- (IN THOUSANDS) Wealth Management assets under management.......................... $1,320,175 $693,869 Net interest income.................... 876 1,004 Non-interest income.................... 4,775 2,187 Non-interest expense................... 4,914 2,833 Minority interest expense.............. 141 -- Net income............................. 393 240 The following table indicates the breakdown of our wealth management assets under management at September 30, 2003 by account classification and related gross revenue for the nine months ended September 30, 2003 and September 30, 2002: 14 AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 ------------------------ MARKET VALUE REVENUE ------------ ------- ACCOUNT TYPE (IN THOUSANDS) ------------ Lodestar............................ $ 543,405 $2,292 Agency--managed...................... 168,056 849 Custody............................. 327,178 491 Personal trust--managed.............. 270,627 1,081 Employee benefits--managed........... 57,601 62 ---------- ------ Less trust assets managed by Lodestar(1)...................... (46,692) ========== Total............................ $1,320,175 $4,775 ========== ====== (1) These assets are included in personal trust - managed balances. The revenue related to these assets are presented in personal trust managed and Lodestar based on the services provided. AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 ------------------------ MARKET VALUE REVENUE ------------ ------- ACCOUNT TYPE (IN THOUSANDS) ------------ Personal trust--managed.............. $231,715 $1,016 Agency--managed...................... 139,763 667 Custody............................. 270,498 441 Employee benefits--managed........... 51,893 63 -------- ------ Total............................ $693,869 $2,187 ======== ====== HOLDING COMPANY ACTIVITIES Holding Company Activities consist of parent company only matters. The Holding Company's most significant assets are its net investments in its two banking subsidiaries, The PrivateBank (Chicago) and The PrivateBank (St. Louis). During the first quarter 2001, in connection with the issuance of $20.0 million of 9.50% trust preferred securities, the Holding Company issued $20.0 million of subordinated debentures which are accounted for as long-term debt and also qualify as Tier 1 and Tier 2 capital (see note 9). The Tier 1 qualifying amount is limited to 25% of Tier 1 capital under Federal Reserve regulations. The excess amount qualifies as Tier 2 capital. Holding Company Activities are reflected primarily by interest expense on borrowings and operating expenses. Recurring holding company operating expenses consist of compensation (amortization of restricted stock awards, other salary expense) and miscellaneous professional fees. In May of 2002, PrivateBancorp, Inc. acquired an office building located in St. Charles, Illinois, for $1.8 million from Towne Square Realty. The St. Charles location of The PrivateBank (Chicago) continues to lease space in the building and pays rent to the Holding Company at the same terms and conditions as was paid to the prior owner. 15 HOLDING COMPANY ACTIVITIES -------------------------- SEPTEMBER 30, ------------- 2003 2002 ---- ---- (IN THOUSANDS) Total assets....................... $182,657 $ 121,619 Total borrowings................... -- 22,250 Long-term debt - trust preferred securities...................... 20,000 20,000 Interest expense................... 2,131 1,857 Non-interest income................ 152 65 Non-interest expense............... 2,482 2,178 Total capital...................... 161,105 79,281 Net loss........................... (3,017) (2,677) The following is a summary of certain operating information for reportable segments at or for the periods presented and the reported consolidated balances (in millions):
AT OR FOR THE NINE THE THE MONTHS ENDED PRIVATEBANK PRIVATEBANK WEALTH HOLDING INTERSEGMENT SEPTEMBER 30, 2003 (CHICAGO) (ST. LOUIS) MANAGEMENT COMPANY ELIMINATIONS(2) CONSOLIDATED ------------------ --------- --------- ---------- ------- --------------- ------------ Total loans.......... $ 992.0 $139.9 $ - $ - $ (0.2) $1,131.7 Total assets......... 1,674.8 179.7 - 182.7 (179.9) 1,857.1 Total deposits....... 1,371.7 128.0 - - (23.7) 1,476.0 Total borrowings(1).. 129.6 34.9 - 20.0 - 184.5 Total capital........ 140.4 15.5 - 161.1 (155.9) 161.1 Net interest income.. 34.7 3.9 0.9 (2.1) 3.0 40.4 Non-interest income.. 6.3 2.9 4.8 0.2 (3.3) 10.9 Non-interest expense. 18.5 4.2 4.9 2.5 (0.3) 29.8 Minority interest expense........... - - 0.1 - - 0.1 Net income........... 14.6 1.4 0.4 (3.0) (0.1) 13.3 Wealth Management assets under management........ - - 1,320.2 - - 1,320.2 AT OR FOR THE NINE THE THE MONTHS ENDED PRIVATEBANK PRIVATEBANK WEALTH HOLDING INTERSEGMENT SEPTEMBER 30, 2003 (CHICAGO) (ST. LOUIS) MANAGEMENT COMPANY ELIMINATIONS(2) CONSOLIDATED ------------------ --------- --------- ---------- ------- --------------- ------------ Total loans.......... $ 815.2 $ 99.5 $ - $ - $ (1.5) $ 913.2 Total assets......... 1,265.1 133.0 - 121.6 (115.4) 1,404.3 Total deposits....... 1,055.2 108.1 - - - 1,163.3 Total borrowings(1).. 91.7 11.5 - 42.3 (0.1) 145.4 Total capital........ 105.5 12.1 - 79.3 (117.6) 79.3 Net interest income.. 26.7 2.4 1.0 (1.9) 0.6 28.8 Non-interest income.. 3.7 1.3 2.2 0.1 (2.5) 4.8 Non-interest expense. 15.1 2.8 2.8 2.2 (2.2) 20.7 Minority interest expense........... - - - - - - Net income........... 9.7 0.5 0.2 (2.7) 0.1 7.8 Wealth Management assets under management........ - - 693.9 - - 693.9 - ------------------ (1) Includes long-term debt-trust preferred securities for the Holding Company Activities segment. (2) The intersegment elimination for total loans reflects the exclusion of unearned income for management reporting purposes. The intersegment elimination for total capital reflects the elimination of the net investment in The PrivateBank (Chicago) and The PrivateBank (St. Louis) in consolidation. The intersegment eliminations include adjustments necessary for each category to agree with the related consolidated financial statements.
16 The adjustments to total assets presented in the table above represent the elimination of the net investment in banking subsidiaries in consolidation, the elimination of the Company's cash that is maintained in a subsidiary bank account, the elimination of fed funds purchased and sold between Chicago and St. Louis, the reclassification of the unearned discount on loans, the reclassification related to current and deferred taxes and the reclassification of loan fee income which is included in non-interest income for segment reporting purposes as compared to interest income for consolidated reporting purposes. NOTE 6--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and estimated fair values of financial instruments as of September 30, 2003 have not materially changed on a relative basis from the carrying values and estimated fair values of financial instruments disclosed as of December 31, 2002. NOTE 7--OTHER COMPREHENSIVE INCOME Change in the fair value of securities available-for-sale is presented on a net basis on the Consolidated Statement of Changes in Stockholders' Equity. The following table discloses the changes in the components of other accumulated comprehensive income for the nine months ended September 30, 2003 and 2002 (in thousands):
SEPTEMBER 30, 2003 ------------------ BEFORE TAX NET OF TAX AMOUNT TAX EFFECT AMOUNT ------ ---------- ------ Unrealized gains on securities available-for-sale: Unrealized holding gains, net..................... $4,338 $1,475 $2,863 Less: reclassification adjustment for net gains, included in net income......................... 1,922 653 1,269 ------ ------ ------ Unrealized gains, net............................. $2,416 $ 822 $1,594 ====== ====== ====== SEPTEMBER 30, 2002 ------------------ BEFORE TAX NET OF TAX AMOUNT TAX EFFECT AMOUNT ------ ---------- ------ Unrealized gains on securities available-for-sale: Unrealized holding gains, net..................... $11,035 $2,383 $8,652 Less: reclassification adjustment for net gains, included in net income......................... 324 70 254 ------- ------ ------ Unrealized gains, net............................. $10,711 $2,313 $8,398 ======= ====== ======
17 NOTE 9--LONG TERM DEBT -- TRUST PREFERRED SECURITIES Effective February 8, 2001, PrivateBancorp Capital Trust I, a newly created Delaware statutory trust and wholly-owned financial subsidiary of the Company, issued 2,000,000 shares (including the underwriters' over-allotment) of 9.50% trust preferred securities, which represent preferred undivided interests in the assets of the trust. The sole assets of the trust are 9.50% junior subordinated debentures issued by the Company with a maturity date of December 31, 2030. Subject to certain limitations, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures at maturity or their earlier redemption. At the option of the Company, the debentures may be redeemed in whole or in part prior to maturity on or after December 31, 2005, if certain conditions are met, and only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations. The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the trust. The Company and the trust believe that, taken together, the obligations of the Company under the guarantee, the debentures and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the trust under the trust preferred securities. The trust preferred securities are recorded as a liability of the Company. The aggregate principal amount of the trust preferred securities outstanding is $20.0 million. As of September 30, 2003, the entire amount of the preferred securities is eligible for treatment as Tier I capital as allowed by the Federal Reserve. At September 30, 2003, the unamortized balance of the underwriting commissions paid and offering expenses was $1.1 million and is classified as part of other assets on the balance sheet. This amount is being amortized on a straight-line basis until maturity at $9,764 per quarter. The amortization is recognized as interest expense on the income statement. In the event the Company exercises its right to redeem the securities prior to maturity, any unamortized commissions would be expensed upon redemption. NOTE 10--CAPITAL TRANSACTIONS During the third quarter of 2003, the Company completed its underwritten public offering of 1,955,000 shares. The public offering price was $31.25 and the Company received aggregate net proceeds of approximately $57.2 million after deducting underwriting commissions and offering expenses, including shares issued pursuant to the underwriters' over-allotment option. The Company used a portion of the net proceeds from the offering to repay $30.0 million outstanding under its revolving credit facility. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW PrivateBancorp, Inc. ("the Company") was organized as a Delaware corporation in 1989 to serve as the holding company for a Chicago-based de novo bank designed to provide highly personalized financial services primarily to affluent individuals, professionals, entrepreneurs and their business interests. Through the Company's banking subsidiaries, The PrivateBank and Trust Company ("The PrivateBank (Chicago)") and The PrivateBank (St. Louis), the Company provides its clients with traditional personal and commercial banking services, lending programs, and wealth management services. Using the European tradition of "private banking" as the model, the Company strives to develop a unique relationship with clients, utilizing a team of managing directors to serve the clients' individual and corporate banking needs, and tailoring products and services to meet such needs. Currently, the Company has seven Chicago-area offices: Downtown Chicago, Wilmette, Oak Brook, St. Charles, Lake Forest, Winnetka, and Geneva, Illinois. During 2000, the Company expanded to the St. Louis market, where it opened a new federal savings bank, The PrivateBank (St. Louis). Currently, the Company operates one location in the St. Louis market. Managing directors are strategically located at all of these locations. On December 30, 2002, The PrivateBank (Chicago) acquired an 80% controlling interest in Lodestar Investment Counsel, LLC ("Lodestar"), a Chicago-based investment adviser with $543.4 million of assets under management at September 30, 2003. Lodestar manages equity, balanced, and fixed income accounts primarily for high net-worth individuals, retirement plans and charitable organizations with investable assets generally in excess of $1.0 million, and shares a similar focus on highly personalized client service. For financial information regarding the Company's four separate lines of business, The PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth Management and Holding Company Activities, see "Operating Segments Results" beginning on page 28 and "Note 5 -- Operating Segments" to the unaudited consolidated financial statements of the Company included on page 11. The profitability of our operations depends on our net interest income, provision for loan losses, non-interest income, and non-interest expense. Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts and rates on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest as well as to the execution of our asset/liability management strategy. The provision for loan losses reflects the cost of credit risk in the loan portfolio and is affected by changes in the loan portfolio, management's assessment of the collectability of the loan portfolio, loss experience, as well as economic and market factors. Non-interest income consists primarily of net security gains (losses) and wealth management fee income, and to a lesser extent, fees for ancillary banking services. Non-interest income from fees and deposit service charges are below peer group levels. This is largely the result of the profile of our typical client. Our clients tend to have larger deposit account balances than customers of traditional banks. Because average balances tend to be high, we do not earn the high service charge income typical of many retail banks. Non-interest expense includes salaries and employee benefits as well as occupancy, data processing, marketing, professional fees, insurance and other expenses. Non-interest expenses are influenced by the growth of operations. Our growth directly affects the majority of our expense categories. CRITICAL ACCOUNTING POLICIES Generally accepted accounting principles are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use 19 assumptions and estimates to apply these principles where actual measurements are not possible or practical. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements included herein. For a complete discussion of our significant accounting policies, see the footnotes to our Consolidated Financial Statements included on pages F-8 through F-14 in our Form 10-K/A for the fiscal year ended December 31, 2002. Below is a discussion of our critical accounting policies. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. Actual results could differ from those estimates. Management has reviewed the application of these policies with the Audit Committee of the Company's Board of Directors. For PrivateBancorp, Inc., accounting policies that are viewed as critical to us are those relating to estimates and judgments regarding the determination of the adequacy of the allowance for loan losses and the estimation of the valuation of goodwill and the useful lives applied to intangible assets. ALLOWANCE FOR LOAN LOSSES We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in our loan portfolio. The allowance for loan losses represents our estimate of probable losses in the portfolio at each balance sheet date and is based on review of available and relevant information. The allowance contains provisions for probable losses that we have identified relating to specific borrowing relationships as well as probable losses not specifically identified that are inherent in our loan portfolio. We reassess our allowance for loan losses monthly to determine the appropriate level of the reserve. We base the amount of the allowance for loan losses on a variety of factors, including assessment of the credit risk of the loans in the portfolio, volume of loans and commitments in the portfolio, delinquent loans, evaluation of current economic conditions in the market area, actual charge-offs during the period and historical loss experience. The unallocated portion of the reserve involves the exercise of judgment by management and reflects various considerations, including management's view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating credit losses. Management adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at the level determined appropriate. Loans are charged-off when deemed to be uncollectible by management. We believe that the allowance for loan losses is adequate to provide for estimated probable credit losses inherent in our loan portfolio. The allowance for loan losses as a percentage of total loans was 1.23% as of September 30, 2003 compared to 1.20% as of December 31, 2002. GOODWILL AND INTANGIBLE ASSETS During 2001, The PrivateBank (Chicago) recorded approximately $12.2 million in goodwill in connection with the Johnson Bank Illinois acquisition. During 2002, the Company recorded $8.4 million of goodwill and $2.5 million in customer intangibles in connection with the Lodestar Investment Counsel, LLC acquisition. These intangible assets are being amortized over an estimated useful life of 15 years. Effective January 1, 2002, the Company adopted SFAS No. 142, which requires that goodwill and intangible assets that have indefinite lives no longer be amortized but be reviewed for impairment annually, or more frequently if certain indicators arise. Prior to the adoption of SFAS No. 142, goodwill was being amortized using the straight-line method over a period of 15 years. The Company did not incur any goodwill impairment in 2002 in adopting SFAS 142. The Company performs an annual impairment test of goodwill each year. Impairment losses on recorded goodwill will be recorded as operating expenses. Goodwill at September 30, 2003 was $19.2 million compared to a similar amount of $19.2 million at December 31, 2002, excluding the Lodestar customer intangible assets of $2.4 million. The acquisition 20 of Lodestar on December 30, 2002, increased goodwill by $8.4 million and Lodestar customer intangible assets by $2.5 million. Amortization expense related to the Lodestar customer intangible assets is expected to be recorded in the amount of $167,000 each year for 15 years. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 NET INCOME Net income for the third quarter ended September 30, 2003, was $5.1 million, up 69% compared to third quarter 2002 net income of $3.0 million. Earnings per diluted share increased 38% to $0.54 per diluted share in the third quarter 2003 compared to $0.39 per diluted share in the third quarter 2002. Net income for the nine months ended September 30, 2003, increased to $13.3 million, or $1.55 per diluted share, compared to $7.8 million, or $1.01 per diluted share, for the same period last year, reflecting diluted earnings per share improvement of 53%. The improvement in earnings per diluted share for the three months ended September 30, 2003 as compared to the prior year period reflects a significant increase in net interest margin augmented by strong loan demand and increases in banking, wealth management services and other income. Non-interest income for the quarter includes net securities losses of $333,000 compared to net gains of $280,000 during the third quarter of 2002 and gains of $2.3 million during the second quarter of 2003. For the nine months ended September 30, 2003, increases in net interest income and non-interest income have outpaced the increases in non-interest expense for the period as compared to the prior year periods. During the second quarter 2003, we recognized a gain of $2.4 million on the sale of a single corporate bond from our available-for-sale investment security portfolio. The acquisition of Lodestar in December 2002 contributed to higher non-interest income and non-interest expense during 2003. NET INTEREST INCOME Net interest income is the difference between interest income and fees on earning assets and interest expense on deposits and borrowings. Interest income includes amortization of loan origination fees recorded from loans. Interest expense includes amortization of prepaid fees on brokered deposits and issuance costs of trust preferred securities. Net interest margin represents net interest income on a tax equivalent basis as a percentage of average earning assets during the period. Net interest margin reflects the spread between average yields earned on interest earning assets and the average rates paid on interest-bearing deposits and borrowings. The volume of non-interest-bearing funds, largely comprised of demand deposits and capital, also affects the net interest margin. Net interest income was $14.8 million during the three months ended September 30, 2003 compared to $10.4 million for the third quarter 2002, an increase of 42%, and an increase of 18% compared to the second quarter 2003. Average earning assets during the third quarter 2003 were $1.7 billion, compared to $1.3 billion in the prior year quarter, an increase of 31%, and an increase of 6% from June 30, 2003 levels. Net interest margin (on a tax equivalent basis) was 3.64% in the third quarter 2003, up from 3.46% in the prior year third quarter and up from 3.33% in the second quarter of 2003. The margin expansion during the third quarter of 2003 reflects a 6 basis point increase in yields on average earning assets and a 20 basis point decrease in the costs of average interest-bearing liabilities from the yields and costs incurred in the second quarter of 2003. During the third quarter of 2003, we used a portion of the net proceeds from our public offering to repay obligations outstanding on our revolving line of credit facility. During the quarter we also repaid in full a subordinated note with outstanding principal of $5.0 million. The changes made to funds borrowed during the third quarter 2003 had a positive impact on improving net interest margin during the quarter relative to the second quarter of 2003, and will continue to positively impact net interest margin in the fourth quarter of 2003. The impact of the third quarter FHLB stock dividend payment after an additional $45.0 million stock 21 investment in May 2003 also contributed to the expansion of net interest margin on a quarter-linked basis. Net interest income was $37.6 million during the nine months ended September 30, 2003 compared to $25.8 million for the same period in 2002, an increase of 45%. Net interest margin (on a tax equivalent basis) was 3.55% for the nine months ended September 30, 2003, up from 3.40% in the prior year period. The improvement in net interest margin during the nine months ended September 30, 2003 as compared to the same period in 2002 was primarily attributable to reductions in the rates paid on our interest-bearing liabilities, which more than offset the declines in the rates earned on interest yielding assets. During 2003, continued declines in market rates of interest have negatively impacted yields on investment securities. However, our loan portfolio has benefited from the utilization of interest rate floors that have been incorporated into a large percentage of our lending arrangements and have protected our loan yields in this low interest rate environment. The continued declines in market interest rates have allowed us to continue to reduce deposit rates and have resulted in lower rates paid on our borrowed funds for the nine months ended September 30, 2003 as compared to the same period in 2002. Additionally, net interest margin for the nine months ended September 30, 2003 has benefited from the deployment of $57.2 million of capital that was raised on July 30, 2003. In addition to the repayment of the amounts outstanding under our revolving line of credit, the capital that was raised in connection with the common stock offering has been utilized to continue to grow our loan and investment portfolios. A changing interest rate environment has an effect on our net interest margin. A large portion of our loan portfolio is based on the prime interest rate and may reprice faster than our deposits and floating rate borrowings. For the remainder of 2003, we do not expect any margin improvement, compared to third quarter, given our intention to extend the duration of our liabilities (see footnotes on page 22). Longer-term liabilities are generally more expensive than shorter-term liabilities given the upward slope of the yield curve. Alternatively, if market interest rates decrease, we expect our net interest margin to experience pressure. The following tables present a summary of our net interest income and related net interest margin, calculated on a tax equivalent basis (dollars in thousands):
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2003 2002 ---- ---- AVERAGE AVERAGE BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE ---------- -------- ---- ---------- -------- ---- Fed funds sold and other short-term investments......... $ 1,480 $ 6 1.66% $ 2,585 $ 38 5.68% Investment securities (taxable)... 435,096 4,564 4.13% 265,454 3,079 4.62% Investment securities(non-taxable)(2)..... 146,776 2,541 6.92% 119,763 2,234 7.46% Loans, net of unearned discount(3).................... 1,101,824 15,830 5.65% 887,720 13,704 6.07% ---------- ------- ---------- ------- Total earning assets.............. $1,685,176 $22,941 5.37% $1,275,522 $19,055 5.90% ========== ======= ========== ======= Interest-bearing deposits......... $1,309,963 $ 5,855 1.77% $1,041,397 $ 6,067 2.31% Funds borrowed.................... 169,088 1,016 2.35% 119,714 1,304 4.27% Trust preferred securities........ 20,000 485 9.70% 20,000 485 9.70% ---------- ------- ---------- ------- Total interest-bearing liabilities $1,499,051 7,356 2.14% $1,181,111 7,856 2.63% ========== ------- ========== ------- Tax equivalent net interest income $15,585 $11,199 ======= ======= Net interest spread(4)............ 3.43% 3.27% Net interest margin(5)(6)......... 3.64% 3.46%
22
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2003 2002 ---- ---- AVERAGE AVERAGE BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE ---------- -------- ---- ---------- -------- ---- Fed funds sold and other short-term investments......... $ 7,697 $ 62 1.07% $ 2,758 $ 63 3.01% Investment securities (taxable)... 391,336 11,808 3.99% 259,202 9,282 4.78% Investment securities(non-taxable)(2)..... 138,638 7,260 6.98% 118,496 6,600 7.43% Loans, net of unearned discount(3).................... 1,050,098 46,205 5.83% 829,107 38,517 6.16% ---------- ------- ---------- ------- Total earning assets.............. $1,587,769 $65,335 5.46% $1,209,563 $54,462 5.98% ========== ======= ========== ======= Interest-bearing deposits......... $1,259,446 $17,772 1.89% $ 968,820 $18,021 2.49% Funds borrowed.................... 172,862 3,532 2.69% 133,364 3,967 3.92% Trust preferred securities........ 20,000 1,455 9.70% 20,000 1,454 9.70% ---------- ------- ---------- ------- Total interest-bearing liabilities $1,452,308 $22,759 2.17% $1,122,184 $23,442 2.79% ========== ------- ========== ------- Tax equivalent net interest income $42,576 $31,020 ======= ======= Net interest spread(4)............ 3.37% 3.19% Net interest margin(5)(6)......... 3.55% 3.40% - ------------------ (1) Average balances were generally computed using daily balances. (2) Interest income on tax-advantaged investment securities reflects a tax equivalent adjustment based on a marginal federal corporate tax rate of 34%. The total tax equivalent adjustment reflected in the above table is approximately $772,000 and $756,000 in the third quarters of 2003 and 2002, respectively, and $2.2 million and $2.2 million for the nine months ended September 30, 2003 and 2002, respectively. (3) Nonaccrual loans are included in the average balances and do not have a material effect on the average yield. Interest due on non-accruing loans was not material for the periods presented. (4) Yield on average interest-earning assets less rate on average interest-bearing liabilities. (5) Net interest income, on a tax-equivalent basis, divided by average interest-earning assets. (6) The company adjusts GAAP reported net interest income by the tax equivalent adjustment amount to account for the tax attributes on federally tax exempt municipal securities. For GAAP purposes, tax benefits associated with federally tax-exempt municipal securities are reflected in income tax expense. The following table reconciles reported net interest income to net interest income on a tax equivalent basis for the periods presented:
RECONCILIATION OF QUARTER NET INTEREST INCOME TO QUARTER NET INTEREST INCOME ON A TAX EQUIVALENT BASIS 9/30/03 9/30/02 ------- ------- Net interest income............................. $14,813 $10,443 Tax equivalent adjustment to net interest income 772 756 ------- ------- Net interest income, tax equivalent basis....... $15,585 $11,199 ======= ======= RECONCILIATION OF YEAR TO DATE NET INTEREST INCOME TO YEAR TO DATE NET INTEREST INCOME ON A TAX EQUIVALENT BASIS 9/30/03 9/30/02 ------- ------- Net interest income............................. $40,368 $28,787 Tax equivalent adjustment to net interest income 2,208 2,233 ------- ------- Net interest income, tax equivalent basis....... $42,576 $31,020 ======= ======= The following table shows the dollar amount of changes in interest income (tax equivalent) and interest expense by major categories of interest-earning assets and interest-bearing liabilities attributable to changes in volume or rate, or a mix of both, for the periods indicated. Volume variances are computed using the change in volume multiplied by the previous period's rate. Rate variances are computed using the changes in rate multiplied by the previous period's volume. 23 THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002
CHANGE CHANGE CHANGE DUE DUE TO DUE TO TOTAL TO RATE VOLUME MIX CHANGE ------- ------ --- ------ (DOLLARS IN THOUSANDS) Interest income/expense from: Fed funds sold and other short-term investments............. $ (26) $ (16) $ 10 $ (32) Investment securities (taxable)............................. (325) 1,975 (165) 1,485 Investment securities (non-taxable)(1)...................... (163) 508 (38) 307 Loans, net of unearned discount............................. (931) 3,276 (219) 2,126 ------- ------ ------ ------ Total tax equivalent interest income(1).................. $(1,445) $5,743 $ (412) $3,886 ------- ------ ------ ------ Interest-bearing deposits................................... $(1,410) $1,564 $ (366) $ (212) Funds borrowed.............................................. (579) 531 (240) (288) Trust preferred securities.................................. -- -- -- -- ------- ------ ------ ------ Total interest expense................................... $(1,989) $2,095 $ (606) $ (500) ------- ------ ------ ------ Net tax equivalent interest income(1)....................... $ 544 $3,648 $ 194 $4,386 ======= ====== ====== ====== NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002 CHANGE CHANGE CHANGE DUE DUE TO DUE TO TOTAL TO RATE VOLUME MIX CHANGE ------- ------ --- ------ (DOLLARS IN THOUSANDS) Interest income/expense from: Fed funds sold and other short-term investments............. $ (40) $ 111 $ (72) $ (1) Investment securities (taxable)............................. (1,523) 4,724 675) 2,526 Investment securities (non-taxable)(1)...................... (396) 1,119 (63) 660 Loans, net of unearned discount............................. (2,016) 10,182 (478) 7,688 ------- ------ ------ ------ Total tax equivalent interest income(1).................. $(3,975) $16,136 $(1,288) $10,873 ------- ------ ------ ------ Interest-bearing deposits................................... $(4,373) $ 5,413 $(1,289) $ (249) Funds borrowed.............................................. (1,223) 1,158 (369) (434) Trust preferred securities.................................. -- -- -- -- ------- ------ ------ ------ Total interest expense................................... $(5,596) $ 6,571 $(1,658) $ (683) ------- ------ ------ ------ Net tax equivalent interest income(1)....................... $ 1,621 $ 9,565 $ 370 $11,556 ======= ======= ======= ======= - ------------------ (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 $772,000 and $756,000 in the third quarters of 2003 and 2002, respectively, and $2.2 million and $2.2 million for the nine months ended September 30, 2003 and 2002, respectively.
PROVISION FOR LOAN LOSSES The changes recorded in the components of the allowance for loan losses resulted in a provision for loan losses of $1.1 million for the three months ended September 30, 2003 compared to $828,000 for the comparable period in 2002. Net charge-offs totaled $246,000 for the quarter ended September 30, 2003 versus net charge-offs of $95,000 for the third quarter of 2002 and net charge-offs of $182,000 for the quarter ended June 30, 2003. The increase in charge-offs was attributable primarily to a single commercial credit. 24 For the nine months ended September 30, 2003, the provision for loan losses was $2.8 million compared to $2.9 million for the year earlier period. For the nine months ended September 30, 2003, net charge-offs totaled $498,000 versus net charge-offs of $612,000 in the year earlier period. The increase in the provision for loan losses during the nine months ended September 30, 2003 as compared to the prior year period reflects management's ongoing assessment of the losses that are probable and reasonably estimable in the loan portfolio. The increase in the allowance for loan losses as a percentage of total loans as of September 30, 2003 compared to September 30, 2002 reflects the credit outlook as of September 30, 2003 based on a review of economic developments and the weakening of credit quality of certain borrowers as reflected by risk rating downgrades. A discussion of the allowance for loan losses and the factors management considers in assessing the adequacy of the allowance begins on page 30. NON-INTEREST INCOME Non-interest income was $4.1 million in the third quarter of 2003, reflecting an increase of approximately $2.7 million or 196% from the third quarter of 2002. The increase includes a gain of approximately $765,000 recorded to reflect the fair market value adjustment on an interest rate swap compared to a loss of $662,000 recorded in the third quarter of 2002. Growth in wealth management income and residential mortgage fee income contributed to the expansion in non-interest income compared to the prior year period. Wealth Management income totaled $1.7 million for the third quarter 2003, an increase of $1.0 million from the third quarter 2002 and an increase of $130,000 from the second quarter of 2003. The year-over year increase in wealth management income was primarily due to the inclusion of $810,000 of asset management revenue from Lodestar. Lodestar recognized $756,000 in revenue in the second quarter 2003. The Company acquired Lodestar in the fourth quarter 2002. Our wealth management trust business contributed $900,000 of revenue from trust accounts under administration compared to $686,000 during the prior year third quarter and $824,000 during the second quarter 2003. Non-interest income was $10.9 million for the nine months ended September 30, 2003, reflecting an increase of $6.2 million or 129% as compared to non-interest income of $4.8 million for the same period in 2002. The increase in non-interest income for the nine months ended September 30, 2003 was attributable primarily to net securities gains of $1.9 million, a trading loss on an interest rate swap of $519,000, the inclusion of $2.3 million of Lodestar revenue as well as a $1.6 million increase in fee income resulting from the sale of residential mortgages in the secondary market. 25 The following table presents the breakdown of banking, wealth management services and other income for the periods presented:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Residential real estate secondary market fees......................... $1,204 $ 522 $3,023 $1,428 Wealth management fee revenue.......... 900 686 2,483 2,187 Lodestar asset management revenue...... 810 -- 2,292 -- Banking and other services............. 616 393 1,339 1,040 Bank owned life insurance.............. 127 162 402 452 ------ ------ ------ ------ Total banking, wealth management services and other income........ $3,657 $1,763 $9,539 $5,107 ====== ====== ====== ======
Sales of residential real estate loans generated $1.2 million of income during the third quarter 2003 compared to $522,000 during the prior year quarter primarily due to increased volume of loans sold as a result of continued strong demand for residential real estate loans. For the nine months ended September 30, 2003, sales of newly originated residential real estate loans generated $3.0 million of income as compared to $1.4 million in the year earlier period, an increase of 112%. It is anticipated that the demand for residential real estate loans will subside in the fourth quarter of 2003. Consolidated wealth management assets under management were $1.320 billion at September 30, 2003 compared to $694.0 million at September 30, 2002, and up $55.0 million from $1.265 billion at June 30, 2003. Of these amounts, trust services assets under management were $823.5 million and Lodestar assets under management were $543.4 million at September 30, 2003. Excluded from the consolidation are $46.7 million of trust services assets that are managed by Lodestar. At June 30, 2003, trust services managed $769.1 million of assets, Lodestar managed $538.4 million of assets, and $42.6 million of assets managed by Lodestar were excluded from the consolidation. Trust growth in assets under management during the quarter reflects the impact of net new business generated and the continued rebound in the equity markets. Growth in wealth management income contributed to the expansion in non-interest income during the quarter. Wealth management income totaled $1.7 million for the third quarter of 2003, an increase of $1.0 million from the third quarter of 2002 and an increase of $130,000 from the second quarter of 2003. Of the $1.7 million, approximately $558,000 was revenue generated from wealth management services provided to those clients where a third-party investment manager is utilized. A portion of revenue is used to pay these third-party investment managers and the remaining amount of fees collected are utilized to cover costs associated with administering other aspects of the wealth management services that we provide to clients. Wealth management fee revenue for the nine months ended September 30, 2003 was $4.8 million, including $2.3 million of Lodestar asset management revenue, compared to $2.2 million in the year earlier period. Of this amount, approximately $871,000 represents revenue generated from the wealth management services provided to those clients where a third-party investment manager is utilized. For the three months ended September 30, 2003, we paid $211,000 to third-party investment managers. These fees are included in the professional fees category of non-interest expense. For the nine months ended September 30, 2003, we paid approximately $532,000 to third-party investment managers. The increase in trust fees over the prior year period reflects a favorable shift in 26 the mix of accounts towards higher fee structures, the addition of new business and equity market improvements experienced during 2003. Of total trust fee revenue, Lodestar asset management revenue contributed approximately $810,000 for the third quarter ended September 30, 2003. For the nine months ended September 30, 2003, Lodestar asset management revenue totaled approximately $2.3 million. During the third quarter of 2003, we recognized income of $127,000 related to the increased cash surrender value of a bank owned life insurance (BOLI) policy that was entered into in the fourth quarter of 2001 as compared to relatively similar levels of income in the second quarter 2002. This policy covers certain higher-level employees who are deemed to be significant contributors to the company. All employees included in this policy are aware and have consented to the coverage. The cash surrender value of BOLI at September 30, 2003 was $11.1 million and is included in other assets on the balance sheet. Securities gains and losses for the third quarter 2003 also include a permanent impairment write-down of $43,000 on the Company's interest-only CMO investments. Continued low levels of market interest rates during the third quarter 2003 resulted in accelerated mortgage prepayments, which further impaired the fair value of our interest-only CMO securities. Our remaining investment in interest-only CMO securities was approximately $12,000 as of September 30, 2003. Included in non-interest income for the 2003 period are trading losses recorded to reflect the fair market value adjustment on an interest rate swap. This interest rate swap was entered into during the third quarter of 2002 in order to hedge a portion of the Company's investment in long-term municipal bonds. The change in the fair market value of the swap is recognized in earnings and results in a loss for the nine months ended September 30, 2003 because of the overall decline in market rates of interest during the period; for the quarterly period, the change in the fair market value of the swap resulted in a gain due to a slight rise in market rates in July 2003. For the three months ended September 30, 2003, the trading gain totaled $765,000 compared to a loss of $662,000 during the third quarter of 2002 and for the nine months ended September 30, 2003, the trading loss totaled $519,000. NON-INTEREST EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Salaries and employee benefits.......... $5,338 $3,393 $15,186 $10,076 Occupancy............................... 1,403 1,227 4,092 3,572 Professional fees....................... 1,130 997 3,483 2,915 Marketing............................... 855 351 1,850 1,090 Data processing......................... 376 433 1,137 1,115 Postage, telephone and delivery......... 217 185 641 546 Office supplies and printing............ 119 106 415 251 Insurance............................... 186 118 499 317 Amortization of intangibles............. 42 - 126 - Other expense........................... 937 278 2,349 791 ------- ------ ------- ------- Total non-interest expense.............. $10,603 $7,088 $29,778 $20,673 ======= ====== ======= =======
Non-interest expense increased to $10.6 million in the third quarter of 2003 from $7.1 million in the third quarter of 2002, an increase of 50%. For the nine months ended September 30, 2003, non-interest expense increased 44% to $29.8 million from $20.7 million in the prior period. 27 The Company recognized an early termination fee of $408,000 in other operating expenses in connection with the early extinguishment of a $30.0 million fixed rate FHLB advance during the third quarter of 2003. The remaining increase in non-interest expense between the periods is attributable primarily to increased costs associated with continued growth of the organization and the operations of Lodestar. Our efficiency ratio was 53.9% for the third quarter 2003 as compared to 56.3% for the third quarter 2002 and 55.0% in the second quarter 2003. The improvement in the efficiency ratio is primarily due to increases in net interest income as compared to the second quarter 2003. On a tax-equivalent basis, this ratio indicates that in the third quarter of 2003, we spent 53.9 cents to generate each dollar of revenue, compared to 56.4 cents in the third quarter of 2002. Our efficiency ratio declined to 55.6% for the nine months ended September 30, 2003 as compared to 57.8% for the same period in 2002. During the remainder of 2003, we expect to maintain a range of 55% to 60% for our level of operating efficiency as the level of noninterest expense increases with the growth of the Company. The efficiency ratio is equal to non-interest expense divided by the sum of net interest income on a tax equivalent basis plus non-interest income. Please refer to footnote 6 on page 24 for a reconciliation of net interest income to net interest income on a tax equivalent basis. Salaries and benefits increased to $5.3 million, or 57% during the third quarter 2003 as compared to the year ago quarter, reflecting the increased level of full-time equivalent employees to 206 people at September 30, 2003 from 176 people at September 30, 2002. Salaries and benefits increased to $15.2 million, or 51% during the nine months ended September 30, 2003 as compared to the year ago period. The increase is due primarily to overall growth in the organization and the addition of six Lodestar employees in the fourth quarter of 2002. Occupancy expense increased to $1.4 million during the third quarter 2003, reflecting an increase of 14% over the prior year quarter. Occupancy expense increased to $4.1 million during the nine months ended September 30, 2003, reflecting an increase of 15% over the prior year period. The increase in occupancy expense compared to prior year periods reflects the increase of additional floor space that is being leased in our downtown Chicago location as well as the Lodestar office space. Professional fees, which include legal, accounting, consulting services and investment management fees, increased to $1.1 million during the third quarter of 2003, reflecting an increase of 13% over the prior year quarter. Professional fees increased to $3.5 million, or 19%, during the nine months ended September 30, 2003, compared to the prior year period. The increase in professional fees is primarily attributable to higher legal, accounting and information systems consultation services as well as consulting fees paid for the management of our investment portfolio from February to May 2003. Marketing expenses increased to $855,000 for the quarter ended September 30, 2003 from $351,000 in the prior year quarter, an increase of 144%. For the nine months ended September 30, 2003, marketing expenses were $1.9 million, an increase of $760,000, or 70%, from the year earlier period. During the third quarter 2003, the Company recognized $350,000 of advertising expense related to a marketing campaign that is being distributed via radio advertisements and periodical advertising. Insurance expense increased 58% during the third quarter 2003 over the prior year quarter and 57% for the nine months ended September 30, 2003 due to the increased cost of insurance in the marketplace, and the renewal of our annual insurance coverage, which was previously under a three-year contract that expired in June 2002. During the third quarter 2003, the Company recognized an early termination fee of $408,000 in other operating expenses in connection with the early extinguishment of a $30.0 million fixed rate FHLB advance. For the nine months ended September 30, 2003, other operating expenses included a $400,000 loss in connection with a check fraud scheme involving a new deposit account during the second quarter of 2003, accounting for a large portion of the increase in other expense of non-interest expense. The Company is continuing to pursue recovery of the fraud loss in excess of the $150,000 deductible from its insurance carrier who initially denied coverage for the loss. 28 During the first nine months of 2003, we amortized $126,000 in intangible assets related to our acquisition of a controlling interest in Lodestar. INCOME TAXES The following table shows our income before income taxes, applicable income taxes and effective tax rate for the nine months ended September 30, 2003 and 2002, respectively (in thousands): NINE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- Income before taxes.......... $18,613 $9,935 Income tax provision......... 5,267 2,148 Effective tax rate........... 28.3% 21.6% The effective income tax rate varies from statutory rates principally due to certain interest income, which is tax-exempt for federal or state purposes, and certain expenses, which are disallowed for tax purposes. The higher effective tax rate for the nine months ended September 30, 2003 as compared to the prior year period reflects growth in pretax income of 87% that has outpaced the growth on our federally tax-exempt municipal bonds income. Federally tax-exempt municipal bonds increased to $159.1 million as of September 30, 2003, a 21% increase from $131.5 million at September 30, 2002. In addition, the higher effective tax rate for the nine months ended September 30, 2003 as compared to the prior year period is also attributable to the increased profitability of The PrivateBank (St. Louis) for 2003 relative to 2002 and has resulted in increased Missouri state tax expense requirements. OPERATING SEGMENTS RESULTS As described in Note 5 to the consolidated financial statements included in this report, the Company's operations consist of four primary business segments: The PrivateBank (Chicago), The PrivateBank (St. Louis), Wealth Management and Holding Company Activities. The profitability of The PrivateBank (Chicago) is primarily dependent on the net interest income, provision for loan losses, non-interest income and non-interest expense. Net income for The PrivateBank (Chicago) for the nine months ended September 30, 2003 increased 50% to $14.6 million from $9.7 million for the nine months ended September 30, 2002. The growth in net income for the period resulted from improvements in net interest income, which was driven by increases in loans and investments. The improvement in net interest income and non-interest income for the nine months ended September 30, 2003 more than offset increases in operating expenses associated with continued growth of The PrivateBank (Chicago). Net interest income for The PrivateBank (Chicago) for the nine months ended September 30, 2003 increased to $34.7 million from $26.7 million, or 30%, primarily due to growth in earning assets. The PrivateBank (Chicago)'s investment in FHLB stock increased by approximately $50.8 million during 2003 and continues to have a positive impact on the yield on earning assets during 2003. Total loans increased by 22%, or $176.8 million, to $992.0 million at September 30, 2003 as compared to total loans of $815.2 million at September 30, 2002. The majority of the loan growth for the nine months ended September 30, 2003 occurred in the commercial real estate and construction loan categories. Total deposits increased by 30% to $1.4 billion at September 30, 2003, from $1.1 billion at September 30, 2002. Growth in money market deposits, jumbo certificates of deposits, non-interest-bearing deposits and increased utilization of brokered deposits accounted for the majority of the deposit growth. Net income for The PrivateBank (St. Louis) for the nine months ended September 30, 2003 increased by $892,000 to $1.4 million as compared to $527,000 in the prior year period. This growth in net income resulted from increases in net interest income and non-interest income, which more than 29 offset increases in operating expenses. Increased fee income from the sale of residential real estate loans continues to have a significant positive impact on The PrivateBank (St. Louis). Net interest income for The PrivateBank (St. Louis) for the nine months ended September 30, 2003 increased to $3.9 million from $2.4 million in the prior year period, an increase of 62%, primarily due to growth in earning assets. Total loans increased 41% to $139.9 million at September 30, 2003 from $99.5 million at September 30, 2002, due primarily to growth in commercial real estate and commercial loans categories. Construction and personal loans also contributed to the increase in loans but to a lesser extent as compared to the growth in the commercial real estate and commercial categories. Total deposits increased by $19.9 million to $128.0 million at September 30, 2003 from $108.1 million at September 30, 2002. The majority of the deposit growth at The PrivateBank (St. Louis) was due to increased money market and jumbo certificates of deposit during the nine months ended September 30, 2003 as compared to the prior year period. Brokered deposits were $34.8 million at September 30, 2003, a decrease of $15.0 million since September 30, 2002. Wealth management includes investment management, personal trust and estate services, custodial services, retirement accounts and brokerage and investment services. Wealth management assets under management increased by $626.3 million to $1.3 billion at September 30, 2003, as compared to $693.9 million at September 30, 2002, due primarily to our acquisition of Lodestar. Excluding Lodestar, trust assets under administration for the Wealth Management segment were $776.8 million at September 30, 2003, compared to $693.9 million as of September 30, 2002. Lodestar assets under management were $543.4 million as of September 30, 2003. Excluding Lodestar, trust fee revenue generated by the Wealth Management segment was $2.5 million compared to $2.2 million for the nine months ended September 30, 2002. Revenue generated by Lodestar for nine months ended September 30, 2003 added $2.3 million for a total of $4.8 million in wealth management revenue generated in the nine months ended September 30, 2003. Net income for nine months ended September 30, 2003 for our Wealth Management segment was $393,000 as compared to $240,000 for the nine months ended September 30, 2002. Lodestar contributed net income of approximately $372,000 (net of taxes) to the Wealth Management segment during the nine months ended September 30, 2003. Net income from the trust area for the nine months ended September 30, 2003 compared to prior year period reflects investments in trust personnel which have been made to support planned growth in the trust area of our Wealth Management segment. Holding Company Activities consist of parent company only matters. The Holding Company's most significant assets are its net investments in its two banking subsidiaries, The PrivateBank (Chicago) and The PrivateBank (St. Louis). Holding Company Activities are reflected primarily by interest expense on borrowings and operating expenses of the parent company. Recurring holding company operating expenses consist primarily of compensation (amortization of restricted stock awards, other salary expense) and miscellaneous professional fees. The Holding Company Activities segment reported a net loss of $3.0 million for the nine months ended September 30, 2003 as compared to $2.7 million for the nine months ended September 30, 2002. The increase in the amount of the net loss reported for 2003 as compared to prior year period reflects the amount of borrowings recorded at the Holding Company Activities segment. During the third quarter of 2003, the Company repaid a $30.0 million revolving line of credit and a $5.0 million subordinated note, however those balances were outstanding through the end of July 2003 and the middle of August 2003, respectively. Total borrowings, which included trust preferred securities at the Holding Company at September 30, 2003, were $20.0 million, compared to total borrowings of $42.3 million at September 30, 2002. 30 FINANCIAL CONDITION TOTAL ASSETS Total assets increased to $1.9 billion at September 30, 2003, an increase of $313.7 million, or 20% over total assets of $1.5 billion at December 31, 2002, and an increase of $452.8 million, or 32% over $1.4 billion of total assets at September 30, 2002. The balance sheet growth during the nine months ended September 30, 2003 was accomplished mainly through loan growth throughout the Company and growth in the investment securities portfolio. The growth in assets was funded primarily through increases in brokered deposits and to a lesser extent, from growth in core deposits. LOANS Total loans increased to $1.132 billion, an increase of $166.1 million, or 18%, from $965.6 million at December 31, 2002 and an increase of $218.5 million, or 24%, from $913.2 million at September 30, 2002. Loan growth since September 30, 2002 has occurred primarily in the commercial real estate and construction loan categories. The PrivateBank (St. Louis) had loans outstanding of $131.9 million as of September 30, 2003, which reflects growth of $27.2 million, or 26%, since December 31, 2002. The remaining loan growth of $139.9 million during the first nine months of 2003 was generated by The PrivateBank (Chicago). Loan volume at The PrivateBank (Chicago) offices increased 15% at September 30, 2003 as compared to December 31, 2002 loan levels. The following table sets forth the composition of our loan portfolio net of unearned discount by category (in thousands) at the following dates:
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 2003 2002 2002 ---- ---- ---- LOANS Commercial real estate............................ $ 572,577 $452,703 $427,303 Residential real estate........................... 68,749 72,289 79,269 Commercial........................................ 177,788 165,993 162,341 Personal(1)....................................... 160,021 151,452 134,801 Construction...................................... 152,571 123,204 109,483 ---------- -------- -------- Total loans, net of unearned discount.......... $1,131,706 $965,641 $913,197 ========== ======== ======== - ------------------ (1) Includes home equity loans and overdraft lines.
ALLOWANCE FOR LOAN LOSSES Loan quality is continually monitored by management and reviewed by the loan/investment committees of the boards of directors of the banks on a monthly basis. In determining the adequacy of the allowance for loan losses, management considers a variety of factors, including assessment of the credit risk of the portfolio, delinquent loans, evaluation of current economic conditions in the market area, actual charge-offs during the year and historical loss experience. The unallocated portion of the reserve involves the exercise of judgment by management and reflects various considerations, including management's view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating credit losses. We maintain an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in our loan portfolio. The allowance for loan losses represents our estimate of probable losses in the portfolio at each balance sheet date based on review of available and relevant information, including probable losses that have been identified relating to specific borrowing 31 relationships, as well as probable losses inherent in the loan portfolio and credit undertakings that are not specifically identified. Management's application of the methodology for determining the allowance for loan losses resulted in an allowance for loan losses of $13.9 million at September 30, 2003 compared with $10.6 million at September 30, 2002. We believe that the allowance for loan losses is adequate to provide for estimated probable credit losses inherent in our loan portfolio. The allowance for loan losses as a percentage of total loans was 1.23% at September 30, 2003, 1.20% at December 31, 2002 and 1.17% at September 30, 2002. Net charge-offs totaled $498,000 for the nine months ended September 30, 2003 versus net charge-offs of $612,000 in the year earlier period. Charge-offs for the nine months ended September 30, 2003 are primarily the result of two commercial credits. The provision for loan losses was $2.8 million for the nine months ended September 30, 2003, versus $2.9 million for the nine months ended September 30, 2002. Following is a summary of changes in the allowance for loan losses for the nine months ended September 30, 2003 and 2002 (in thousands): 2003 2002 ---- ---- Balance, January 1............................. $11,585 $ 8,306 Provisions charged to earnings................. 2,778 2,948 Loans charged-off, net of recoveries........... (498) (612) ------ ------- Balance, September 30.......................... $13,865 $10,642 ======= ======= Under our methodology, the allowance for loan losses is comprised of the following components: SPECIFIC COMPONENT OF THE RESERVE The specific component of the reserve is determined on a loan-by-loan basis as part of a regular review of our loan portfolio. The Company utilizes a loan rating system to assist in developing an internal problem loan identification system ("Watch List") as a means for identifying and reporting non-performing and potential problem loans. These loans are allocated specifically identified reserves based on the loan ratings assigned to individual loans. The specific reserve is based on a loan's current book value compared to the present value of its projected future cash flows, collateral value or market value, as is relevant for the particular loan. The portion of the provision related to the specific component of the reserve was approximately $489,000 during the first nine months of 2003 resulting in a decrease in this component of approximately $9,000 after giving effect to $498,000 in charge offs during the period. The specific component of the reserve consists of individual credit relationships that have been allocated specifically identified reserves based on the loan ratings assigned to individual loans and other extensions of credit. ALLOCATED INHERENT COMPONENT OF THE RESERVE The allocated portion of the inherent component of the reserve is based on management's review of historical and industry charge-off experience as well as its judgment regarding loans in each loan category over a period of time that management determines is adequate to reflect longer-term economic trends. Loss factors are evaluated by management and adjusted based on current facts and circumstances. Loss factor adjustments reflect management's assessment of the credit risk inherent in each loan category. The portion of the provision related to the allocated inherent component of the reserve was $1,651,000 during the first nine months of 2003. This reserve primarily reflects the increase in volume in our commercial real estate loan portfolio and construction loan portfolio. During 2003, loss factors 32 applied to the allocated inherent component of the reserve have not changed from December 31, 2002 levels. UNALLOCATED INHERENT COMPONENTS OF THE RESERVE The unallocated portion of the inherent component of the reserve is based on management's review of other factors affecting the determination of probable losses inherent in the portfolio, which are not necessarily captured by the application of loss factors. This portion of the reserve analysis involves the exercise of judgment and reflects consideration such as management's view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating credit losses. The unallocated inherent component of the reserve takes into account an increasingly more complex loan portfolio and growth in the dollar amount of individual credit exposures. The growth and complexity of the loan portfolio exposes us to larger individual charge-offs. The measure of imprecision has increased with this growth and poses greater risk to the Company that losses could exceed our estimates. As a result, management has elected to increase the unallocated inherent component of the reserve. The portion of the provision related to the unallocated inherent component of the reserve was $638,000 for the first nine months of 2003. NONPERFORMING LOANS The following table classifies our non-performing loans as of the dates shown:
9/30/03 6/30/03 3/31/03 12/31/02 9/30/02 ------- ------- ------- -------- ------- (DOLLARS IN THOUSANDS) Nonaccrual loans...................... $ 517 $ 889 $1,483 $ 749 $ 430 Loans past due 90 days or more........ 1,401 1,849 2,032 650 2,549 ------ ------ ------ ------ ------ Total nonperforming loans............. 1,918 2,738 3,515 1,399 2,979 ------ ------ ------ ------ ------ Total nonperforming assets............ $1,918 $2,738 $3,515 $1,399 $2,979 ====== ====== ====== ====== ====== Total nonaccrual loans to total loans. 0.046% 0.080% 0.146% 0.078% 0.047% Total nonperforming loans to total loans.............................. 0.17% 0.26% 0.35% 0.14% 0.33% Total nonperforming assets to total assets............................. 0.10% 0.16% 0.22% 0.09% 0.21%
Nonperforming loans include nonaccrual loans and accruing loans, which are 90 days or more delinquent. Loans in this category include those with characteristics such as past maturity more than 90 days, those that have recent adverse operating cash flow or balance sheet trends, or loans that have general risk characteristics that management believes might jeopardize the future timely collection of principal and interest payments. The balance in this category at any reporting period can fluctuate widely based on the timing of cash collections, renegotiations and renewals. Nonaccrual loans were $517,000 at September 30, 2003 as compared to $749,000 at December 31, 2002 and $430,000 at September 30, 2002. Nonaccrual loans decreased by $232,000 since December 31, 2002. Loans delinquent over 90 days increased by $751,000 since December 31, 2002 to $1.4 million. 33 INVESTMENT SECURITIES The amortized cost and the estimated fair value of securities at September 30, 2003 and December 31, 2002, were as follows (in thousands):
INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE ------------------------------------------- SEPTEMBER 30, 2003 ------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ---- ----- ------ ---------- U.S. government agency mortgage backed securities and collateralized mortgage obligations.................. $251,141 $ 4,630 $ (770) $255,001 Corporate collateralized mortgage obligations........................... 7,457 230 -- 7,687 Tax exempt municipal securities.......... 159,108 11,744 (402) 170,450 Taxable municipal securities............. 3,865 33 -- 3,898 Federal Home Loan Bank stock............. 205,741 -- -- 205,741 Other.................................... 4,356 321 (21) 4,656 -------- ------- ------- -------- Total.................................... $631,668 $16,958 $(1,193) $647,433 ======== ======= ======= ======== INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE ------------------------------------------- DECEMBER 31, 2002 ----------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ---- ----- ------ ---------- U.S. government agency mortgage backed securities and collateralized mortgage obligations.................. $155,510 $ 3,132 $(248) $158,394 Corporate collateralized mortgage obligations........................... 18,166 509 -- 18,675 Tax exempt municipal securities.......... 126,504 8,332 -- 134,836 Taxable municipal securities............. 4,583 114 -- 4,697 Federal Home Loan Bank stock............. 155,606 -- -- 155,606 Other.................................... 13,279 1,533 -- 14,812 -------- ------- ------- -------- Total.................................... $473,648 $13,620 $ (248) $487,020 ======== ======= ======= ========
All securities are classified as available-for-sale and may be sold as part of our asset/liability management strategy in response to changes in interest rates, prepayment risk or liquidity needs. Securities available-for-sale are carried at fair value, with related unrealized net gains or losses, net of deferred income taxes, recorded as an adjustment to equity capital. At September 30, 2003, net unrealized gains in the available-for-sale securities portfolio totaled $15.8 million compared to $13.4 million at December 31, 2002. Unrealized gains at September 30, 2003 resulted in an increase of $10.4 million in reported stockholders' equity. This was an increase of $1.6 million from net unrealized gains of $8.8 million recorded as part of equity at December 31, 2002. The increase in unrealized gains during the first nine months of 2003 is attributable primarily to gains in tax-exempt municipal securities. These municipal securities generally have long-term maturities and are not callable by the issuer or have long-term call dates. Thus, the fair value of these securities has increased during the first nine months of 2003 as rates on tax-free municipal bonds have fallen. The credit quality of the investment portfolio remains strong. Substantially all of our investments are rated "AAA" by bond rating agencies. It is our policy not to take any undue credit risk with the investment portfolio. 34 Securities available for sale increased to $647.4 million at September 30, 2003, up 33% from $487.0 million at December 31, 2002. The growth in the investment security portfolio since December 31, 2002 resulted from the continued implementation of our asset/liability management strategy. Tax exempt municipal securities increased by $35.6 million. These securities provide net interest margin protection in a falling interest-rate environment because they are long duration assets and they will not reprice as quickly as assets with shorter durations, thereby protecting yields in a falling rate environment. U.S. government agency mortgage backed securities and collateralized mortgage obligations increased by $96.6 million, or 61%. These securities perform relatively well in a rising rate environment because they have shorter durations and will reprice more quickly, which would allow us to reinvest the proceeds at higher rates. Investments in Federal Home Loan Bank stock increased by $50.1 million due to the purchase of $45.0 million of stock in May 2003 and stock dividends received during 2003. DEPOSITS AND FUNDS BORROWED The following table presents the balances of deposits by category and each category as a percentage of total deposits at September 30, 2003 and December 31, 2002:
SEPTEMBER 30, DECEMBER 31, ------------- ------------ 2003 2002 ---- ---- PERCENT OF PERCENT BALANCE TOTAL BALANCE OF TOTAL ------- ----- ------- -------- (DOLLARS IN THOUSANDS) Demand............................ $ 125,505 8% $ 88,986 7% Savings........................... 8,990 1% 6,344 1% Interest-bearing demand........... 71,958 5% 64,893 5% Money market...................... 475,672 32% 482,597 40% Brokered deposits................. 454,264 31% 279,806 23% Other time deposits............... 339,658 23% 282,645 24% ---------- --- ---------- --- Total deposits................. $1,476,047 100% $1,205,271 100% ========== === ========== ===
Total deposits of $1.5 billion at September 30, 2003 represent an increase of $270.8 million or 22% as compared to total deposits of $1.2 billion as of December 31, 2002. Non-interest-bearing deposits increased by 41% to $125.5 million at September 30, 2003 as compared to $89.0 million at December 31, 2002. Interest-bearing demand deposits increased by 11% to $72.0 million as compared to $64.9 million at December 31, 2002. Money market accounts decreased by $6.9 million, or 1%, to $475.7 million at September 30, 2003 as compared to $482.6 million at December 31, 2002. Brokered deposits increased by 62% or $174.5 million to $454.3 million at September 30, 2003 as compared to $279.8 million at December 31, 2002. Other time deposits increased by approximately $57.0 million, or 20%, to $339.7 million as compared to $282.6 million at year-end 2002. 35 We continued to utilize brokered deposits as a source of funding for growth in the loan and investment portfolios. Certain brokered deposits may include call option provisions, which can provide us with the opportunity to repay the certificates of deposit on a specified date prior to the contractual maturity date. As of September 30, 2003, there was one outstanding brokered deposit containing a call provision. The scheduled maturities of brokered deposits, net of unamortized prepaid broker commissions, as of September 30, 2003, for the fiscal years 2003 through 2007 and thereafter, are as follows: For year ending December 31, 2003 $ 35,652 2004(1) 298,185 2005 69,733 2006 30,000 2007(2) 22,000 -------- Total brokered deposits.................................. 455,570 Unamortized prepaid broker commissions................... (1,306) Total brokered deposits, net of unamortized prepaid -------- broker commissions....................................... $454,264 ======== (1) Of the $298.2 million of brokered deposits maturing in 2004, $155.9 million are maturing in the first quarter of 2004. (2) Includes one callable-brokered deposit for $15.0 million with a maturity of 9/28/2007 and a call date of 3/29/2004. Membership in the Federal Home Loan Bank System gives us the ability to borrow funds from the Federal Home Loan Bank of Chicago (FHLB) and from the Federal Home Loan Bank of Des Moines (FHLB) for short- or long-term purposes under a variety of programs. We have periodically used the services of the FHLB for short-term funding needs and other correspondent services. Federal Home Loan Bank borrowings totaled $84.5 million at September 30, 2003 compared to $77.8 million at December 31, 2002. Using proceeds from the common stock offering that was completed in the third quarter of 2003, the Company repaid Holding Company borrowings of $30.0 million, costing 3.50% under the Company's $35.0 million revolving line of credit. The Company also retired a $5.0 million subordinated note costing 3.31% during the third quarter 2003. 36 A summary of all funds borrowed and outstanding at September 30, 2003, December 31, 2002 and September 30, 2002 is presented in the table below:
LONG TERM FUNDS BORROWED: CURRENT RATE MATURITY 9/30/2003 12/31/2002 9/30/2002 ------------------------- ------------ -------- --------- ---------- --------- FHLB fixed advance(1) 4.16% 09/03/07 $ 25,000 $ -- $ -- Subordinated note 3.35% 02/11/07 -- 5,000 5,000 FHLB fixed advance 2.43% 07/17/06 1,000 -- -- FHLB fixed advance 2.12% 01/17/06 2,000 -- -- FHLB fixed advance (2) 6.50% 10/23/05 26,497 26,616 26,540 FHLB fixed advance 2.40% 09/04/05 5,000 -- -- FHLB fixed advance 1.83% 07/15/05 3,000 -- -- FHLB fixed advance 1.59% 12/15/04 10,000 -- -- FHLB fixed advance 1.56% 11/06/04 5,000 -- -- -------- -------- -------- Total long-term funds borrowed 77,497 31,616 31,540 -------- -------- -------- SHORT TERM FUNDS BORROWED: -------------------------- FHLB fixed advance 1.61% 01/13/04 1,000 -- -- FHLB fixed advance 6.21% 12/05/03 -- 30,000 30,000 FHLB fixed advance 1.73% 11/07/03 6,000 6,000 -- FHLB fixed advance 2.21% 07/22/03 -- 1,000 1,000 FHLB fixed advance 2.74% 07/17/03 -- 1,000 1,000 FHLB fixed advance 2.46% 06/16/03 -- 500 500 FHLB fixed advance 2.70% 05/08/03 -- 1,000 1,000 FHLB fixed advance 2.98% 03/10/03 -- 1,000 1,000 FHLB fixed advance 2.38% 01/13/03 -- 1,000 1,000 FHLB fixed advance 5.89% 12/20/02 -- -- 1,000 FHLB fixed advance 2.39% 11/12/02 -- -- 5,000 Borrowing under revolving line of credit facility 3.50% 12/1/2003 -- 25,000 17,250 FHLB open line advance 1.48% daily -- 9,700 -- Fed funds purchased 1.21% daily 70,000 98,000 29,000 Demand repurchase agreements(3) 0.90% daily 9,994 4,138 6,132 -------- -------- -------- Total short-term funds borrowed 86,994 178,338 93,882 -------- -------- -------- Total funds borrowed $164,491 $209,954 $125,422 ======== ======== ======== - ------------------ (1) This FHLB advance contains a call provision effective 9/7/2004 and semi-annually thereafter. (2) This FHLB advance is subject to a fair value hedge utilizing an interest rate swap with a fair value of $2.4 million at September 30, 2003. The contractual par amount on the advance is $25.0 million. (3) Demand repurchase agreements are a form of retail repurchase agreement offered to certain clients of The PrivateBank. Funds are swept each business day from the client's demand deposit account. These amounts are not deposits and are not insured, but are secured by a pool of securities pledged specifically for this purpose.
In February 2002, the Company renewed the term on an $18.0 million revolving credit facility with a commercial bank originally entered into in February 2000. On April 11, 2002, the loan agreement was amended and the revolving line was increased to $25.0 million. On December 24, 2002, the loan agreement was amended to increase the revolving line to $35.0 million and to extend the maturity to December 1, 2003. The interest rate on any borrowings under this revolving line resets quarterly, and is based on, at our option, either the lender's prime rate or three-month LIBOR +120 basis points with a floor of 3.50%. Historically, the Company has elected to pay interest based on the three-month LIBOR rate +120 basis points. On July 30, 2003, the outstanding balance on the line of credit was paid in full 37 using proceeds from the common stock offering completed on July 30, 2003. The payoff included interest of $84,583. In February 2000, the Company issued a subordinated note, in the principal amount of $5.0 million, as part of the purchase price for its acquisition of Johnson Bank Illinois. The interest on the subordinated note is reset each quarter based on the three-month LIBOR rate. The note was payable in full on or before February 11, 2007, and provided for certain rate escalation beginning after February 11, 2002. On February 11, 2002, the interest rate increased from LIBOR +50 basis points to LIBOR +200 basis points. This pricing was in effect until February 11, 2004, at which point the pricing would increase to LIBOR +350 basis points until maturity on February 11, 2007. On August 19, 2003, the subordinated note was paid in full. The average rate of interest on the subordinated note during the 50 days it was outstanding during the quarter was 3.32% compared to 3.84% during the third quarter 2002. On September 5, 2003, the Company prepaid a $30.0 million, 6.21% fixed rate Federal Home Loan Bank advance that was scheduled to mature on December 5, 2003. The Company replaced the advance with two new FHLB advances totaling $30.0 million: a $25.0 million advance at 4.16% scheduled to mature on September 3, 2007 and a $5.0 million advance at 2.40% scheduled to mature on September 4, 2005. The Company received two additional advances from the FHLB on the last day of the quarter; a $10.0 million advance at 1.59% scheduled to mature on December 15, 2004 and a $5.0 million advance at 1.56% scheduled to mature on November 6, 2004. CAPITAL RESOURCES At September 30, 2003, $20.0 million of the trust-preferred securities was treated as Tier 1 capital. Stockholders' equity rose to $161.1 million at September 30, 2003, an increase of $72.0 million from the 2002 year-end level, due primarily to gross proceeds of $57.2 from the common stock offering completed on July 30, 2003, year-to-date 2003 net income of $13.3 million and an increase of $1.6 million for the fair value of securities classified as available-for-sale, net of income taxes. On July 30, 2003, the Company completed its sale of 1.955 million shares of common stock in an underwritten public offering. The public offering price was $31.25. Net proceeds to the Company totaled approximately $57.2 million. As a result of the offering, the Company had 9,742,034 shares outstanding at July 30, 2003. On August 28, 2003, the Company granted 78,350 restricted shares to directors and certain officers of the Company. These shares vest after five years. The Company and its banking subsidiaries are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors, and the 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 a banking subsidiary is not "well-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. 38 The following table sets forth our consolidated regulatory capital amounts and ratios as of September 30, 2003 and 2002, and December 31, 2002:
SEPTEMBER 30, DECEMBER 31, ------------------------------------------------------------ ----------------------------- 2003 2002 2002 ------------------------------ ---------------------------- ----------------------------- "Well "Well "Well Capital- Excess/ Capital- Excess/ Capital- Excess/ ized" (Deficit) ized" (Deficit) ized" (Deficit) Capital Standard Capital Capital Standard Capital Capital Standard Capital ------- -------- ------- ------- -------- ------- ------- -------- ------- DOLLAR BASIS: Tier 1 leverage capital......... $149,027 $87,456 $61,571 $75,016 $69,344 $5,672 $78,524 $71,818 $6,706 Tier 1 risk-based capital......... 149,027 75,853 73,174 75,016 61,791 13,225 78,524 68,134 10,390 Total risk-based capital......... 162,892 126,421 36,471 90,407 102,985 (12,578) 94,109 113,556 (19,447) PERCENTAGE BASIS: Leverage ratio..... 8.52% 5.00% 5.91% 5.00% 5.47% 5.00% Tier 1 risk-based capital ratio... 11.79 6.00 7.61 6.00 6.91 6.00 Total risk-based capital ratio... 12.88 10.00 9.10 10.00 8.29 10.00 Total equity to total assets.... 8.68 5.65 5.77
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," a bank must maintain a leverage ratio of at least 4.0%, a Tier 1 risk-based capital ratio of at least 4.0%, and a total risk-based capital ratio of at least 8.0%. At September 30, 2003, the Company and each of the banking subsidiaries continued to exceed the minimum levels of all regulatory capital requirements. The Company and each banking subsidiary were considered "well-capitalized" under all regulatory standards at September 30, 2003. The Company's issuance of additional common stock to raise additional equity capital during the third quarter 2003 resulted in the Company being considered "well-capitalized" as of September 30, 2003. The preliminary estimate of Total risk-based capital, Tier-1 risk-based capital and leverage ratios was 12.40%, 11.34% and 8.62%, respectively, as reported in a our third quarter 2003 earnings release dated October 20, 2003. The ratios reported in the table above are higher than the preliminary ratios because the preliminary calculations were based on estimates of the breakdown of our loans by type of underlying collateral. The estimates used for loans collateralized by residential real estate, which has a lower risk weighting for regulatory capital purposes, were lower than the actual amounts. The final capital ratio calculations are based on the actual composition of loans by collateral type as is reported in the third quarter report we have filed with our banking regulator. LIQUIDITY Liquidity measures our ability to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund our operations and to provide for clients' credit needs. Our liquidity principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings and our ability to borrow funds in the money or capital markets. Net cash provided by operations was $41.8 million in the nine months ended September 30, 2003 compared to net cash inflows of $14.9 million in the prior year period. The net cash provided during the 39 nine months ended September 30, 2003 was impacted by the growth and timing of receipts of interest and cash settlement payments. Securities totaling $13.3 million were purchased on September 30, 2003 did not settle until October 4, 2003. As a result, $13.3 million payable to a broker for securities purchased was recorded on the balance sheet as of September 30, 2003. Net cash outflows from investing activities were $323.2 million in the first nine months of 2003 compared to a net cash outflow of $195.0 million in the prior year period. Cash inflows from financing activities in the first nine months of 2003 were $282.2 million compared to a net inflow of $205.7 million in the first nine months of 2002. Cash inflows from financing activities include net proceeds from the common stock offering of $57.2 million and the repayment of $35.0 million of borrowings at the holding company. In the event of short-term liquidity needs, our banking subsidiaries may purchase federal funds from correspondent banks. Membership in the Federal Home Loan Bank System gives the banking subsidiaries the ability to borrow funds from the FHLB for short- or long-term purposes under a variety of programs. Subject to the waiver of the required notice period, our investment in Federal Home Loan Bank (FHLB) stock is a source of liquidity for the Company. On May 6, 2003, we purchased $45.0 million of additional FHLB stock due to the liquid nature of the investment and management's belief that the FHLB Chicago has shown a consistently strong fundamental business performance. At September 30, 2003, we owned $205.7 million of FHLB stock. The Company can elect at any time to sell FHLB stock at par back to the FHLB, excluding the required FHLB stock minimum that needs to be maintained in order to support existing FHLB advances. FHLB has communicated to the Company that generally the stock will be redeemed immediately upon a request by the Company, however, FHLB can legally require six months advance notice of the stock sale before the stock is actually liquidated for cash at its par value. On September 24, 2003, the Company redeemed $5.0 million of its FHLB stock holdings for liquidity management purposes; cash proceeds were received the same day as requested. Alternatively, FHLB can redeem, at any time any FHLB stock we own, in excess of the required minimum FHLB stock that needs to be maintained in order to support existing advances. During the nine months ended September 30, 2003, our utilization of FHLB advances increased due to new advances obtained to take advantage of the availability of longer maturity advances at lower rates. For the remainder of 2003, we expect to continue to utilize FHLB advances as a funding source to the extent that rates on FHLB advances are more attractive than other sources of liquidity. On October 22, 2003, the FHLB Chicago announced that its third quarter dividend will be paid to member financial institutions in stock at an annualized rate of 7.0%. The FHLB Chicago paid first and second quarter dividends at an annualized rate of 6.5%. The third quarter divided will be paid to the Company on November 14, 2003. During the nine months ended September 30, 2003, we continued to rely on brokered deposits to fund growth in loans and investment securities as well as liquidity at our banks. For the remainder of 2003, we expect to continue to rely on brokered deposits for liquidity purposes if brokered rates continue to compare favorably to other sources of liquidity, and may increase the level of these deposits. Our asset/liability policy currently limits our use of brokered deposits to levels no more than 40% of total deposits. Consistent with this policy, brokered deposits represented 31% of total deposits at September 30, 2003 compared to 23% of total deposits at December 31, 2002. We do not expect our 40% threshold limitation to limit our ability to implement our growth plan. 40 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK RISK MANAGEMENT We are exposed to market risk from changes in interest rates that could affect our results of operations and financial condition. We manage our exposure to these market risks through our regular operating and financing activities. We hedge our interest rate risk through the use of derivative financial instruments. We use derivative financial instruments as risk management tools. One of two interest rate swaps we have entered into is designated as a fair value hedge of a fixed rate $25.0 million advance from the Federal Home Loan Bank of Chicago (FHLB). We entered into this interest rate swap transaction in 2001 and we agreed to receive a fixed rate in exchange for payment of a 3-month LIBOR floating rate based on an agreed-upon notional amount of $25.0 million. The fair value of the interest rate swap was $2.4 million as of September 30, 2003, a decrease of $485,366 as compared to December 31, 2002. The Company entered into a $25 million interest rate swap during the third quarter of 2002, swapping the 10-year treasury rate for 3-month LIBOR to serve as an economic hedge of a portion of the Company's available-for-sale municipal bond securities portfolio. The September 30, 2003 fair market value adjustment on this swap resulted in the trading loss of $519,000 for the nine months ended September 30, 2003, with a corresponding derivative liability of the same amount. This swap does not qualify for hedge accounting treatment pursuant to SFAS No. 133 ("Accounting for Derivative Instruments and Hedging Activities") and, accordingly, changes in the fair value of the swap are reported in other non-interest income. At September 30, 2003, the carrying value of the trading swap was a liability of $695,000. ASSET/LIABILITY MANAGEMENT POLICY As a continuing part of our financial strategy, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Asset/liability management policy is established by our Board of Directors and is monitored by management. Our asset/liability policy sets standards within which we intend 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 the Board of Directors. The investment policy complements the asset/liability management policy by establishing criteria by which we may purchase securities. These criteria include approved types of securities, brokerage sources, terms of investment, quality standards, and diversification. We measure the impact of interest rate changes on our income statement through the use of gap analysis. The gap represents the net position of assets and liabilities subject to repricing in specified time periods. During any given time period, if the amount of rate-sensitive liabilities exceeds the amount of rate-sensitive assets, a company would generally be considered negatively gapped and would benefit from falling rates over that period of time. Conversely, a positively gapped company would generally benefit from rising rates. At September 30, 2003, we have become more neutrally gapped as compared to balances at December 31, 2002. During 2003, we have extended the duration of our liabilities in an effort to migrate from a negatively gapped position in the short term to a more interest rate neutral position in the current period. The following tables illustrate our estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of September 30, 2003 and December 31, 2002: 41
SEPTEMBER 30, 2003 ----------------------------------------------------------------------- TIME TO MATURITY OR REPRICING ----------------------------------------------------------------------- 0-90 91-365 1-5 OVER 5 DAYS DAYS YEARS YEARS TOTAL ---- ---- ----- ----- ----- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS Net loans(1)......................... $ 794,035 $ 97,742 $222,365 $ 9,252 $1,123,394 Investments........................48 90,845 94,885 79,955 160,241 425,927 FHLB stock........................... 205,741 - - - 205,741 Fed funds sold....................... 1,499 - - - 1,499 ---------- -------- -------- -------- ---------- Total interest-earning assets........ $1,092,120 $192,627 $302,320 $169,493 $1,756,560 ========== ======== ======== ======== ========== INTEREST-BEARING LIABILITIES Interest-bearing demand deposit accounts.......................... $ 2,226 $ 6,224 $ 24,142 $ 39,366 $ 71,958 Savings deposits..................... 465 921 3,612 3,993 8,990 Money market deposits................ 475,672 - - - 475,672 Total time deposits.................. 163,176 126,476 50,005 - 339,657 Brokered deposits.................... 35,652 280,477 138,135 - 454,264 Total borrowings(2).................. 110,995 1,000 51,000 20,000 182,995 ---------- -------- -------- -------- ---------- Total interest-bearing liabilities... $ 788,186 $415,097 $266,894 $ 63,359 $1,533,535 ========== ======== ======== ======== ========== CUMULATIVE Rate sensitive assets (RSA)......... 1,092,120 1,284,747 1,587,067 1,756,560 Rate sensitive liabilities (RSL).... 788,186 1,203,283 1,470,177 1,533,535 GAP (GAP=RSA-RSL).................... 303,934 81,464 116,890 223,025 RSA/RSL.............................. 138.56% 106.77% 107.95% 114.54% RSA/Total assets..................... 58.81% 69.18% 85.46% 94.59% RSL/Total assets..................... 42.44% 64.79% 79.17% 82.58% GAP/Total assets..................... 16.37% 4.39% 6.29% 12.01% GAP/Total RSA........................ 27.83% 6.34% 7.37% 12.70% - ------------------ (1) Loans held for sale are excluded from GAP analysis. Loans held for sale totaled $5.5 million as of September 30, 2003. (2) The fair value adjustment on the interest rate swap is excluded from GAP analysis. The fair value adjustment on the $2.4 million interest rate swap was $1.5 million as of September 30, 2003.
42
DECEMBER 31, 2002 ------------------------------------------------------------------ TIME TO MATURITY OR REPRICING ----------------------------- 0-90 91-365 1-5 OVER 5 DAYS DAYS YEARS YEARS TOTAL ---- ---- ----- ----- ----- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS Net loans............................ $635,664 $ 77,465 $175,066 $ 79,197 $ 967,392 Investments.......................... 163,621 21,138 26,576 261,208 472,543 Short-term investments............... 258 -- -- -- 258 -------- -------- -------- -------- ---------- Total interest-earning assets........ $799,543 $ 98,603 $201,642 $340,405 $1,440,193 ======== ======== ======== ======== ========== INTEREST-BEARING LIABILITIES Interest-bearing demand.............. $ -- $ -- $ -- $ 64,892 $ 64,892 Savings and money market............. 486,819 1,262 -- 859 488,940 Time deposits........................ 191,238 205,474 91,872 73,868 562,452 Funds borrowed....................... 143,838 31,500 53,000 -- 228,338 -------- -------- -------- -------- ---------- Total interest-bearing liabilities... $821,895 $238,236 $144,872 $139,619 $1,344,622 ======== ======== ======== ======== ========== CUMULATIVE Rate sensitive assets (RSA).......... $799,543 $ 898,146 $1,099,788 $1,440,193 Rate sensitive liabilities (RSL)..... 821,895 1,060,131 1,205,003 1,344,622 GAP (GAP=RSA-RSL).................... (22,352) (161,985) (105,215) 95,571 RSA/RSL.............................. 97.28% 84.72% 91.27% 107.11% RSA/Total assets..................... 51.80% 58.19% 71.26% 93.31% RSL/Total assets..................... 53.25% 68.69% 78.07% 87.12% GAP/Total assets..................... (1.45)% (10.50)% (6.82)% 6.19% GAP/Total RSA........................ (2.80)% (18.04)% (9.57)% 6.64%
The following table shows the impact of immediate 200 and 100 basis point changes in interest rates as of September 30, 2003 and December 31, 2002. The effects are determined through the use of a simulation model based on our interest-earning asset and interest-bearing liability portfolios, assuming the size of these portfolios remains constant from the balance sheet date throughout the one-year measurement period. The simulation assumes that assets and liabilities accrue interest on their current pricing basis. Assets and liabilities then reprice based on their terms and remain at that interest rate through the end of the measurement period. The model attempts to illustrate the potential change in net interest income if the foregoing occurred.
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- +200 -100 +200 -200 BASIS BASIS BASIS BASIS POINTS POINTS POINTS POINTS ------ ------ ------ ------ Percentage change in net interest income due to an immediate 200 basis point change in interest rates over a one-year time horizon.... 7.8% (3.4%) 2.9% (10.5)%
This table shows that if there had been an instantaneous parallel shift in the yield curve of -100 basis points on September 30, 2003, net interest income would decrease by 3.4% over a one-year period. Due to current market interest rates, a -100 basis point shift is presented for September 30, 2003 as a more reasonable illustration of possible rate changes. The measurement of a - -200 basis point instantaneous parallel shift in the yield curve at September 30, 2003 would result in a decline in net interest income of 11.7% over a one-year period. At December 31, 2002, if there had been an instantaneous parallel shift in the yield curve of -200 we would have suffered a decline in net interest income of 10.5%. Conversely, a shift of +200 basis points would increase net interest income 7.8% 43 over a one-year horizon based on September 30, 2003 balances, as compared to an increase of net interest income of 2.9% measured on the basis of the December 31, 2002 portfolio. Changes in the effect on net interest income from the presented basis point movements at September 30, 2003, compared to December 31, 2002 are due to the timing and nature of the repricing of rate sensitive assets to rate sensitive liabilities within the one year time frame. The difference in the effect on net interest income at September 30, 2003 as compared to December 31, 2002 is due to the differences in the timing, balances, and current rates versus simulated rates of repricing assets and liabilities. Management's likely reaction to changes in interest rates is incorporated in assumptions made in these calculations. Differences in these assumptions between the reporting periods have also had the effect of reducing the impact of a changing interest rate environment. The preceding sensitivity analysis is based on numerous assumptions including the nature and timing of interest rate levels including the shape of the yield curve, prepayments on loans and securities, changes in deposit levels, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how client preferences or competitor influences might change. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer carried out an evaluation under their supervision, with the participation of other members of management as they deemed appropriate, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Company (and its consolidated subsidiaries) required to be included in the periodic reports the Company is required to file and submit to the SEC under the Exchange Act. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. We intend 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 we are including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ materially from the results discussed in forward-looking statements. Factors which might cause such a difference include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing; a deterioration of general economic conditions in our market areas; legislative or regulatory changes; adverse developments in or changes in the composition of the Company's loan or investment portfolios; significant increases in competition; difficulties in identifying attractive acquisition opportunities or strategic partners to complement our private banking approach and the products and services we offer; and the possible dilutive effect of potential acquisitions or expansion. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake 44 no obligation to update publicly any of these statements in light of future events except as required in subsequent periodic reports we file with the SEC. 45 PART II ITEM 1. LEGAL PROCEEDINGS Although our subsidiaries are involved in routine litigation incidental to their respective businesses, currently neither the Company nor any of its subsidiaries is a party to any pending legal proceedings that the Company believes will have a material adverse effect on its business, results of operations, financial condition or cash flows. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 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. 3.1 Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., as amended (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference). 3.2 Amended and Restated By-laws of PrivateBancorp, Inc. (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference). 4.1 Certain instruments defining the rights of the holders of long-term debt of the Company and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the SEC upon request. 10.1 Executive Employment Agreement by and between Dennis Klaeser and PrivateBancorp, Inc. dated October 1, 2003. 10.2 Executive Employment Agreement by and between Hugh H. McLean, PrivateBancorp, Inc. and The PrivateBank and Trust Company dated October 1, 2003. 10.3 Executive Employment Agreement by and between Gary S. Collins, PrivateBancorp, Inc. and The PrivateBank and Trust Company dated October 1, 2003. 10.4 Executive Employment Agreement by and between Richard C. Jensen, PrivateBancorp, Inc. and The PrivateBank (St. Louis) dated October 1, 2003. 46 15.0 Acknowledgment of Independent Auditors. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.0 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Independent Accountants' Review Report. (b) Reports on Form 8-K: (1) Current Report on Form 8-K dated July 1, 2003, filed with the SEC on July 1, 2003. (2) Current Report on Form 8-K dated July 2, 2003, filed with the SEC on July 2, 2003. (3) Current Report on Form 8-K dated July 9, 2003, filed with the SEC on July 9, 2003. (4) Current Report on Form 8-K dated July 21, 2003, filed with the SEC on July 21, 2003. (5) Current Report on Form 8-K dated July 30, 2003, filed with the SEC on July 30, 2003. (6) Current Report on Form 8-K dated September 24, 2003, filed with the SEC on September 24, 2003. 47 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q 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/ Dennis L. Klaeser ---------------------------------------- Dennis L. Klaeser, Chief Financial Officer (principal financial officer) By: /s/ Lisa M. O'Neill ---------------------------------------- Lisa M. O'Neill, Controller (principal accounting officer) Date: November 14, 2003 48 EXHIBIT INDEX 3.1 Amended and Restated Certificate of Incorporation of PrivateBancorp, Inc., as amended (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference). 3.2 Amended and Restated By-laws of PrivateBancorp, Inc. (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference). 4.1 Certain instruments defining the rights of the holders of long-term debt of the Company and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the SEC upon request. 10.1 Executive Employment Agreement by and between Dennis Klaeser, and PrivateBancorp, Inc. dated October 1, 2003. 10.2 Executive Employment Agreement by and between Hugh H. McLean, PrivateBancorp, Inc. and The PrivateBank and Trust Company dated October 1, 2003. 10.3 Executive Employment Agreement by and between Gary S. Collins, PrivateBancorp, Inc. and The PrivateBank and Trust Company dated October 1, 2003. 10.4 Executive Employment Agreement by and between Richard C. Jensen, PrivateBancorp, Inc. and The PrivateBank (St. Louis) dated October 1, 2003. 15.0 Acknowledgment of Independent Auditors. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.0 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Independent Accountants' Review Report. 49 EX-10.1 3 ex10-1_110303.txt KLAESER EMPLOYMENT AGREEMENT EXHIBIT 10.1 ------------ EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS AGREEMENT, made and entered into as of October 1, 2003 (the "Effective Date"), by and between PrivateBancorp, Inc. (hereinafter referred to as the "Employer" or "PrivateBancorp"), and Dennis L. Klaeser (hereinafter called the "Executive"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Employer desires to continue to employ the Executive as the Chief Financial Officer of the Employer, and the Executive desires to continue in such employment; NOW, THEREFORE, in consideration of the mutual promises herein contained and subject to the conditions precedent set forth herein, the parties agree as follows: 1. Employment and Term. (a) Employment. The Employer shall employ the Executive as the Chief Financial Officer of the Employer, and the Executive shall so serve, for the term set forth in Paragraph 1(b). (b) Term. The Executive's employment under this Agreement shall commence on the Effective Date and extend through September 30, 2004, subject to the extension of such term as hereinafter provided and subject to earlier termination as provided in Paragraph 7. The term of this Agreement shall automatically be extended for an additional year as of October 1, 2004 and each anniversary date thereof unless, no later than ninety (90) days prior to any such renewal date, either the board of directors of PrivateBancorp (the "Board"), or a duly authorized committee thereof, on behalf of the Employer, or the Executive gives written notice to the other, in accordance with Paragraph 15, that the term of this Agreement shall not be so extended. Anything in this Agreement to the contrary, if at any time during the Executive's period of employment under this Agreement there is a Change in Control (as defined in Paragraph 7), the term of this Agreement shall automatically extend to a date which is two (2) years from the date of the Change in Control (and shall be further extended pursuant to the foregoing provisions of this Paragraph 1(b), unless written notice to the contrary is given in accordance with this Paragraph 1(b)). 2. Duties and Responsibilities. (a) The duties and responsibilities of the Executive shall be of an executive nature as shall be required by the Employer in the conduct of its business. The Executive's powers and authority shall be as prescribed by the by-laws of the Employer, if applicable, and shall include all those presently delegated to the Executive, together with the performance of such other duties and responsibilities as the Chief Executive Officer of the Employer may from time to time assign to the Executive not inconsistent with the Executive's position(s) with the Employer. The Executive recognizes, that during the period of the Executive's employment hereunder, the Executive owes an undivided duty of loyalty to the Employer, and agrees to devote the Executive's entire business time and attention to the performance of said duties and responsibilities and to use the Executive's best efforts to promote and develop the business of the Employer. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Employer and the goodwill pertaining thereto, the Executive shall perform his duties under this Agreement professionally, in accordance with the applicable laws, rules and regulations and such standards, policies and procedures established by the Employer and the industry from time to time, including the Employee's Corporate Code of Ethics. The Executive will not perform any duties for any other business without the prior written consent of the Employer, but may engage in charitable, civic or community activities, provided that such duties or activities do not materially interfere with the proper performance of the Executive's duties under this Agreement. During the period of employment, the Executive agrees to serve as a director on the Board of Directors of the Employer and/or the board of directors or managers, as applicable, of any of its subsidiaries and affiliates, as well as to serve as a member of any committee of any said boards, to which the Executive may be elected or appointed. (b) Notwithstanding that this Agreement provides for the employment of the Executive in the Executive's capacity as the Chief Financial Officer of the Employer, nothing herein contained shall assure the Executive of, nor in any manner shall be construed to constitute an agreement by the Employer to the, continued employment of the Executive after the expiration or termination of this Agreement in such capacity or in any other capacity. 3. Base Salary. For services performed by the Executive for the Employer pursuant to this Agreement during the period of employment as provided in Paragraph 1(b) hereof, the Employer shall pay the Executive a base salary at the rate of one hundred ninety thousand dollars ($190,000) per year, payable in substantially equal installments in accordance with the Employer's regular payroll practices. The Executive's base salary (with any increases under this Paragraph 3) shall not be subject to reduction without the Executive's written consent. Any compensation which may be paid to the Executive under any additional compensation or incentive plan of the Employer or which may be otherwise authorized from time to time by the Board (or an appropriate committee thereof) shall be in addition to the base salary to which the Executive shall be entitled under this Agreement. Executive's base salary shall be subject to review from time to time, and the Employer may (but is not required to) increase the base salary as the Board, in its discretion, may determine. 4. Annual Bonuses. For each fiscal year during the term of employment, the Executive shall be eligible to receive a bonus in the amount, if any, as may be determined from time to time by the Board in its discretion. 5. Equity Incentive Compensation. During the term of employment hereunder, the Executive shall be eligible to participate in the PrivateBancorp, Inc. Incentive Compensation Plan, and in any other equity-based incentive compensation plan or program adopted by the Employer, including (but not by way of limitation) any plan providing for the granting of (a) options to purchase stock, (b) restricted stock or (c) similar equity-based units or interests to officers of the Employer. 6. Other Benefits. In addition to the compensation described in Paragraphs 3, 4 and 5, above, the Executive shall also be entitled to the following: 2 (a) Participation in Benefit Plans. The Executive shall be entitled to participate in such life insurance, disability, medical, dental, pension, profit sharing and retirement plans and other programs as may be made generally available from time to time by the Employer for the benefit of executives of the Executive's level or its employees generally. (b) Vacation. The Executive shall be entitled to such number of days of vacation with pay during each calendar year during the period of employment in accordance with the Employer's applicable personnel policy as in effect from time to time. (c) Executive Perquisites. The Employer shall furnish Executive with such perquisites as are provided from time to time by the Employer to its officers generally and are suitable to the Executive's position, adequate for the performance of the Executive's duties hereunder, and reasonable in the circumstances. Without limitation of the foregoing, Employer shall pay the cost of Executive's membership in one downtown club and shall reimburse Executive for the cost of annual country club dues at one country club of which Executive is a member, in each case subject to Employer approval of the club. (d) Expense Reimbursement. The Employer shall reimburse the Executive for all reasonable expenses incurred by the Executive in performing services hereunder, which are incurred and accounted for in accordance with the Employer's policies and procedures applicable thereto. 7. Termination. Unless earlier terminated in accordance with the following provisions of this Paragraph 7, the Employer shall continue to employ the Executive and the Executive shall remain employed by the Employer during the entire term of this Agreement as set forth in Paragraph 1(b). Paragraph 8 hereof sets forth certain obligations of the Employer in the event that the Executive's employment hereunder is terminated. Certain capitalized terms used in this Paragraph 7 and in Paragraph 8 hereof are defined in Paragraph 7(d), below. In the event of termination of the Executive's employment with the Employer for any reason, or if the Executive is required by the Board, the Executive agrees to resign, and shall automatically be deemed to have resigned, from any offices (including any directorship) the Executive holds with the Employer and/or any of its affiliates effective as of the termination date of the Executive's employment hereunder, or, if applicable, effective as of a date selected by the Board; provided, however, that the foregoing resignation shall not prejudice or otherwise affect the Executive's rights and obligations, if any, under this Agreement. (a) Death or Disability. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to death benefits and certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event of the Executive's death or in the event that the Executive becomes Disabled (as hereinafter defined). The Board shall promptly give the Executive written notice of any such determination of the Executive's Disability and of any decision of the Board to terminate the Executive's employment by reason thereof. In the event of Disability, until the Date of Termination, the base salary payable to the Executive under Paragraph 3 hereof shall be reduced dollar-for-dollar by the amount of disability benefits, if any, paid to the Executive in accordance with any disability policy or program of the Employer. 3 (b) Discharge for Cause. In accordance with the procedures hereinafter set forth, the Board may discharge the Executive from the Executive's employment hereunder for Cause (as hereinafter defined). Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged for Cause. Any discharge of the Executive for Cause shall be communicated by a Notice of Termination to the Executive given in accordance with Paragraph 15 of this Agreement. (c) Termination for Other Reasons. The Employer may discharge the Executive without Cause by giving written notice to the Executive in accordance with Paragraph 15. The Executive may resign from the Executive's employment with or without Good Reason, without liability to the Employer, by giving written notice to the Employer in accordance with Paragraph 15 at least thirty (30) days prior to the Date of Termination; provided, however, that no resignation shall be treated as a resignation for Good Reason unless the written notice thereof is given within sixty (60) days after the occurrence which constitutes "Good Reason" or during the ninety (90) day period described in the final sentence of Paragraph 7(d)(vi); provided, further, that the Employer retains the right after proper notice of the Executive's voluntary termination to require the Executive to cease the Executive's employment immediately. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged without Cause or resigns for any reason or no reason. (d) Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Executive's base salary under Paragraph 3 through the Date of Termination to the extent not theretofore paid, (B) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (D) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and (E) all other benefits which have accrued as of the Date of Termination. For the purpose of this Paragraph 7(d)(i), except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy. (ii) "Cause" shall mean (A) the Executive's willful and continued (for a period of not less than ten (10) business days after written notice thereof) failure to perform substantially the duties of his employment (other than as a result of physical or mental incapacity, or while on vacation); or (B) the Executive's willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer; or (C) the Executive's conviction of a felony involving moral turpitude, but 4 specifically excluding any conviction based entirely on vicarious liability (with "vicarious liability" meaning liability based on acts of the Employer for which the Executive is charged solely as a result of his offices with the Employer and in which he was not directly involved and did not have prior knowledge of such actions or intended actions); provided, however, that no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Employer; and provided further that no act or omission by the Executive shall constitute Cause hereunder unless the Employer has given detailed written notice thereof to the Executive, and the Executive has failed to remedy such act or omission. (iii) "Change in Control" shall mean the occurrence of any one of the following events: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of PrivateBancorp or any of its subsidiaries, or (ii) a corporation owned directly or indirectly by the stockholders of PrivateBancorp in substantially the same proportions as their ownership of stock of PrivateBancorp, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of PrivateBancorp representing 20% or more of the total voting power of the then outstanding shares of capital stock of PrivateBancorp entitled to vote generally in the election of directors (the "Voting Stock"), provided, however, that the following shall not constitute a change in control: (1) such person becomes a beneficial owner of 20% or more of the Voting Stock as the result of an acquisition of such Voting Stock directly from PrivateBancorp, or (2) such person becomes a beneficial owner of 20% or more of the Voting Stock as a result of the decrease in the number of outstanding shares of Voting Stock caused by the repurchase of shares by PrivateBancorp; provided, further, that in the event a person described in clause (1) or (2) shall thereafter increase (other than in circumstances described in clause (1) or (2)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall be deemed to become a beneficial owner of 20% or more of the Voting Stock for purposes of this Paragraph (A), provided such person continues to beneficially own 20% or more of the Voting Stock after such subsequent increase in beneficial ownership, or (B) During any period of two consecutive years, individuals (the "Incumbent Board"), who at the beginning of such period constitute the Board, and any new director, whose election by the Board or nomination for election by PrivateBancorp's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or 5 (C) Consummation of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of the assets of PrivateBancorp (a "Business Combination"), in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns PrivateBancorp or all or substantially all of PrivateBancorp's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of PrivateBancorp, and (2) at least a majority of the members of the board of directors of the corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or (D) Approval by the stockholders of PrivateBancorp of a plan of complete liquidation or dissolution of PrivateBancorp. The Board has final authority to construe and interpret the provisions of the foregoing Paragraphs (A), (B), (C) and (D) and to determine the exact date on which a Change in Control has been deemed to have occurred thereunder. (iv) "Date of Termination" shall mean (A) in the event of a discharge of the Executive for or without Cause, the date the Executive receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a resignation by the Executive, the date specified in the written notice to the Employer, which date shall be no less than thirty (30) days from the date of such written notice (or such earlier date as the Employer may elect in its sole discretion), (C) in the event of the Executive's death, the date of the Executive's death, and (D) in the event of termination of the Executive's employment by reason of Disability pursuant to Paragraph 7(a), the date the Executive receives written notice of such termination. (v) "Disabled" and "Disability" shall mean that the Executive will be deemed to be disabled upon the earlier of (i) the end of a six (6) consecutive month period, or an aggregate period of nine (9) months out of any consecutive twelve (12) months, during which, by reason of physical or mental injury or disease, the Executive has been unable to perform substantially all of the Executive's usual and customary duties under this Agreement or (ii) the date that a reputable physician selected by the Board, and as to whom the Executive has no reasonable objection, determines in writing that the Executive will, by reason of physical or mental injury or disease, be unable to perform substantially all of the Executive's usual and customary duties under this Agreement for a period of at least six (6) consecutive months. If any question arises as to whether the Executive is Disabled, upon reasonable request therefore by the Board, 6 the Executive shall submit to a reasonable medical examination for the purpose of determining the existence, nature and extent of any such disability. (vi) "Good Reason" shall mean the occurrence, other than in connection with a discharge, of any of the following without the Executive's consent: (A) the Executive is not re-elected or is removed from the positions with the Employer set forth in Paragraph 1(a), other than as a result of the Executive's election or appointment to positions of equal or superior scope and responsibility; or (B) the Executive shall fail to be vested by the Employer with the power and authority of any of said positions, excluding for this purpose any isolated action not taken in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; or (C) any failure by the Employer to materially comply with any of the provisions of this Agreement, other than any isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; (D) the Employer giving notice to the Executive pursuant to Paragraph 1(b) that the term of this Agreement shall not be extended upon the expiration of the then-current term; or (E) the Employer requiring the Executive to be based at an office or location which is more than 50 miles from the Executive's office as of the Effective Date or any renewal date of the extended term of this Agreement. In addition, any termination by the Executive during the ninety (90) day period beginning on the first anniversary of the date of a Change in Control shall be deemed to be for "Good Reason." (vii) "Notice of Termination" shall mean a written notice which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination is to be other than the date of receipt of such notice or the date otherwise specified under this Agreement, specifies the termination date. 8. Obligations of the Employer Upon Termination. The following provisions describe the obligations of the Employer to the Executive under this Agreement upon termination of employment. However, except as explicitly provided in this Agreement, nothing in this Agreement shall limit or otherwise adversely affect any rights which the Executive may have under applicable law, under any other agreement with the Employer or any of its affiliates or subsidiaries, or under any compensation or benefit plan, program, policy or practice of the Employer or any of its affiliates or subsidiaries. (a) Death, Disability, Discharge for Cause, or Resignation without Good Reason. In the event this Agreement terminates pursuant to Paragraph 7(a) by reason of the death or Disability of the Executive, pursuant to Paragraph 7(b) by reason of the discharge of the Executive by the Employer for Cause, or pursuant to Paragraph 7(c) by reason of the resignation of the Executive other than for Good Reason, the Employer shall pay to the Executive, or the Executive's heirs or estate in the event of the Executive's death, all Accrued Obligations in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, 7 incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive. In addition, in the event this Agreement terminates pursuant to Paragraph 7(a) by reason of death of the Executive, the Employer shall pay to the Executive's heirs or estate death benefits in a lump sum amount equal to six (6) months of the Executive's then-current annual base salary. (b) Discharge without Cause or Resignation with Good Reason. In the event that this Agreement terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) Severance payments equal to one hundred percent (100%) of the sum of (A) the Executive's then-current annual base salary, plus (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, payable in substantially equal monthly installments for a period of twelve (12) months (the "Severance Period") in accordance with the Employer's regular payroll practices; and (iv) Continuation for the Severance Period of the Executive's right to maintain COBRA continuation coverage under the applicable plans at premium rates on the same "cost-sharing" basis as the applicable premiums paid for such coverage by active employees as of the Date of Termination. In the event that upon the expiration of the Severance Period, Executive is not employed or otherwise providing compensated services of any type, and has not done so during the final ninety (90) days of the Severance Period, the Employer may, in its sole discretion (which discretion need not be applied in a consistent manner from one executive to another), agree to extend the Severance Period for up to an additional six (6) months (the "Extended Severance Period"). The payments to Executive described in subParagraph (iii) above and the reduced COBRA continuation premium described in subParagraph (iv) above shall continue during the Extended Severance Period, subject to earlier termination effective as of the first day of the 8 month following the date on which the Executive becomes employed or provides compensated services of any type (including self-employment). The Executive shall provide such information as the Employer may reasonably request to determine Executive's continued eligibility for the payments and benefits provided by this Paragraph 8(b). (c) Effect of Change in Control. In the event that a Change in Control occurs and this Agreement thereafter terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability, or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) The Employer shall pay the Executive a lump sum payment within thirty (30) days after such termination of employment in the amount of two (2) times the sum of the following: (A) the amount of the Executive's annual base salary determined as of the Date of Termination, or the date immediately preceding the date of the Change in Control, whichever is greater; plus (B) the greater of (A) the Executive's bonus amount, if any, for the calendar year immediately preceding that in which the Date of Termination occurs, or (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, or if such sum would be greater, with respect to the three (3) calendar years immediately preceding the calendar year of the date of the Change in Control; plus (C) the sum of: (I) the annual value of the contributions that would have been expected to be made or credited by the Employer to, and benefits expected to be accrued under, the qualified and non-qualified 9 employee profit sharing, 401(k), pension and any other benefit plans maintained by the Employer to or for the benefit of the Executive; plus (II) the annual value of the Other Benefits described in Paragraph 6(a) and (c) above. For purposes of subParagraph (C)(I) above, the annual value of the contributions and accruals to or under the employee benefit plans shall be determined on the basis of the actual rate of contributions or accruals, as applicable, and the provisions of the plans as in effect during the calendar year immediately preceding the date of the Change in Control, or if the value so determined would be greater, during the calendar year immediately preceding the Date of Termination. The "annual value" of the executive perquisites described in Paragraph 6(c) for purposes of subParagraph (C)(II) above shall be deemed to equal 7.5% of the annual base salary amount applicable under clause (iii)(A) above. The Executive shall also be entitled to outplacement services for a reasonable period of time as agreed between the Executive and the Employer. Notwithstanding the foregoing, if a Change in Control occurs and this Agreement is terminated prior to the Change in Control pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason, then the Executive shall be deemed for purposes of this Paragraph 8(c) to have so terminated pursuant to Paragraph 7(c) immediately following the date the Change in Control occurs if it is reasonably demonstrated by the Executive that such earlier termination was (i) at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose, or the circumstances that precipitated the termination otherwise arose, in connection with or in anticipation of the Change in Control. (d) Effect on Other Amounts. The payments provided for in this Paragraph 8 shall be in addition to all other sums then payable and owing to the Executive, shall be subject to applicable federal and state income and other withholding taxes and shall be in full settlement and satisfaction of all of the Executive's claims and demands. Upon such termination of this Agreement, the Employer shall have no rights or obligations under this Agreement, other than its obligations under this Paragraph 8, and the Executive shall have no rights and obligations under this Agreement, other than the Executive's obligations under Paragraphs 12 and 13 hereof (to the extent applicable); provided, however, termination of this Agreement shall not terminate the obligation of the Executive to pay to the Employer any amounts for which the Executive may be liable to the Employer under any provision of the Sarbanes-Oxley Act of 2002 (including, without limitation, Section 304 of such Act), or any rules and regulations promulgated thereunder, as amended from time to time. (e) Conditions. Any payments or benefits made or provided pursuant to this Paragraph 8 are subject to the Executive's: (i) compliance with the provisions of Paragraphs 12 and 13 hereof (to the extent applicable); 10 (ii) delivery to the Employer of an executed Release and Severance Agreement, which shall be substantially in the form attached hereto as Exhibit A, with such changes therein or additions thereto as needed under then applicable law to give effect to its intent and purpose; and (iii) delivery to the Employer of a resignation from all offices, directorships and fiduciary positions with the Employer, its affiliates and employee benefit plans. Notwithstanding the due date of any post-employment payments, any amounts due under this Paragraph 8 shall not be due until after the expiration of any revocation period applicable to the Release and Severance Agreement. 9. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Paragraph 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Paragraph (c), below, all determinations required to be made under this Paragraph 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the independent public accountants then regularly retained by the Employer (the "Accounting Firm") in consultation with counsel acceptable to Executive, which shall provide detailed supporting calculations both to the Employer and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder) in consultation with counsel acceptable to Executive. All fees and expenses of the Accounting Firm and such counsel shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Paragraph 9, shall be paid by the Employer to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise 11 Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any good faith determination by the Accounting Firm shall be binding upon the Employer and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Paragraph (c), below, and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30)-day period following the date on which Executive gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) Give the Employer any information reasonably requested by the Employer relating to such claim, (ii) Take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer, (iii) Cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) Permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Paragraph (c), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner; and the Executive agrees to prosecute such contest 12 to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Paragraph (c), above, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of said Paragraph (c)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to said Paragraph (c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid; and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 10. Dispute Resolution. In the event any dispute arises and the parties after good faith efforts are unable to agree as to the calculation of the amounts payable under this Agreement, it shall be settled in accordance with the majority opinion of a committee consisting of an accountant chosen by the Employer, an accountant chosen by the Executive and an independent accountant acceptable to both the Executive and the Employer, as the case may be. The committee's determination shall be binding and conclusive on the parties hereto. The Employer shall pay all fees and expenses of the dispute resolution. 11. Enforcement. In the event the Employer shall fail to pay any amounts due to the Executive under this Agreement as they come due, the Employer agrees to pay interest on such amounts at a rate equal to the prime rate plus four percent (4%) per annum (as from time to time published in The Wall Street Journal (Midwest Edition)). The Employer agrees that Executive and any successor shall be entitled to recover all costs of successfully enforcing any provision of this Agreement, including reasonable attorneys fees and costs of litigation, if Executive is the prevailing party. 12. Confidential Information. The Executive shall not at any time during or following the Executive's employment with the Employer, directly or indirectly, disclose or use on the Executive's behalf or another's behalf, publish or communicate, except in the course of the Executive's employment 13 and in the pursuit of the business of the Employer or any of its subsidiaries or affiliates, any proprietary information or data of the Employer or any of its subsidiaries or affiliates, which is not generally known to the public or which could not be recreated through public means and which the Employer may reasonably regard as confidential and proprietary. The Executive recognizes and acknowledges that all knowledge and information which the Executive has or may acquire in the course of the Executive's employment, such as, but not limited to the business, developments, procedures, techniques, activities or services of the Employer or the business affairs and activities of any customer, prospective customer, individual firm or entity doing business with the Employer are its sole valuable property, and shall be held by Executive in confidence and in trust for their sole benefit. All records of every nature and description which come into the Executive's possession, whether prepared by the Executive, or otherwise, shall remain the sole property of the Employer and upon termination of the Executive's employment for any reason, said records shall be left with the Employer as part of its property. 13. Non-Competition; Non-Solicitation. The Executive acknowledges that the Employer and its affiliates and subsidiaries by nature of their respective businesses have a legitimate and protectable interest in their clients, customers and employees with whom they have established significant relationships as a result of a substantial investment of time and money, and but for the Executive's employment hereunder, the Executive would not have had contact with such clients, customers and employees. The Executive agrees that during the period of the Executive's employment with the Employer and for a period of one (1) year after termination of the Executive's employment for any reason (the "Non-Compete Period"), the Executive will not (except in the Executive's capacity as an employee of the Employer) directly or indirectly, for the Executive's own account, or as an agent, employee, director, owner, partner, or consultant of any corporation, firm, partnership, joint venture, syndicate, sole proprietorship or other entity which has a place of business (whether as a principal, division, subsidiary, affiliate, related entity, or otherwise) located within the Market Area (as hereinafter defined): (a) engage, directly or indirectly, in any business that provides banking products or services or that otherwise competes in any way with the Employer or any of its subsidiaries or affiliates; (b) solicit or induce, or attempt to solicit or induce any client or customer of the Employer or any of its subsidiaries or affiliates not to do business with the Employer or any of its subsidiaries or affiliates; or (c) solicit or induce, or attempt to solicit or induce, any employee or agent of the Employer or any of its subsidiaries or affiliates to terminate his or her relationship with the Employer or any of its subsidiaries or affiliates. For purposes of this Agreement, "Market Area" shall be an area encompassed within a fifty (50) mile radius surrounding Executive's office as of the Date of Termination of employment. The foregoing provisions shall not be deemed to prohibit (i) the Executive's ownership, not to exceed five percent (5%) of the outstanding shares, of capital stock of any corporation whose securities are publicly traded on a national or regional securities exchange or in the over- 14 the-counter market or (ii) the Executive serving as a director of other corporations and entities to the extent these directorships do not inhibit the performance of the Executive's duties hereunder or conflict with the business of the Employer. 14. Remedies. (a) The Executive acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of Paragraphs 12 and 13 will not cause the Executive undue hardship and that said provisions are reasonably necessary and commensurate with the need to protect the Employer and its legitimate and proprietary business interests and property from irreparable harm. The Executive acknowledges and agrees that (a) a breach of any of the covenants and provisions contained in Paragraphs 12 or 13 above, will result in irreparable harm to the business of the Employer, (b) a remedy at law in the form of monetary damages for any breach by the Executive of any of the covenants and provisions contained in Paragraphs 12 and 13 is inadequate, (c) in addition to any remedy at law or equity for such breach, the Employer shall be entitled to institute and maintain appropriate proceedings in equity, including a suit for injunction to enforce the specific performance by Executive of the obligations hereunder and to enjoin Executive from engaging in any activity in violation hereof and (d) the covenants on the Executive's part contained in Paragraphs 12 and 13, shall be construed as agreements independent of any other provisions in this Agreement, and the existence of any claim, setoff or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense or bar to the specific enforcement by the Employer of said covenants. In the event of a breach or a violation by the Executive of any of the covenants and provisions of this Agreement, the running of the Non-Compete Period (but not of Executive's obligation thereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 12 and 13 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraph 12 or 13 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 15. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (a) upon delivery to the address of such party specified below if delivered personally or by courier; (b) upon dispatch if transmitted by telecopy or other means of facsimile, provided a copy thereof is also sent by regular mail or courier; (c) within forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as certified mail, return receipt requested; or (d) within twenty-four (24) hours after deposit thereof with a reputable overnight courier (charges prepaid), addressed, in any case to the party at the following address(es) or telecopy numbers: 15 (a) If to Executive, at the address set forth on the signature page hereof. (b) If to the Employer: PrivateBancorp, Inc. Ten North Dearborn Street Suite 900 Chicago, IL 60602 Attn: Chief Executive Officer Telecopy No.: (312) 683-7111 with a copy to: Vedder, Price, Kaufman & Kammholz 222 North LaSalle Street Chicago, Illinois 60601-1003 Attn: Ms. Jennifer R. Evans Telecopy No.: (312) 609-5005 or to such other address(es) or telecopy number(s) as any party may designate by written notice in the aforesaid manner. 16. Indemnification. (a) In the event that legal action is instituted against the Executive during or after the term hereof by a third party (or parties) based on the performance or nonperformance by the Executive of the Executive's duties hereunder, the Employer will assume the defense of such action by its attorneys or attorneys selected by the Executive reasonably satisfactory to the Employer and advance the costs and expenses thereof (including reasonable attorneys' fees) without prejudice to or waiver by the Employer of its rights and remedies against the Executive. In the event that there is a final judgment entered against the Executive in any such litigation, and Executive is obligated, in accordance with its charter, by-laws, or insurance, to reimburse such entities, the Executive shall be liable to the Employer for all such costs and expenses paid or incurred by them in the defense of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount shall be paid by the Executive within thirty (30) days after rendition of the final judgment. The Employer shall be entitled to set off the reimbursement amount against all sums which may be owed or payable by the Employer to the Executive hereunder or otherwise. The parties shall cooperate in the defense of any asserted claim, demand or liability against the Executive or the Employer or its subsidiaries or affiliates. The term "final judgment" as used herein shall be defined to mean the decision of a court of competent jurisdiction, and in the event of an appeal, then the decision of the appellate court, after petition for rehearing has been denied, or the time for filing the same (or the filing of further appeal) has expired. (b) The rights to indemnification under this Section 16 shall be in addition to any rights which the Executive may now or hereafter have under the charter or By-laws of the Employer or any of its affiliates or subsidiaries, under any insurance contract maintained by the 16 Employer or any of its affiliates or subsidiaries, or any agreement between the Executive and the Employer or any of its affiliates or subsidiaries. 17. Full Settlement; No Mitigation. The Employer's obligation to make the payments and provide the benefits provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employer may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 18. Payment in the Event of Death. In the event payment is due and owing by the Employer to the Executive under this Agreement upon the death of the Executive, payment shall be made to such beneficiary as the Executive may designate in writing, or failing such designation, then the executor of the Executive's estate, in full settlement and satisfaction of all claims and demands on behalf of the Executive, shall be entitled to receive all amounts owing to the Executive at the time of the Executive's death under this Agreement. Such payments shall be in addition to any other death benefits of the Employer and in full settlement and satisfaction of all severance benefit payments provided for in this Agreement. 19. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to Executive's employment hereunder and supersedes and cancels all prior written and oral understandings and agreements with respect to such matters and except for the terms and provisions of any employee benefit or other compensation plans (or any agreements or awards thereunder), referred to in this Agreement, or as otherwise expressly contemplated by this Agreement. 20. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the successors and assigns of the Employer. The Employer shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform this Agreement if no such succession had taken place. Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of the Employer in accordance with the operation of law, and such successor shall be deemed the "Employer" for purposes of this Agreement. 21. Tax Withholding. The Employer shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Employer to or for the benefit of the Executive under this Agreement or otherwise. The Employer may, at its option: (a) withhold such taxes from any cash payments owing from the Employer to the Executive, (b) require the Executive to pay to the Employer in cash such amount as may be required to satisfy such 17 withholding obligations and/or (c) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 22. No Assignment. Except as otherwise expressly provided herein, this Agreement is not assignable by any party and no payment to be made hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or other charge. 23. Execution in Counterparts. This Agreement may be executed by the parties hereto in two (2) or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 24. Jurisdiction and Governing Law. Except as provided in Paragraph 10, jurisdiction over disputes with regard to this Agreement shall be exclusively in the courts of the State of Illinois, and this Agreement shall be construed, interpreted and enforced in accordance with and governed by the laws of the State of Illinois, without regard to the choice of laws provisions of such State. 25. Severability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement. Furthermore, if the scope of any restriction or requirement contained in this Agreement is too broad to permit enforcement of such restriction or requirement to its full extent, then such restriction or requirement shall be enforced to the maximum extent permitted by law, and the Executive consents and agrees that any court of competent jurisdiction may so modify such scope in any proceeding brought to enforce such restriction or requirement. 26. Survival. Provisions of this Agreement shall survive the termination of the Executive's employment with the Employer to the extent provided herein. 27. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 28. Amendment. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. 29. Construction. The language used in this Agreement will be deemed to be the language chosen by Employer and the Executive to express their mutual intent and no rule of strict construction shall be applied against any person. Wherever from the context it appears appropriate, each term stated in either the singular of plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine or neuter. The headings of the Paragraphs of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 30. No Duplication. Notwithstanding anything herein to the contrary, to the extent that any compensation or benefits are paid to or received by the Executive from PrivateBancorp 18 or any other subsidiary of PrivateBancorp, such compensation or benefits shall be subtracted from any amounts simultaneously due hereunder from PrivateBancorp. [Signature Page Follows] 19 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PRIVATEBANCORP, INC. By: /s/ Ralph B. Mandell --------------------------- Title: Chief Executive Officer EXECUTIVE Address: __________________________ /s/ Dennis L. Klaeser ___________________________________ ---------------------------- ___________________________________ Name: Dennis L. Klaeser Telecopy No.:______________________ 20 EXHIBIT A TO EMPLOYMENT AGREEMENT --------------------------------- RELEASE AND SEVERANCE AGREEMENT ------------------------------- THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day of _________, _____ by and between PrivateBancorp, Inc. and its subsidiaries and affiliates (collectively, "PBI") and Dennis L. Klaeser (hereinafter "EXECUTIVE"). EXECUTIVE'S employment with PBI terminated on __________, ______; and EXECUTIVE has voluntarily agreed to the terms of this RELEASE AND SEVERANCE AGREEMENT in exchange for severance benefits under the Employment Agreement ("Employment Agreement") to which EXECUTIVE otherwise would not be entitled. NOW THEREFORE, in consideration for severance benefits provided under the Employment Agreement, EXECUTIVE on behalf of EXECUTIVE and EXECUTIVE'S spouse, heirs, executors, administrators, children, and assigns does hereby fully release and discharge PBI, its officers, directors, employees, agents, subsidiaries and divisions, benefit plans and their administrators, fiduciaries and insurers, successors, and assigns from any and all claims or demands for wages, back pay, front pay, attorneys' fees and other sums of money, insurance, benefits, contracts, controversies, agreements, promises, damages, costs, actions or causes of action and liabilities of any kind or character whatsoever, whether known or unknown, from the beginning of time to the date of these presents, relating to EXECUTIVE'S employment or termination of employment from PBI, including but not limited to any claims, actions or causes of action arising under the statutory, common law or other rules, orders or regulations of the United States or any State or political subdivision thereof including the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act. EXECUTIVE acknowledges that EXECUTIVE'S obligations pursuant to Paragraphs 12 and 13, of the Employment Agreement relating to the use or disclosure of confidential information and non-solicitation of customers and employees shall continue to apply to EXECUTIVE. This Release and Settlement Agreement supersedes any and all other agreements between EXECUTIVE and PBI except agreements relating to proprietary or confidential information belonging to PBI, and any other agreements, promises or representations relating to severance pay or other terms and conditions of employment are null and void. This release does not affect EXECUTIVE'S right to any benefits to which EXECUTIVE may be entitled under any employee benefit plan, program or arrangement sponsored or provided by PBI, including but not limited to the Employment Agreement and the plans, programs and arrangements referred to therein. EXECUTIVE and PBI acknowledge that it is their mutual intent that the Age Discrimination in Employment Act waiver contained herein fully comply with the Older Workers Benefit Protection Act. Accordingly, EXECUTIVE acknowledges and agrees that: A-1 (a) The severance benefits exceed the nature and scope of that to which EXECUTIVE would otherwise have been legally entitled to receive. (b) Execution of this Agreement and the Age Discrimination in Employment Act waiver herein is EXECUTIVE'S knowing and voluntary act; (c) EXECUTIVE has been advised by PBI to consult with EXECUTIVE'S personal attorney regarding the terms of this Agreement, including the aforementioned waiver; (d) EXECUTIVE has had at least twenty-one (21) calendar days within which to consider this Agreement; (e) EXECUTIVE has the right to revoke this Agreement in full within seven (7) calendar days of execution and that none of the terms and provisions of this Agreement shall become effective or be enforceable until such revocation period has expired; (f) EXECUTIVE has read and fully understands the terms of this Agreement; and (g) Nothing contained in this Agreement purports to release any of EXECUTIVE'S rights or claims under the Age Discrimination in Employment Act that may arise after the date of execution. IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above. PRIVATEBANCORP, INC., EXECUTIVE for itself and its Subsidiaries and Affiliates By:___________________________________ _________________________________ Its:__________________________________ Dennis L. Klaeser A-2 EX-10.2 4 ex10-2_110303.txt MCLEAN EMPLOYMENT AGREEMENT EXHIBIT 10.2 ------------ EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS AGREEMENT, made and entered into as of October 1, 2003 (the "Effective Date"), by and among PrivateBancorp, Inc. (hereinafter referred to as "PrivateBancorp"), The PrivateBank and Trust Company (the "Bank" and together with PrivateBancorp, hereinafter the "Employer"), and Hugh H. McLean (hereinafter called the "Executive"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Employer desires to continue to employ the Executive as a Managing Director and Vice Chairman of the Bank, and the Executive desires to continue in such employment; NOW, THEREFORE, in consideration of the mutual promises herein contained and subject to the conditions precedent set forth herein, the parties agree as follows: 1. Employment and Term. (a) Employment. PrivateBancorp shall cause the Bank to employ, and the Bank shall employ, the Executive as a Managing Director and Vice Chairman of the Bank, and the Executive shall so serve, for the term set forth in Paragraph 1(b). (b) Term. The Executive's employment under this Agreement shall commence on the Effective Date and extend through September 30, 2004, subject to the extension of such term as hereinafter provided and subject to earlier termination as provided in Paragraph 7. The term of this Agreement shall automatically be extended for an additional year as of October 1, 2004 and each anniversary date thereof unless, no later than ninety (90) days prior to any such renewal date, either the board of directors of PrivateBancorp (the "Board"), or a duly authorized committee thereof, on behalf of the Employer, or the Executive gives written notice to the other, in accordance with Paragraph 15, that the term of this Agreement shall not be so extended. Anything in this Agreement to the contrary, if at any time during the Executive's period of employment under this Agreement there is a Change in Control (as defined in Paragraph 7), the term of this Agreement shall automatically extend to a date which is two (2) years from the date of the Change in Control (and shall be further extended pursuant to the foregoing provisions of this Paragraph 1(b), unless written notice to the contrary is given in accordance with this Paragraph 1(b)). 2. Duties and Responsibilities. (a) The duties and responsibilities of the Executive shall be of an executive nature as shall be required by the Employer in the conduct of its business. The Executive's powers and authority shall be as prescribed by the by-laws of the Employer, if applicable, and shall include all those presently delegated to the Executive, together with the performance of such other duties and responsibilities as the Chief Executive Officer of the Employer may from time to time assign to the Executive not inconsistent with the Executive's position(s) with the Employer. The Executive recognizes, that during the period of the Executive's employment hereunder, the Executive owes an undivided duty of loyalty to the Employer, and agrees to devote the Executive's entire business time and attention to the performance of said duties and responsibilities and to use the Executive's best efforts to promote and develop the business of the Employer. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Employer and the goodwill pertaining thereto, the Executive shall perform his duties under this Agreement professionally, in accordance with the applicable laws, rules and regulations and such standards, policies and procedures established by the Employer and the industry from time to time, including the Employee's Corporate Code of Ethics. The Executive will not perform any duties for any other business without the prior written consent of the Employer, but may engage in charitable, civic or community activities, provided that such duties or activities do not materially interfere with the proper performance of the Executive's duties under this Agreement. During the period of employment, the Executive agrees to serve as a director on the Board of Directors of the Employer and/or the board of directors or managers, as applicable, of any of its subsidiaries and affiliates, as well as to serve as a member of any committee of any said boards, to which the Executive may be elected or appointed. (b) Notwithstanding that this Agreement provides for the employment of the Executive in the Executive's capacity as a Managing Director and Vice Chairman of the Bank, nothing herein contained shall assure the Executive of, nor in any manner shall be construed to constitute an agreement by the Employer to the, continued employment of the Executive after the expiration or termination of this Agreement in such capacity or in any other capacity. 3. Base Salary. For services performed by the Executive for the Employer pursuant to this Agreement during the period of employment as provided in Paragraph 1(b) hereof, the Employer shall pay the Executive a base salary at the rate of one hundred ninety thousand dollars ($190,000) per year, payable in substantially equal installments in accordance with the Employer's regular payroll practices. The Executive's base salary (with any increases under this Paragraph 3) shall not be subject to reduction without the Executive's written consent. Any compensation which may be paid to the Executive under any additional compensation or incentive plan of the Employer or which may be otherwise authorized from time to time by the Board (or an appropriate committee thereof) shall be in addition to the base salary to which the Executive shall be entitled under this Agreement. Executive's base salary shall be subject to review from time to time, and the Employer may (but is not required to) increase the base salary as the Board, in its discretion, may determine. 4. Annual Bonuses. For each fiscal year during the term of employment, the Executive shall be eligible to receive a bonus in the amount, if any, as may be determined from time to time by the Board in its discretion. 5. Equity Incentive Compensation. During the term of employment hereunder, the Executive shall be eligible to participate in the PrivateBancorp, Inc. Incentive Compensation Plan, and in any other equity-based incentive compensation plan or program adopted by the Employer, including (but not by way of limitation) any plan providing for the granting of (a) options to purchase stock, (b) restricted stock or (c) similar equity-based units or interests to officers of the Employer. 2 6. Other Benefits. In addition to the compensation described in Paragraphs 3, 4 and 5, above, the Executive shall also be entitled to the following: (a) Participation in Benefit Plans. The Executive shall be entitled to participate in such life insurance, disability, medical, dental, pension, profit sharing and retirement plans and other programs as may be made generally available from time to time by the Employer for the benefit of executives of the Executive's level or its employees generally. (b) Vacation. The Executive shall be entitled to such number of days of vacation with pay during each calendar year during the period of employment in accordance with the Employer's applicable personnel policy as in effect from time to time. (c) Executive Perquisites. The Employer shall furnish Executive with such perquisites as are provided from time to time by the Employer to its officers generally and are suitable to the Executive's position, adequate for the performance of the Executive's duties hereunder, and reasonable in the circumstances. Without limitation of the foregoing, Employer shall pay the cost of Executive's membership in one downtown club and shall reimburse Executive for the cost of annual country club dues at one country club of which Executive is a member, in each case subject to Employer approval of the club. (d) Expense Reimbursement. The Employer shall reimburse the Executive for all reasonable expenses incurred by the Executive in performing services hereunder, which are incurred and accounted for in accordance with the Employer's policies and procedures applicable thereto. 7. Termination. Unless earlier terminated in accordance with the following provisions of this Paragraph 7, the Employer shall continue to employ the Executive and the Executive shall remain employed by the Employer during the entire term of this Agreement as set forth in Paragraph 1(b). Paragraph 8 hereof sets forth certain obligations of the Employer in the event that the Executive's employment hereunder is terminated. Certain capitalized terms used in this Paragraph 7 and in Paragraph 8 hereof are defined in Paragraph 7(d), below. In the event of termination of the Executive's employment with the Employer for any reason, or if the Executive is required by the Board, the Executive agrees to resign, and shall automatically be deemed to have resigned, from any offices (including any directorship) the Executive holds with the Employer and/or any of its affiliates effective as of the termination date of the Executive's employment hereunder, or, if applicable, effective as of a date selected by the Board; provided, however, that the foregoing resignation shall not prejudice or otherwise affect the Executive's rights and obligations, if any, under this Agreement. (a) Death or Disability. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to death benefits and certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event of the Executive's death or in the event that the Executive becomes Disabled (as hereinafter defined). The Board shall promptly give the Executive written notice of any such determination of the Executive's Disability and of any decision of the Board to terminate the Executive's employment by reason thereof. In the event of Disability, until the Date of Termination, the base salary payable to the Executive under Paragraph 3 hereof shall be 3 reduced dollar-for-dollar by the amount of disability benefits, if any, paid to the Executive in accordance with any disability policy or program of the Employer. (b) Discharge for Cause. In accordance with the procedures hereinafter set forth, the Board may discharge the Executive from the Executive's employment hereunder for Cause (as hereinafter defined). Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged for Cause. Any discharge of the Executive for Cause shall be communicated by a Notice of Termination to the Executive given in accordance with Paragraph 15 of this Agreement. (c) Termination for Other Reasons. The Employer may discharge the Executive without Cause by giving written notice to the Executive in accordance with Paragraph 15. The Executive may resign from the Executive's employment with or without Good Reason, without liability to the Employer, by giving written notice to the Employer in accordance with Paragraph 15 at least thirty (30) days prior to the Date of Termination; provided, however, that no resignation shall be treated as a resignation for Good Reason unless the written notice thereof is given within sixty (60) days after the occurrence which constitutes "Good Reason" or during the ninety (90) day period described in the final sentence of Paragraph 7(d)(vi); provided, further, that the Employer retains the right after proper notice of the Executive's voluntary termination to require the Executive to cease the Executive's employment immediately. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged without Cause or resigns for any reason or no reason. (d) Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Executive's base salary under Paragraph 3 through the Date of Termination to the extent not theretofore paid, (B) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (D) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and (E) all other benefits which have accrued as of the Date of Termination. For the purpose of this Paragraph 7(d)(i), except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy. (ii) "Cause" shall mean (A) the Executive's willful and continued (for a period of not less than ten (10) business days after written notice thereof) failure to perform substantially the duties of his employment (other than as a result of physical or 4 mental incapacity, or while on vacation); or (B) the Executive's willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer; or (C) the Executive's conviction of a felony involving moral turpitude, but specifically excluding any conviction based entirely on vicarious liability (with "vicarious liability" meaning liability based on acts of the Employer for which the Executive is charged solely as a result of his offices with the Employer and in which he was not directly involved and did not have prior knowledge of such actions or intended actions); provided, however, that no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Employer; and provided further that no act or omission by the Executive shall constitute Cause hereunder unless the Employer has given detailed written notice thereof to the Executive, and the Executive has failed to remedy such act or omission. (iii) "Change in Control" shall mean the occurrence of any one of the following events: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of PrivateBancorp or any of its subsidiaries, or (ii) a corporation owned directly or indirectly by the stockholders of PrivateBancorp in substantially the same proportions as their ownership of stock of PrivateBancorp, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of PrivateBancorp representing 20% or more of the total voting power of the then outstanding shares of capital stock of PrivateBancorp entitled to vote generally in the election of directors (the "Voting Stock"), provided, however, that the following shall not constitute a change in control: (1) such person becomes a beneficial owner of 20% or more of the Voting Stock as the result of an acquisition of such Voting Stock directly from PrivateBancorp, or (2) such person becomes a beneficial owner of 20% or more of the Voting Stock as a result of the decrease in the number of outstanding shares of Voting Stock caused by the repurchase of shares by PrivateBancorp; provided, further, that in the event a person described in clause (1) or (2) shall thereafter increase (other than in circumstances described in clause (1) or (2)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall be deemed to become a beneficial owner of 20% or more of the Voting Stock for purposes of this Paragraph (A), provided such person continues to beneficially own 20% or more of the Voting Stock after such subsequent increase in beneficial ownership, or (B) During any period of two consecutive years, individuals (the "Incumbent Board"), who at the beginning of such period constitute the Board, and any new director, whose election by the Board or nomination for election by PrivateBancorp's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the 5 beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (C) Consummation of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of the assets of PrivateBancorp (a "Business Combination"), in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns PrivateBancorp or all or substantially all of PrivateBancorp's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of PrivateBancorp, and (2) at least a majority of the members of the board of directors of the corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or (D) Approval by the stockholders of PrivateBancorp of a plan of complete liquidation or dissolution of PrivateBancorp. The Board has final authority to construe and interpret the provisions of the foregoing Paragraphs (A), (B), (C) and (D) and to determine the exact date on which a Change in Control has been deemed to have occurred thereunder. (iv) "Date of Termination" shall mean (A) in the event of a discharge of the Executive for or without Cause, the date the Executive receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a resignation by the Executive, the date specified in the written notice to the Employer, which date shall be no less than thirty (30) days from the date of such written notice (or such earlier date as the Employer may elect in its sole discretion), (C) in the event of the Executive's death, the date of the Executive's death, and (D) in the event of termination of the Executive's employment by reason of Disability pursuant to Paragraph 7(a), the date the Executive receives written notice of such termination. (v) "Disabled" and "Disability" shall mean that the Executive will be deemed to be disabled upon the earlier of (i) the end of a six (6) consecutive month period, or an aggregate period of nine (9) months out of any consecutive twelve (12) months, during which, by reason of physical or mental injury or disease, the Executive has been unable to perform substantially all of the Executive's usual and customary duties under this Agreement or (ii) the date that a reputable physician selected by the Board, and as to whom the Executive has no reasonable objection, determines in writing that the Executive will, by reason of physical or mental injury or disease, be unable to perform substantially all of the Executive's usual and customary duties under 6 this Agreement for a period of at least six (6) consecutive months. If any question arises as to whether the Executive is Disabled, upon reasonable request therefore by the Board, the Executive shall submit to a reasonable medical examination for the purpose of determining the existence, nature and extent of any such disability. (vi) "Good Reason" shall mean the occurrence, other than in connection with a discharge, of any of the following without the Executive's consent: (A) the Executive is not re-elected or is removed from the positions with the Employer set forth in Paragraph 1(a), other than as a result of the Executive's election or appointment to positions of equal or superior scope and responsibility; or (B) the Executive shall fail to be vested by the Employer with the power and authority of any of said positions, excluding for this purpose any isolated action not taken in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; or (C) any failure by the Employer to materially comply with any of the provisions of this Agreement, other than any isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; (D) the Employer giving notice to the Executive pursuant to Paragraph 1(b) that the term of this Agreement shall not be extended upon the expiration of the then-current term; or (E) the Employer requiring the Executive to be based at an office or location which is more than 50 miles from the Executive's office as of the Effective Date or any renewal date of the extended term of this Agreement. In addition, any termination by the Executive during the ninety (90) day period beginning on the first anniversary of the date of a Change in Control shall be deemed to be for "Good Reason." (vii) "Notice of Termination" shall mean a written notice which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination is to be other than the date of receipt of such notice or the date otherwise specified under this Agreement, specifies the termination date. 8. Obligations of the Employer Upon Termination. The following provisions describe the obligations of the Employer to the Executive under this Agreement upon termination of employment. However, except as explicitly provided in this Agreement, nothing in this Agreement shall limit or otherwise adversely affect any rights which the Executive may have under applicable law, under any other agreement with the Employer or any of its affiliates or subsidiaries, or under any compensation or benefit plan, program, policy or practice of the Employer or any of its affiliates or subsidiaries. (a) Death, Disability, Discharge for Cause, or Resignation without Good Reason. In the event this Agreement terminates pursuant to Paragraph 7(a) by reason of the death or Disability of the Executive, pursuant to Paragraph 7(b) by reason of the discharge of the Executive by the Employer for Cause, or pursuant to Paragraph 7(c) by reason of the resignation of the Executive other than for Good Reason, the Employer shall pay to the Executive, or the Executive's heirs or estate in the event of the Executive's death, all Accrued Obligations in a 7 lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive. In addition, in the event this Agreement terminates pursuant to Paragraph 7(a) by reason of death of the Executive, the Employer shall pay to the Executive's heirs or estate death benefits in a lump sum amount equal to six (6) months of the Executive's then-current annual base salary. (b) Discharge without Cause or Resignation with Good Reason. In the event that this Agreement terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) Severance payments equal to one hundred percent (100%) of the sum of (A) the Executive's then-current annual base salary, plus (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, payable in substantially equal monthly installments for a period of twelve (12) months (the "Severance Period") in accordance with the Employer's regular payroll practices; and (iv) Continuation for the Severance Period of the Executive's right to maintain COBRA continuation coverage under the applicable plans at premium rates on the same "cost-sharing" basis as the applicable premiums paid for such coverage by active employees as of the Date of Termination. In the event that upon the expiration of the Severance Period, Executive is not employed or otherwise providing compensated services of any type, and has not done so during the final ninety (90) days of the Severance Period, the Employer may, in its sole discretion (which discretion need not be applied in a consistent manner from one executive to another), agree to extend the Severance Period for up to an additional six (6) months (the "Extended Severance Period"). The payments to Executive described in subParagraph (iii) above and the reduced COBRA continuation premium described in subParagraph (iv) above shall continue during the 8 Extended Severance Period, subject to earlier termination effective as of the first day of the month following the date on which the Executive becomes employed or provides compensated services of any type (including self-employment). The Executive shall provide such information as the Employer may reasonably request to determine Executive's continued eligibility for the payments and benefits provided by this Paragraph 8(b). (c) Effect of Change in Control. In the event that a Change in Control occurs and this Agreement thereafter terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability, or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) The Employer shall pay the Executive a lump sum payment within thirty (30) days after such termination of employment in the amount of two (2) times the sum of the following: (A) the amount of the Executive's annual base salary determined as of the Date of Termination, or the date immediately preceding the date of the Change in Control, whichever is greater; plus (B) the greater of (A) the Executive's bonus amount, if any, for the calendar year immediately preceding that in which the Date of Termination occurs, or (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, or if such sum would be greater, with respect to the three (3) calendar years immediately preceding the calendar year of the date of the Change in Control; plus (C) the sum of: (I) the annual value of the contributions that would have been expected to be made or credited by the Employer to, and benefits expected to be accrued under, the qualified and non-qualified 9 employee profit sharing, 401(k), pension and any other benefit plans maintained by the Employer to or for the benefit of the Executive; plus (II) the annual value of the Other Benefits described in Paragraph 6(a) and (c) above. For purposes of subParagraph (C)(I) above, the annual value of the contributions and accruals to or under the employee benefit plans shall be determined on the basis of the actual rate of contributions or accruals, as applicable, and the provisions of the plans as in effect during the calendar year immediately preceding the date of the Change in Control, or if the value so determined would be greater, during the calendar year immediately preceding the Date of Termination. The "annual value" of the executive perquisites described in Paragraph 6(c) for purposes of subParagraph (C)(II) above shall be deemed to equal 7.5% of the annual base salary amount applicable under clause (iii)(A) above. The Executive shall also be entitled to outplacement services for a reasonable period of time as agreed between the Executive and the Employer. Notwithstanding the foregoing, if a Change in Control occurs and this Agreement is terminated prior to the Change in Control pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason, then the Executive shall be deemed for purposes of this Paragraph 8(c) to have so terminated pursuant to Paragraph 7(c) immediately following the date the Change in Control occurs if it is reasonably demonstrated by the Executive that such earlier termination was (i) at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose, or the circumstances that precipitated the termination otherwise arose, in connection with or in anticipation of the Change in Control. (d) Effect on Other Amounts. The payments provided for in this Paragraph 8 shall be in addition to all other sums then payable and owing to the Executive, shall be subject to applicable federal and state income and other withholding taxes and shall be in full settlement and satisfaction of all of the Executive's claims and demands. Upon such termination of this Agreement, the Employer shall have no rights or obligations under this Agreement, other than its obligations under this Paragraph 8, and the Executive shall have no rights and obligations under this Agreement, other than the Executive's obligations under Paragraphs 12 and 13 hereof (to the extent applicable); provided, however, termination of this Agreement shall not terminate the obligation of the Executive to pay to the Employer any amounts for which the Executive may be liable to the Employer under any provision of the Sarbanes-Oxley Act of 2002 (including, without limitation, Section 304 of such Act), or any rules and regulations promulgated thereunder, as amended from time to time. (e) Conditions. Any payments or benefits made or provided pursuant to this Paragraph 8 are subject to the Executive's: (i) compliance with the provisions of Paragraphs 12 and 13 hereof (to the extent applicable); 10 (ii) delivery to the Employer of an executed Release and Severance Agreement, which shall be substantially in the form attached hereto as Exhibit A, with such changes therein or additions thereto as needed under then applicable law to give effect to its intent and purpose; and (iii) delivery to the Employer of a resignation from all offices, directorships and fiduciary positions with the Employer, its affiliates and employee benefit plans. Notwithstanding the due date of any post-employment payments, any amounts due under this Paragraph 8 shall not be due until after the expiration of any revocation period applicable to the Release and Severance Agreement. 9. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Paragraph 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Paragraph (c), below, all determinations required to be made under this Paragraph 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the independent public accountants then regularly retained by the Employer (the "Accounting Firm") in consultation with counsel acceptable to Executive, which shall provide detailed supporting calculations both to the Employer and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder) in consultation with counsel acceptable to Executive. All fees and expenses of the Accounting Firm and such counsel shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Paragraph 9, shall be paid by the Employer to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise 11 Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any good faith determination by the Accounting Firm shall be binding upon the Employer and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Paragraph (c), below, and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30)-day period following the date on which Executive gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) Give the Employer any information reasonably requested by the Employer relating to such claim, (ii) Take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer, (iii) Cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) Permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Paragraph (c), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner; and the Executive agrees to prosecute such contest 12 to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Paragraph (c), above, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of said Paragraph (c)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to said Paragraph (c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid; and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 10. Dispute Resolution. In the event any dispute arises and the parties after good faith efforts are unable to agree as to the calculation of the amounts payable under this Agreement, it shall be settled in accordance with the majority opinion of a committee consisting of an accountant chosen by the Employer, an accountant chosen by the Executive and an independent accountant acceptable to both the Executive and the Employer, as the case may be. The committee's determination shall be binding and conclusive on the parties hereto. The Employer shall pay all fees and expenses of the dispute resolution. 11. Enforcement. In the event the Employer shall fail to pay any amounts due to the Executive under this Agreement as they come due, the Employer agrees to pay interest on such amounts at a rate equal to the prime rate plus four percent (4%) per annum (as from time to time published in The Wall Street Journal (Midwest Edition)). The Employer agrees that Executive and any successor shall be entitled to recover all costs of successfully enforcing any provision of this Agreement, including reasonable attorneys fees and costs of litigation, if Executive is the prevailing party. 12. Confidential Information. The Executive shall not at any time during or following the Executive's employment with the Employer, directly or indirectly, disclose or use on the Executive's behalf or another's behalf, publish or communicate, except in the course of the Executive's employment 13 and in the pursuit of the business of the Employer or any of its subsidiaries or affiliates, any proprietary information or data of the Employer or any of its subsidiaries or affiliates, which is not generally known to the public or which could not be recreated through public means and which the Employer may reasonably regard as confidential and proprietary. The Executive recognizes and acknowledges that all knowledge and information which the Executive has or may acquire in the course of the Executive's employment, such as, but not limited to the business, developments, procedures, techniques, activities or services of the Employer or the business affairs and activities of any customer, prospective customer, individual firm or entity doing business with the Employer are its sole valuable property, and shall be held by Executive in confidence and in trust for their sole benefit. All records of every nature and description which come into the Executive's possession, whether prepared by the Executive, or otherwise, shall remain the sole property of the Employer and upon termination of the Executive's employment for any reason, said records shall be left with the Employer as part of its property. 13. Non-Competition; Non-Solicitation. The Executive acknowledges that the Employer and its affiliates and subsidiaries by nature of their respective businesses have a legitimate and protectable interest in their clients, customers and employees with whom they have established significant relationships as a result of a substantial investment of time and money, and but for the Executive's employment hereunder, the Executive would not have had contact with such clients, customers and employees. The Executive agrees that during the period of the Executive's employment with the Employer and for a period of one (1) year after termination of the Executive's employment for any reason (the "Non-Compete Period"), the Executive will not (except in the Executive's capacity as an employee of the Employer) directly or indirectly, for the Executive's own account, or as an agent, employee, director, owner, partner, or consultant of any corporation, firm, partnership, joint venture, syndicate, sole proprietorship or other entity which has a place of business (whether as a principal, division, subsidiary, affiliate, related entity, or otherwise) located within the Market Area (as hereinafter defined): (a) engage, directly or indirectly, in any business that provides banking products or services or that otherwise competes in any way with the Employer or any of its subsidiaries or affiliates; (b) solicit or induce, or attempt to solicit or induce any client or customer of the Employer or any of its subsidiaries or affiliates not to do business with the Employer or any of its subsidiaries or affiliates; or (c) solicit or induce, or attempt to solicit or induce, any employee or agent of the Employer or any of its subsidiaries or affiliates to terminate his or her relationship with the Employer or any of its subsidiaries or affiliates. For purposes of this Agreement, "Market Area" shall be an area encompassed within a fifty (50) mile radius surrounding Executive's office as of the Date of Termination of employment. The foregoing provisions shall not be deemed to prohibit (i) the Executive's ownership, not to exceed five percent (5%) of the outstanding shares, of capital stock of any corporation whose securities are publicly traded on a national or regional securities exchange or in the over- 14 the-counter market or (ii) the Executive serving as a director of other corporations and entities to the extent these directorships do not inhibit the performance of the Executive's duties hereunder or conflict with the business of the Employer. 14. Remedies. (a) The Executive acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of Paragraphs 12 and 13 will not cause the Executive undue hardship and that said provisions are reasonably necessary and commensurate with the need to protect the Employer and its legitimate and proprietary business interests and property from irreparable harm. The Executive acknowledges and agrees that (a) a breach of any of the covenants and provisions contained in Paragraphs 12 or 13 above, will result in irreparable harm to the business of the Employer, (b) a remedy at law in the form of monetary damages for any breach by the Executive of any of the covenants and provisions contained in Paragraphs 12 and 13 is inadequate, (c) in addition to any remedy at law or equity for such breach, the Employer shall be entitled to institute and maintain appropriate proceedings in equity, including a suit for injunction to enforce the specific performance by Executive of the obligations hereunder and to enjoin Executive from engaging in any activity in violation hereof and (d) the covenants on the Executive's part contained in Paragraphs 12 and 13, shall be construed as agreements independent of any other provisions in this Agreement, and the existence of any claim, setoff or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense or bar to the specific enforcement by the Employer of said covenants. In the event of a breach or a violation by the Executive of any of the covenants and provisions of this Agreement, the running of the Non-Compete Period (but not of Executive's obligation thereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 12 and 13 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraph 12 or 13 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 15. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (a) upon delivery to the address of such party specified below if delivered personally or by courier; (b) upon dispatch if transmitted by telecopy or other means of facsimile, provided a copy thereof is also sent by regular mail or courier; (c) within forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as certified mail, return receipt requested; or (d) within twenty-four (24) hours after deposit thereof with a reputable overnight courier (charges prepaid), addressed, in any case to the party at the following address(es) or telecopy numbers: 15 (a) If to Executive, at the address set forth on the signature page hereof. (b) If to the Employer: PrivateBancorp, Inc. The PrivateBank and Trust Company Ten North Dearborn Street Suite 900 Chicago, IL 60602 Attn: Chief Executive Officer Telecopy No.: (312) 683-7111 with a copy to: Vedder, Price, Kaufman & Kammholz 222 North LaSalle Street Chicago, Illinois 60601-1003 Attn: Ms. Jennifer R. Evans Telecopy No.: (312) 609-5005 or to such other address(es) or telecopy number(s) as any party may designate by written notice in the aforesaid manner. 16. Indemnification. (a) In the event that legal action is instituted against the Executive during or after the term hereof by a third party (or parties) based on the performance or nonperformance by the Executive of the Executive's duties hereunder, the Employer will assume the defense of such action by its attorneys or attorneys selected by the Executive reasonably satisfactory to the Employer and advance the costs and expenses thereof (including reasonable attorneys' fees) without prejudice to or waiver by the Employer of its rights and remedies against the Executive. In the event that there is a final judgment entered against the Executive in any such litigation, and Executive is obligated, in accordance with its charter, by-laws, or insurance, to reimburse such entities, the Executive shall be liable to the Employer for all such costs and expenses paid or incurred by them in the defense of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount shall be paid by the Executive within thirty (30) days after rendition of the final judgment. The Employer shall be entitled to set off the reimbursement amount against all sums which may be owed or payable by the Employer to the Executive hereunder or otherwise. The parties shall cooperate in the defense of any asserted claim, demand or liability against the Executive or the Employer or its subsidiaries or affiliates. The term "final judgment" as used herein shall be defined to mean the decision of a court of competent jurisdiction, and in the event of an appeal, then the decision of the appellate court, after petition for rehearing has been denied, or the time for filing the same (or the filing of further appeal) has expired. (b) The rights to indemnification under this Section 16 shall be in addition to any rights which the Executive may now or hereafter have under the charter or By-laws of the Employer or any of its affiliates or subsidiaries, under any insurance contract maintained by the 16 Employer or any of its affiliates or subsidiaries, or any agreement between the Executive and the Employer or any of its affiliates or subsidiaries. 17. Full Settlement; No Mitigation. The Employer's obligation to make the payments and provide the benefits provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employer may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 18. Payment in the Event of Death. In the event payment is due and owing by the Employer to the Executive under this Agreement upon the death of the Executive, payment shall be made to such beneficiary as the Executive may designate in writing, or failing such designation, then the executor of the Executive's estate, in full settlement and satisfaction of all claims and demands on behalf of the Executive, shall be entitled to receive all amounts owing to the Executive at the time of the Executive's death under this Agreement. Such payments shall be in addition to any other death benefits of the Employer and in full settlement and satisfaction of all severance benefit payments provided for in this Agreement. 19. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to Executive's employment hereunder and supersedes and cancels all prior written and oral understandings and agreements with respect to such matters and except for the terms and provisions of any employee benefit or other compensation plans (or any agreements or awards thereunder), referred to in this Agreement, or as otherwise expressly contemplated by this Agreement. 20. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the successors and assigns of the Employer. The Employer shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform this Agreement if no such succession had taken place. Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of the Employer in accordance with the operation of law, and such successor shall be deemed the "Employer" for purposes of this Agreement. 21. Tax Withholding. The Employer shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Employer to or for the benefit of the Executive under this Agreement or otherwise. The Employer may, at its option: (a) withhold such taxes from any cash payments owing from the Employer to the Executive, (b) require the Executive to pay to the Employer in cash such amount as may be required to satisfy such 17 withholding obligations and/or (c) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 22. No Assignment. Except as otherwise expressly provided herein, this Agreement is not assignable by any party and no payment to be made hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or other charge. 23. Execution in Counterparts. This Agreement may be executed by the parties hereto in two (2) or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 24. Jurisdiction and Governing Law. Except as provided in Paragraph 10, jurisdiction over disputes with regard to this Agreement shall be exclusively in the courts of the State of Illinois, and this Agreement shall be construed, interpreted and enforced in accordance with and governed by the laws of the State of Illinois, without regard to the choice of laws provisions of such State. 25. Severability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement. Furthermore, if the scope of any restriction or requirement contained in this Agreement is too broad to permit enforcement of such restriction or requirement to its full extent, then such restriction or requirement shall be enforced to the maximum extent permitted by law, and the Executive consents and agrees that any court of competent jurisdiction may so modify such scope in any proceeding brought to enforce such restriction or requirement. 26. Survival. Provisions of this Agreement shall survive the termination of the Executive's employment with the Employer to the extent provided herein. 27. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 28. Amendment. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. 29. Construction. The language used in this Agreement will be deemed to be the language chosen by Employer and the Executive to express their mutual intent and no rule of strict construction shall be applied against any person. Wherever from the context it appears appropriate, each term stated in either the singular of plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine or neuter. The headings of the Paragraphs of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 30. No Duplication. Notwithstanding anything herein to the contrary, to the extent that any compensation or benefits are paid to or received by the Executive from the Bank, 18 PrivateBancorp or any other subsidiary of PrivateBancorp or the Bank, such compensation or benefits shall be subtracted from any amounts simultaneously due hereunder from PrivateBancorp and/or the Bank, as the case may be. [Signature Page Follows] 19 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PRIVATEBANCORP, INC. By: /s/ Ralph B. Mandell ------------------------------------- Title: Chief Executive Officer ---------------------------------- THE PRIVATEBANK AND TRUST COMPANY By: /s/ Ralph B. Mandell ------------------------------------- Title: Chief Executive Officer ---------------------------------- EXECUTIVE Address: -------------------------- /s/ Hugh H. McLean - ---------------------------------- ----------------------------------------- - ---------------------------------- Name: Hugh H. McLean Telecopy No.: --------------------- 20 EXHIBIT A TO EMPLOYMENT AGREEMENT --------------------------------- RELEASE AND SEVERANCE AGREEMENT ------------------------------- THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day of _________, _____ by and between PrivateBancorp, Inc. and its subsidiaries and affiliates (including, without limitation, The PrivateBank and Trust Company) (collectively, "PBI") and Hugh H. McLean (hereinafter "EXECUTIVE"). EXECUTIVE'S employment with PBI terminated on __________, ______; and EXECUTIVE has voluntarily agreed to the terms of this RELEASE AND SEVERANCE AGREEMENT in exchange for severance benefits under the Employment Agreement ("Employment Agreement") to which EXECUTIVE otherwise would not be entitled. NOW THEREFORE, in consideration for severance benefits provided under the Employment Agreement, EXECUTIVE on behalf of EXECUTIVE and EXECUTIVE'S spouse, heirs, executors, administrators, children, and assigns does hereby fully release and discharge PBI, its officers, directors, employees, agents, subsidiaries and divisions, benefit plans and their administrators, fiduciaries and insurers, successors, and assigns from any and all claims or demands for wages, back pay, front pay, attorneys' fees and other sums of money, insurance, benefits, contracts, controversies, agreements, promises, damages, costs, actions or causes of action and liabilities of any kind or character whatsoever, whether known or unknown, from the beginning of time to the date of these presents, relating to EXECUTIVE'S employment or termination of employment from PBI, including but not limited to any claims, actions or causes of action arising under the statutory, common law or other rules, orders or regulations of the United States or any State or political subdivision thereof including the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act. EXECUTIVE acknowledges that EXECUTIVE'S obligations pursuant to Paragraphs 12 and 13, of the Employment Agreement relating to the use or disclosure of confidential information and non-solicitation of customers and employees shall continue to apply to EXECUTIVE. This Release and Settlement Agreement supersedes any and all other agreements between EXECUTIVE and PBI except agreements relating to proprietary or confidential information belonging to PBI, and any other agreements, promises or representations relating to severance pay or other terms and conditions of employment are null and void. This release does not affect EXECUTIVE'S right to any benefits to which EXECUTIVE may be entitled under any employee benefit plan, program or arrangement sponsored or provided by PBI, including but not limited to the Employment Agreement and the plans, programs and arrangements referred to therein. EXECUTIVE and PBI acknowledge that it is their mutual intent that the Age Discrimination in Employment Act waiver contained herein fully comply with the Older Workers Benefit Protection Act. Accordingly, EXECUTIVE acknowledges and agrees that: A-1 (a) The severance benefits exceed the nature and scope of that to which EXECUTIVE would otherwise have been legally entitled to receive. (b) Execution of this Agreement and the Age Discrimination in Employment Act waiver herein is EXECUTIVE'S knowing and voluntary act; (c) EXECUTIVE has been advised by PBI to consult with EXECUTIVE'S personal attorney regarding the terms of this Agreement, including the aforementioned waiver; (d) EXECUTIVE has had at least twenty-one (21) calendar days within which to consider this Agreement; (e) EXECUTIVE has the right to revoke this Agreement in full within seven (7) calendar days of execution and that none of the terms and provisions of this Agreement shall become effective or be enforceable until such revocation period has expired; (f) EXECUTIVE has read and fully understands the terms of this Agreement; and (g) Nothing contained in this Agreement purports to release any of EXECUTIVE'S rights or claims under the Age Discrimination in Employment Act that may arise after the date of execution. IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above. PRIVATEBANCORP, INC., EXECUTIVE for itself and its Subsidiaries and Affiliates By: --------------------------------- ------------------------------------ Its: Hugh H. McLean -------------------------------- A-2 EX-10.3 5 ex10-3_110303.txt COLLINS EMPLOYMENT AGREEMENT EXHIBIT 10.3 ------------ EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS AGREEMENT, made and entered into as of October 1, 2003 (the "Effective Date"), by and among PrivateBancorp, Inc. (hereinafter referred to as "PrivateBancorp"), The PrivateBank and Trust Company (the "Bank" and together with PrivateBancorp, hereinafter the "Employer"), and Gary S. Collins (hereinafter called the "Executive"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Employer desires to continue to employ the Executive as a Managing Director and Vice Chairman of the Bank, and the Executive desires to continue in such employment; NOW, THEREFORE, in consideration of the mutual promises herein contained and subject to the conditions precedent set forth herein, the parties agree as follows: 1. Employment and Term. (a) Employment. PrivateBancorp shall cause the Bank to employ, and the Bank shall employ, the Executive as a Managing Director and Vice Chairman of the Bank, and the Executive shall so serve, for the term set forth in Paragraph 1(b). (b) Term. The Executive's employment under this Agreement shall commence on the Effective Date and extend through September 30, 2004, subject to the extension of such term as hereinafter provided and subject to earlier termination as provided in Paragraph 7. The term of this Agreement shall automatically be extended for an additional year as of October 1, 2004 and each anniversary date thereof unless, no later than ninety (90) days prior to any such renewal date, either the board of directors of PrivateBancorp (the "Board"), or a duly authorized committee thereof, on behalf of the Employer, or the Executive gives written notice to the other, in accordance with Paragraph 15, that the term of this Agreement shall not be so extended. Anything in this Agreement to the contrary, if at any time during the Executive's period of employment under this Agreement there is a Change in Control (as defined in Paragraph 7), the term of this Agreement shall automatically extend to a date which is two (2) years from the date of the Change in Control (and shall be further extended pursuant to the foregoing provisions of this Paragraph 1(b), unless written notice to the contrary is given in accordance with this Paragraph 1(b)). 2. Duties and Responsibilities. (a) The duties and responsibilities of the Executive shall be of an executive nature as shall be required by the Employer in the conduct of its business. The Executive's powers and authority shall be as prescribed by the by-laws of the Employer, if applicable, and shall include all those presently delegated to the Executive, together with the performance of such other duties and responsibilities as the Chief Executive Officer of the Employer may from time to time assign to the Executive not inconsistent with the Executive's position(s) with the Employer. The Executive recognizes, that during the period of the Executive's employment hereunder, the Executive owes an undivided duty of loyalty to the Employer, and agrees to devote the Executive's entire business time and attention to the performance of said duties and responsibilities and to use the Executive's best efforts to promote and develop the business of the Employer. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Employer and the goodwill pertaining thereto, the Executive shall perform his duties under this Agreement professionally, in accordance with the applicable laws, rules and regulations and such standards, policies and procedures established by the Employer and the industry from time to time, including the Employee's Corporate Code of Ethics. The Executive will not perform any duties for any other business without the prior written consent of the Employer, but may engage in charitable, civic or community activities, provided that such duties or activities do not materially interfere with the proper performance of the Executive's duties under this Agreement. During the period of employment, the Executive agrees to serve as a director on the Board of Directors of the Employer and/or the board of directors or managers, as applicable, of any of its subsidiaries and affiliates, as well as to serve as a member of any committee of any said boards, to which the Executive may be elected or appointed. (b) Notwithstanding that this Agreement provides for the employment of the Executive in the Executive's capacity as a Managing Director and Vice Chairman of the Bank, nothing herein contained shall assure the Executive of, nor in any manner shall be construed to constitute an agreement by the Employer to the, continued employment of the Executive after the expiration or termination of this Agreement in such capacity or in any other capacity. 3. Base Salary. For services performed by the Executive for the Employer pursuant to this Agreement during the period of employment as provided in Paragraph 1(b) hereof, the Employer shall pay the Executive a base salary at the rate of one hundred ninety thousand dollars ($190,000) per year, payable in substantially equal installments in accordance with the Employer's regular payroll practices. The Executive's base salary (with any increases under this Paragraph 3) shall not be subject to reduction without the Executive's written consent. Any compensation which may be paid to the Executive under any additional compensation or incentive plan of the Employer or which may be otherwise authorized from time to time by the Board (or an appropriate committee thereof) shall be in addition to the base salary to which the Executive shall be entitled under this Agreement. Executive's base salary shall be subject to review from time to time, and the Employer may (but is not required to) increase the base salary as the Board, in its discretion, may determine. 4. Annual Bonuses. For each fiscal year during the term of employment, the Executive shall be eligible to receive a bonus in the amount, if any, as may be determined from time to time by the Board in its discretion. 5. Equity Incentive Compensation. During the term of employment hereunder, the Executive shall be eligible to participate in the PrivateBancorp, Inc. Incentive Compensation Plan, and in any other equity-based incentive compensation plan or program adopted by the Employer, including (but not by way of limitation) any plan providing for the granting of (a) options to purchase stock, (b) restricted stock or (c) similar equity-based units or interests to officers of the Employer. 2 6. Other Benefits. In addition to the compensation described in Paragraphs 3, 4 and 5, above, the Executive shall also be entitled to the following: (a) Participation in Benefit Plans. The Executive shall be entitled to participate in such life insurance, disability, medical, dental, pension, profit sharing and retirement plans and other programs as may be made generally available from time to time by the Employer for the benefit of executives of the Executive's level or its employees generally. (b) Vacation. The Executive shall be entitled to such number of days of vacation with pay during each calendar year during the period of employment in accordance with the Employer's applicable personnel policy as in effect from time to time. (c) Executive Perquisites. The Employer shall furnish Executive with such perquisites as are provided from time to time by the Employer to its officers generally and are suitable to the Executive's position, adequate for the performance of the Executive's duties hereunder, and reasonable in the circumstances. Without limitation of the foregoing, Employer shall pay the cost of Executive's membership in one downtown club and shall reimburse Executive for the cost of annual country club dues at one country club of which Executive is a member, in each case subject to Employer approval of the club. (d) Expense Reimbursement. The Employer shall reimburse the Executive for all reasonable expenses incurred by the Executive in performing services hereunder, which are incurred and accounted for in accordance with the Employer's policies and procedures applicable thereto. 7. Termination. Unless earlier terminated in accordance with the following provisions of this Paragraph 7, the Employer shall continue to employ the Executive and the Executive shall remain employed by the Employer during the entire term of this Agreement as set forth in Paragraph 1(b). Paragraph 8 hereof sets forth certain obligations of the Employer in the event that the Executive's employment hereunder is terminated. Certain capitalized terms used in this Paragraph 7 and in Paragraph 8 hereof are defined in Paragraph 7(d), below. In the event of termination of the Executive's employment with the Employer for any reason, or if the Executive is required by the Board, the Executive agrees to resign, and shall automatically be deemed to have resigned, from any offices (including any directorship) the Executive holds with the Employer and/or any of its affiliates effective as of the termination date of the Executive's employment hereunder, or, if applicable, effective as of a date selected by the Board; provided, however, that the foregoing resignation shall not prejudice or otherwise affect the Executive's rights and obligations, if any, under this Agreement. (a) Death or Disability. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to death benefits and certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event of the Executive's death or in the event that the Executive becomes Disabled (as hereinafter defined). The Board shall promptly give the Executive written notice of any such determination of the Executive's Disability and of any decision of the Board to terminate the Executive's employment by reason thereof. In the event of Disability, until the Date of Termination, the base salary payable to the Executive under Paragraph 3 hereof shall be 3 reduced dollar-for-dollar by the amount of disability benefits, if any, paid to the Executive in accordance with any disability policy or program of the Employer. (b) Discharge for Cause. In accordance with the procedures hereinafter set forth, the Board may discharge the Executive from the Executive's employment hereunder for Cause (as hereinafter defined). Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged for Cause. Any discharge of the Executive for Cause shall be communicated by a Notice of Termination to the Executive given in accordance with Paragraph 15 of this Agreement. (c) Termination for Other Reasons. The Employer may discharge the Executive without Cause by giving written notice to the Executive in accordance with Paragraph 15. The Executive may resign from the Executive's employment with or without Good Reason, without liability to the Employer, by giving written notice to the Employer in accordance with Paragraph 15 at least thirty (30) days prior to the Date of Termination; provided, however, that no resignation shall be treated as a resignation for Good Reason unless the written notice thereof is given within sixty (60) days after the occurrence which constitutes "Good Reason" or during the ninety (90) day period described in the final sentence of Paragraph 7(d)(vi); provided, further, that the Employer retains the right after proper notice of the Executive's voluntary termination to require the Executive to cease the Executive's employment immediately. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged without Cause or resigns for any reason or no reason. (d) Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Executive's base salary under Paragraph 3 through the Date of Termination to the extent not theretofore paid, (B) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (D) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and (E) all other benefits which have accrued as of the Date of Termination. For the purpose of this Paragraph 7(d)(i), except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy. (ii) "Cause" shall mean (A) the Executive's willful and continued (for a period of not less than ten (10) business days after written notice thereof) failure to perform substantially the duties of his employment (other than as a result of physical or 4 mental incapacity, or while on vacation); or (B) the Executive's willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer; or (C) the Executive's conviction of a felony involving moral turpitude, but specifically excluding any conviction based entirely on vicarious liability (with "vicarious liability" meaning liability based on acts of the Employer for which the Executive is charged solely as a result of his offices with the Employer and in which he was not directly involved and did not have prior knowledge of such actions or intended actions); provided, however, that no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Employer; and provided further that no act or omission by the Executive shall constitute Cause hereunder unless the Employer has given detailed written notice thereof to the Executive, and the Executive has failed to remedy such act or omission. (iii) "Change in Control" shall mean the occurrence of any one of the following events: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of PrivateBancorp or any of its subsidiaries, or (ii) a corporation owned directly or indirectly by the stockholders of PrivateBancorp in substantially the same proportions as their ownership of stock of PrivateBancorp, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of PrivateBancorp representing 20% or more of the total voting power of the then outstanding shares of capital stock of PrivateBancorp entitled to vote generally in the election of directors (the "Voting Stock"), provided, however, that the following shall not constitute a change in control: (1) such person becomes a beneficial owner of 20% or more of the Voting Stock as the result of an acquisition of such Voting Stock directly from PrivateBancorp, or (2) such person becomes a beneficial owner of 20% or more of the Voting Stock as a result of the decrease in the number of outstanding shares of Voting Stock caused by the repurchase of shares by PrivateBancorp; provided, further, that in the event a person described in clause (1) or (2) shall thereafter increase (other than in circumstances described in clause (1) or (2)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall be deemed to become a beneficial owner of 20% or more of the Voting Stock for purposes of this Paragraph (A), provided such person continues to beneficially own 20% or more of the Voting Stock after such subsequent increase in beneficial ownership, or (B) During any period of two consecutive years, individuals (the "Incumbent Board"), who at the beginning of such period constitute the Board, and any new director, whose election by the Board or nomination for election by PrivateBancorp's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the 5 beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (C) Consummation of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of the assets of PrivateBancorp (a "Business Combination"), in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns PrivateBancorp or all or substantially all of PrivateBancorp's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of PrivateBancorp, and (2) at least a majority of the members of the board of directors of the corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or (D) Approval by the stockholders of PrivateBancorp of a plan of complete liquidation or dissolution of PrivateBancorp. The Board has final authority to construe and interpret the provisions of the foregoing Paragraphs (A), (B), (C) and (D) and to determine the exact date on which a Change in Control has been deemed to have occurred thereunder. (iv) "Date of Termination" shall mean (A) in the event of a discharge of the Executive for or without Cause, the date the Executive receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a resignation by the Executive, the date specified in the written notice to the Employer, which date shall be no less than thirty (30) days from the date of such written notice (or such earlier date as the Employer may elect in its sole discretion), (C) in the event of the Executive's death, the date of the Executive's death, and (D) in the event of termination of the Executive's employment by reason of Disability pursuant to Paragraph 7(a), the date the Executive receives written notice of such termination. (v) "Disabled" and "Disability" shall mean that the Executive will be deemed to be disabled upon the earlier of (i) the end of a six (6) consecutive month period, or an aggregate period of nine (9) months out of any consecutive twelve (12) months, during which, by reason of physical or mental injury or disease, the Executive has been unable to perform substantially all of the Executive's usual and customary duties under this Agreement or (ii) the date that a reputable physician selected by the Board, and as to whom the Executive has no reasonable objection, determines in writing that the Executive will, by reason of physical or mental injury or disease, be unable to perform substantially all of the Executive's usual and customary duties under 6 this Agreement for a period of at least six (6) consecutive months. If any question arises as to whether the Executive is Disabled, upon reasonable request therefore by the Board, the Executive shall submit to a reasonable medical examination for the purpose of determining the existence, nature and extent of any such disability. (vi) "Good Reason" shall mean the occurrence, other than in connection with a discharge, of any of the following without the Executive's consent: (A) the Executive is not re-elected or is removed from the positions with the Employer set forth in Paragraph 1(a), other than as a result of the Executive's election or appointment to positions of equal or superior scope and responsibility; or (B) the Executive shall fail to be vested by the Employer with the power and authority of any of said positions, excluding for this purpose any isolated action not taken in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; or (C) any failure by the Employer to materially comply with any of the provisions of this Agreement, other than any isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; (D) the Employer giving notice to the Executive pursuant to Paragraph 1(b) that the term of this Agreement shall not be extended upon the expiration of the then-current term; or (E) the Employer requiring the Executive to be based at an office or location which is more than 50 miles from the Executive's office as of the Effective Date or any renewal date of the extended term of this Agreement. In addition, any termination by the Executive during the ninety (90) day period beginning on the first anniversary of the date of a Change in Control shall be deemed to be for "Good Reason." (vii) "Notice of Termination" shall mean a written notice which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination is to be other than the date of receipt of such notice or the date otherwise specified under this Agreement, specifies the termination date. 8. Obligations of the Employer Upon Termination. The following provisions describe the obligations of the Employer to the Executive under this Agreement upon termination of employment. However, except as explicitly provided in this Agreement, nothing in this Agreement shall limit or otherwise adversely affect any rights which the Executive may have under applicable law, under any other agreement with the Employer or any of its affiliates or subsidiaries, or under any compensation or benefit plan, program, policy or practice of the Employer or any of its affiliates or subsidiaries. (a) Death, Disability, Discharge for Cause, or Resignation without Good Reason. In the event this Agreement terminates pursuant to Paragraph 7(a) by reason of the death or Disability of the Executive, pursuant to Paragraph 7(b) by reason of the discharge of the Executive by the Employer for Cause, or pursuant to Paragraph 7(c) by reason of the resignation of the Executive other than for Good Reason, the Employer shall pay to the Executive, or the Executive's heirs or estate in the event of the Executive's death, all Accrued Obligations in a \ 7 lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive. In addition, in the event this Agreement terminates pursuant to Paragraph 7(a) by reason of death of the Executive, the Employer shall pay to the Executive's heirs or estate death benefits in a lump sum amount equal to six (6) months of the Executive's then-current annual base salary. (b) Discharge without Cause or Resignation with Good Reason. In the event that this Agreement terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) Severance payments equal to one hundred percent (100%) of the sum of (A) the Executive's then-current annual base salary, plus (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, payable in substantially equal monthly installments for a period of twelve (12) months (the "Severance Period") in accordance with the Employer's regular payroll practices; and (iv) Continuation for the Severance Period of the Executive's right to maintain COBRA continuation coverage under the applicable plans at premium rates on the same "cost-sharing" basis as the applicable premiums paid for such coverage by active employees as of the Date of Termination. In the event that upon the expiration of the Severance Period, Executive is not employed or otherwise providing compensated services of any type, and has not done so during the final ninety (90) days of the Severance Period, the Employer may, in its sole discretion (which discretion need not be applied in a consistent manner from one executive to another), agree to extend the Severance Period for up to an additional six (6) months (the "Extended Severance Period"). The payments to Executive described in subParagraph (iii) above and the reduced COBRA continuation premium described in subParagraph (iv) above shall continue during the 8 Extended Severance Period, subject to earlier termination effective as of the first day of the month following the date on which the Executive becomes employed or provides compensated services of any type (including self-employment). The Executive shall provide such information as the Employer may reasonably request to determine Executive's continued eligibility for the payments and benefits provided by this Paragraph 8(b). (c) Effect of Change in Control. In the event that a Change in Control occurs and this Agreement thereafter terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability, or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) The Employer shall pay the Executive a lump sum payment within thirty (30) days after such termination of employment in the amount of two (2) times the sum of the following: (A) the amount of the Executive's annual base salary determined as of the Date of Termination, or the date immediately preceding the date of the Change in Control, whichever is greater; plus (B) the greater of (A) the Executive's bonus amount, if any, for the calendar year immediately preceding that in which the Date of Termination occurs, or (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, or if such sum would be greater, with respect to the three (3) calendar years immediately preceding the calendar year of the date of the Change in Control; plus (C) the sum of: (I) the annual value of the contributions that would have been expected to be made or credited by the Employer to, and benefits expected to be accrued under, the qualified and non-qualified 9 employee profit sharing, 401(k), pension and any other benefit plans maintained by the Employer to or for the benefit of the Executive; plus (II) the annual value of the Other Benefits described in Paragraph 6(a) and (c) above. For purposes of subParagraph (C)(I) above, the annual value of the contributions and accruals to or under the employee benefit plans shall be determined on the basis of the actual rate of contributions or accruals, as applicable, and the provisions of the plans as in effect during the calendar year immediately preceding the date of the Change in Control, or if the value so determined would be greater, during the calendar year immediately preceding the Date of Termination. The "annual value" of the executive perquisites described in Paragraph 6(c) for purposes of subParagraph (C)(II) above shall be deemed to equal 7.5% of the annual base salary amount applicable under clause (iii)(A) above. The Executive shall also be entitled to outplacement services for a reasonable period of time as agreed between the Executive and the Employer. Notwithstanding the foregoing, if a Change in Control occurs and this Agreement is terminated prior to the Change in Control pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason, then the Executive shall be deemed for purposes of this Paragraph 8(c) to have so terminated pursuant to Paragraph 7(c) immediately following the date the Change in Control occurs if it is reasonably demonstrated by the Executive that such earlier termination was (i) at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose, or the circumstances that precipitated the termination otherwise arose, in connection with or in anticipation of the Change in Control. (d) Effect on Other Amounts. The payments provided for in this Paragraph 8 shall be in addition to all other sums then payable and owing to the Executive, shall be subject to applicable federal and state income and other withholding taxes and shall be in full settlement and satisfaction of all of the Executive's claims and demands. Upon such termination of this Agreement, the Employer shall have no rights or obligations under this Agreement, other than its obligations under this Paragraph 8, and the Executive shall have no rights and obligations under this Agreement, other than the Executive's obligations under Paragraphs 12 and 13 hereof (to the extent applicable); provided, however, termination of this Agreement shall not terminate the obligation of the Executive to pay to the Employer any amounts for which the Executive may be liable to the Employer under any provision of the Sarbanes-Oxley Act of 2002 (including, without limitation, Section 304 of such Act), or any rules and regulations promulgated thereunder, as amended from time to time. (e) Conditions. Any payments or benefits made or provided pursuant to this Paragraph 8 are subject to the Executive's: (i) compliance with the provisions of Paragraphs 12 and 13 hereof (to the extent applicable); 10 (ii) delivery to the Employer of an executed Release and Severance Agreement, which shall be substantially in the form attached hereto as Exhibit A, with such changes therein or additions thereto as needed under then applicable law to give effect to its intent and purpose; and (iii) delivery to the Employer of a resignation from all offices, directorships and fiduciary positions with the Employer, its affiliates and employee benefit plans. Notwithstanding the due date of any post-employment payments, any amounts due under this Paragraph 8 shall not be due until after the expiration of any revocation period applicable to the Release and Severance Agreement. 9. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Paragraph 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Paragraph (c), below, all determinations required to be made under this Paragraph 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the independent public accountants then regularly retained by the Employer (the "Accounting Firm") in consultation with counsel acceptable to Executive, which shall provide detailed supporting calculations both to the Employer and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder) in consultation with counsel acceptable to Executive. All fees and expenses of the Accounting Firm and such counsel shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Paragraph 9, shall be paid by the Employer to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise 11 Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any good faith determination by the Accounting Firm shall be binding upon the Employer and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Paragraph (c), below, and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30)-day period following the date on which Executive gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) Give the Employer any information reasonably requested by the Employer relating to such claim, (ii) Take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer, (iii) Cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) Permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Paragraph (c), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner; and the Executive agrees to prosecute such contest 12 to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Paragraph (c), above, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of said Paragraph (c)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to said Paragraph (c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid; and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 10. Dispute Resolution. In the event any dispute arises and the parties after good faith efforts are unable to agree as to the calculation of the amounts payable under this Agreement, it shall be settled in accordance with the majority opinion of a committee consisting of an accountant chosen by the Employer, an accountant chosen by the Executive and an independent accountant acceptable to both the Executive and the Employer, as the case may be. The committee's determination shall be binding and conclusive on the parties hereto. The Employer shall pay all fees and expenses of the dispute resolution. 11. Enforcement. In the event the Employer shall fail to pay any amounts due to the Executive under this Agreement as they come due, the Employer agrees to pay interest on such amounts at a rate equal to the prime rate plus four percent (4%) per annum (as from time to time published in The Wall Street Journal (Midwest Edition)). The Employer agrees that Executive and any successor shall be entitled to recover all costs of successfully enforcing any provision of this Agreement, including reasonable attorneys fees and costs of litigation, if Executive is the prevailing party. 12. Confidential Information. The Executive shall not at any time during or following the Executive's employment with the Employer, directly or indirectly, disclose or use on the Executive's behalf or another's behalf, publish or communicate, except in the course of the Executive's employment 13 and in the pursuit of the business of the Employer or any of its subsidiaries or affiliates, any proprietary information or data of the Employer or any of its subsidiaries or affiliates, which is not generally known to the public or which could not be recreated through public means and which the Employer may reasonably regard as confidential and proprietary. The Executive recognizes and acknowledges that all knowledge and information which the Executive has or may acquire in the course of the Executive's employment, such as, but not limited to the business, developments, procedures, techniques, activities or services of the Employer or the business affairs and activities of any customer, prospective customer, individual firm or entity doing business with the Employer are its sole valuable property, and shall be held by Executive in confidence and in trust for their sole benefit. All records of every nature and description which come into the Executive's possession, whether prepared by the Executive, or otherwise, shall remain the sole property of the Employer and upon termination of the Executive's employment for any reason, said records shall be left with the Employer as part of its property. 13. Non-Competition; Non-Solicitation. The Executive acknowledges that the Employer and its affiliates and subsidiaries by nature of their respective businesses have a legitimate and protectable interest in their clients, customers and employees with whom they have established significant relationships as a result of a substantial investment of time and money, and but for the Executive's employment hereunder, the Executive would not have had contact with such clients, customers and employees. The Executive agrees that during the period of the Executive's employment with the Employer and for a period of one (1) year after termination of the Executive's employment for any reason (the "Non-Compete Period"), the Executive will not (except in the Executive's capacity as an employee of the Employer) directly or indirectly, for the Executive's own account, or as an agent, employee, director, owner, partner, or consultant of any corporation, firm, partnership, joint venture, syndicate, sole proprietorship or other entity which has a place of business (whether as a principal, division, subsidiary, affiliate, related entity, or otherwise) located within the Market Area (as hereinafter defined): (a) engage, directly or indirectly, in any business that provides banking products or services or that otherwise competes in any way with the Employer or any of its subsidiaries or affiliates; (b) solicit or induce, or attempt to solicit or induce any client or customer of the Employer or any of its subsidiaries or affiliates not to do business with the Employer or any of its subsidiaries or affiliates; or (c) solicit or induce, or attempt to solicit or induce, any employee or agent of the Employer or any of its subsidiaries or affiliates to terminate his or her relationship with the Employer or any of its subsidiaries or affiliates. For purposes of this Agreement, "Market Area" shall be an area encompassed within a fifty (50) mile radius surrounding Executive's office as of the Date of Termination of employment. The foregoing provisions shall not be deemed to prohibit (i) the Executive's ownership, not to exceed five percent (5%) of the outstanding shares, of capital stock of any corporation whose securities are publicly traded on a national or regional securities exchange or in the over- 14 the-counter market or (ii) the Executive serving as a director of other corporations and entities to the extent these directorships do not inhibit the performance of the Executive's duties hereunder or conflict with the business of the Employer. 14. Remedies. (a) The Executive acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of Paragraphs 12 and 13 will not cause the Executive undue hardship and that said provisions are reasonably necessary and commensurate with the need to protect the Employer and its legitimate and proprietary business interests and property from irreparable harm. The Executive acknowledges and agrees that (a) a breach of any of the covenants and provisions contained in Paragraphs 12 or 13 above, will result in irreparable harm to the business of the Employer, (b) a remedy at law in the form of monetary damages for any breach by the Executive of any of the covenants and provisions contained in Paragraphs 12 and 13 is inadequate, (c) in addition to any remedy at law or equity for such breach, the Employer shall be entitled to institute and maintain appropriate proceedings in equity, including a suit for injunction to enforce the specific performance by Executive of the obligations hereunder and to enjoin Executive from engaging in any activity in violation hereof and (d) the covenants on the Executive's part contained in Paragraphs 12 and 13, shall be construed as agreements independent of any other provisions in this Agreement, and the existence of any claim, setoff or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense or bar to the specific enforcement by the Employer of said covenants. In the event of a breach or a violation by the Executive of any of the covenants and provisions of this Agreement, the running of the Non-Compete Period (but not of Executive's obligation thereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 12 and 13 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraph 12 or 13 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 15. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (a) upon delivery to the address of such party specified below if delivered personally or by courier; (b) upon dispatch if transmitted by telecopy or other means of facsimile, provided a copy thereof is also sent by regular mail or courier; (c) within forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as certified mail, return receipt requested; or (d) within twenty-four (24) hours after deposit thereof with a reputable overnight courier (charges prepaid), addressed, in any case to the party at the following address(es) or telecopy numbers: 15 (a) If to Executive, at the address set forth on the signature page hereof. (b) If to the Employer: PrivateBancorp, Inc. The PrivateBank and Trust Company Ten North Dearborn Street Suite 900 Chicago, IL 60602 Attn: Chief Executive Officer Telecopy No.: (312) 683-7111 with a copy to: Vedder, Price, Kaufman & Kammholz 222 North LaSalle Street Chicago, Illinois 60601-1003 Attn: Ms. Jennifer R. Evans Telecopy No.: (312) 609-5005 or to such other address(es) or telecopy number(s) as any party may designate by written notice in the aforesaid manner. 16. Indemnification. (a) In the event that legal action is instituted against the Executive during or after the term hereof by a third party (or parties) based on the performance or nonperformance by the Executive of the Executive's duties hereunder, the Employer will assume the defense of such action by its attorneys or attorneys selected by the Executive reasonably satisfactory to the Employer and advance the costs and expenses thereof (including reasonable attorneys' fees) without prejudice to or waiver by the Employer of its rights and remedies against the Executive. In the event that there is a final judgment entered against the Executive in any such litigation, and Executive is obligated, in accordance with its charter, by-laws, or insurance, to reimburse such entities, the Executive shall be liable to the Employer for all such costs and expenses paid or incurred by them in the defense of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount shall be paid by the Executive within thirty (30) days after rendition of the final judgment. The Employer shall be entitled to set off the reimbursement amount against all sums which may be owed or payable by the Employer to the Executive hereunder or otherwise. The parties shall cooperate in the defense of any asserted claim, demand or liability against the Executive or the Employer or its subsidiaries or affiliates. The term "final judgment" as used herein shall be defined to mean the decision of a court of competent jurisdiction, and in the event of an appeal, then the decision of the appellate court, after petition for rehearing has been denied, or the time for filing the same (or the filing of further appeal) has expired. (b) The rights to indemnification under this Section 16 shall be in addition to any rights which the Executive may now or hereafter have under the charter or By-laws of the Employer or any of its affiliates or subsidiaries, under any insurance contract maintained by the 16 Employer or any of its affiliates or subsidiaries, or any agreement between the Executive and the Employer or any of its affiliates or subsidiaries. 17. Full Settlement; No Mitigation. The Employer's obligation to make the payments and provide the benefits provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employer may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 18. Payment in the Event of Death. In the event payment is due and owing by the Employer to the Executive under this Agreement upon the death of the Executive, payment shall be made to such beneficiary as the Executive may designate in writing, or failing such designation, then the executor of the Executive's estate, in full settlement and satisfaction of all claims and demands on behalf of the Executive, shall be entitled to receive all amounts owing to the Executive at the time of the Executive's death under this Agreement. Such payments shall be in addition to any other death benefits of the Employer and in full settlement and satisfaction of all severance benefit payments provided for in this Agreement. 19. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to Executive's employment hereunder and supersedes and cancels all prior written and oral understandings and agreements with respect to such matters and except for the terms and provisions of any employee benefit or other compensation plans (or any agreements or awards thereunder), referred to in this Agreement, or as otherwise expressly contemplated by this Agreement. 20. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the successors and assigns of the Employer. The Employer shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform this Agreement if no such succession had taken place. Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of the Employer in accordance with the operation of law, and such successor shall be deemed the "Employer" for purposes of this Agreement. 21. Tax Withholding. The Employer shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Employer to or for the benefit of the Executive under this Agreement or otherwise. The Employer may, at its option: (a) withhold such taxes from any cash payments owing from the Employer to the Executive, (b) require the Executive to pay to the Employer in cash such amount as may be required to satisfy such 17 withholding obligations and/or (c) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 22. No Assignment. Except as otherwise expressly provided herein, this Agreement is not assignable by any party and no payment to be made hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or other charge. 23. Execution in Counterparts. This Agreement may be executed by the parties hereto in two (2) or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 24. Jurisdiction and Governing Law. Except as provided in Paragraph 10, jurisdiction over disputes with regard to this Agreement shall be exclusively in the courts of the State of Illinois, and this Agreement shall be construed, interpreted and enforced in accordance with and governed by the laws of the State of Illinois, without regard to the choice of laws provisions of such State. 25. Severability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement. Furthermore, if the scope of any restriction or requirement contained in this Agreement is too broad to permit enforcement of such restriction or requirement to its full extent, then such restriction or requirement shall be enforced to the maximum extent permitted by law, and the Executive consents and agrees that any court of competent jurisdiction may so modify such scope in any proceeding brought to enforce such restriction or requirement. 26. Survival. Provisions of this Agreement shall survive the termination of the Executive's employment with the Employer to the extent provided herein. 27. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 28. Amendment. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. 29. Construction. The language used in this Agreement will be deemed to be the language chosen by Employer and the Executive to express their mutual intent and no rule of strict construction shall be applied against any person. Wherever from the context it appears appropriate, each term stated in either the singular of plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine or neuter. The headings of the Paragraphs of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 30. No Duplication. Notwithstanding anything herein to the contrary, to the extent that any compensation or benefits are paid to or received by the Executive from the Bank, 18 PrivateBancorp or any other subsidiary of PrivateBancorp or the Bank, such compensation or benefits shall be subtracted from any amounts simultaneously due hereunder from PrivateBancorp and/or the Bank, as the case may be. [Signature Page Follows] 19 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PRIVATEBANCORP, INC. By: /s/ Ralph B. Mandell ------------------------------------- Title: Chief Executive Officer ---------------------------------- THE PRIVATEBANK AND TRUST COMPANY By: /s/ Ralph B. Mandell ------------------------------------- Title: Chief Executive Officer ---------------------------------- EXECUTIVE Address: -------------------------- /s/ Gary S. Collins - ---------------------------------- ----------------------------------------- - ---------------------------------- Name: Gary S. Collins Telecopy No.: --------------------- 20 EXHIBIT A TO EMPLOYMENT AGREEMENT --------------------------------- RELEASE AND SEVERANCE AGREEMENT ------------------------------- THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day of _________, _____ by and between PrivateBancorp, Inc. and its subsidiaries and affiliates (including, without limitation, The PrivateBank and Trust Company) (collectively, "PBI") and Gary S. Collins (hereinafter "EXECUTIVE"). EXECUTIVE'S employment with PBI terminated on __________, ______; and EXECUTIVE has voluntarily agreed to the terms of this RELEASE AND SEVERANCE AGREEMENT in exchange for severance benefits under the Employment Agreement ("Employment Agreement") to which EXECUTIVE otherwise would not be entitled. NOW THEREFORE, in consideration for severance benefits provided under the Employment Agreement, EXECUTIVE on behalf of EXECUTIVE and EXECUTIVE'S spouse, heirs, executors, administrators, children, and assigns does hereby fully release and discharge PBI, its officers, directors, employees, agents, subsidiaries and divisions, benefit plans and their administrators, fiduciaries and insurers, successors, and assigns from any and all claims or demands for wages, back pay, front pay, attorneys' fees and other sums of money, insurance, benefits, contracts, controversies, agreements, promises, damages, costs, actions or causes of action and liabilities of any kind or character whatsoever, whether known or unknown, from the beginning of time to the date of these presents, relating to EXECUTIVE'S employment or termination of employment from PBI, including but not limited to any claims, actions or causes of action arising under the statutory, common law or other rules, orders or regulations of the United States or any State or political subdivision thereof including the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act. EXECUTIVE acknowledges that EXECUTIVE'S obligations pursuant to Paragraphs 12 and 13, of the Employment Agreement relating to the use or disclosure of confidential information and non-solicitation of customers and employees shall continue to apply to EXECUTIVE. This Release and Settlement Agreement supersedes any and all other agreements between EXECUTIVE and PBI except agreements relating to proprietary or confidential information belonging to PBI, and any other agreements, promises or representations relating to severance pay or other terms and conditions of employment are null and void. This release does not affect EXECUTIVE'S right to any benefits to which EXECUTIVE may be entitled under any employee benefit plan, program or arrangement sponsored or provided by PBI, including but not limited to the Employment Agreement and the plans, programs and arrangements referred to therein. EXECUTIVE and PBI acknowledge that it is their mutual intent that the Age Discrimination in Employment Act waiver contained herein fully comply with the Older Workers Benefit Protection Act. Accordingly, EXECUTIVE acknowledges and agrees that: A-1 (a) The severance benefits exceed the nature and scope of that to which EXECUTIVE would otherwise have been legally entitled to receive. (b) Execution of this Agreement and the Age Discrimination in Employment Act waiver herein is EXECUTIVE'S knowing and voluntary act; (c) EXECUTIVE has been advised by PBI to consult with EXECUTIVE'S personal attorney regarding the terms of this Agreement, including the aforementioned waiver; (d) EXECUTIVE has had at least twenty-one (21) calendar days within which to consider this Agreement; (e) EXECUTIVE has the right to revoke this Agreement in full within seven (7) calendar days of execution and that none of the terms and provisions of this Agreement shall become effective or be enforceable until such revocation period has expired; (f) EXECUTIVE has read and fully understands the terms of this Agreement; and (g) Nothing contained in this Agreement purports to release any of EXECUTIVE'S rights or claims under the Age Discrimination in Employment Act that may arise after the date of execution. IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above. PRIVATEBANCORP, INC., EXECUTIVE for itself and its Subsidiaries and Affiliates By: --------------------------------- ------------------------------------ Its: Gary S. Collins -------------------------------- A-2 EX-10.4 6 ex10-4_110303.txt JENSEN EMPLOYMENT AGREEMENT EXHIBIT 10.4 ------------ EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS AGREEMENT, made and entered into as of October 1, 2003 (the "Effective Date"), by and among PrivateBancorp, Inc. (hereinafter referred to as "PrivateBancorp"), The PrivateBank (St. Louis) (the "Bank" and together with PrivateBancorp, hereinafter the "Employer"), and Richard C. Jensen (hereinafter called the "Executive"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Employer desires to continue to employ the Executive as Chairman and Chief Executive Officer of the Bank, and the Executive desires to continue in such employment; NOW, THEREFORE, in consideration of the mutual promises herein contained and subject to the conditions precedent set forth herein, the parties agree as follows: 1. Employment and Term. (a) Employment. PrivateBancorp shall cause the Bank to employ, and the Bank shall employ, the Executive as the Chairman and Chief Executive Officer of the Bank, and the Executive shall so serve, for the term set forth in Paragraph 1(b). (b) Term. The Executive's employment under this Agreement shall commence on the Effective Date and extend through September 30, 2004, subject to the extension of such term as hereinafter provided and subject to earlier termination as provided in Paragraph 7. The term of this Agreement shall automatically be extended for an additional year as of October 1, 2004 and each anniversary date thereof unless, no later than ninety (90) days prior to any such renewal date, either the board of directors of PrivateBancorp (the "Board"), or a duly authorized committee thereof, on behalf of the Employer, or the Executive gives written notice to the other, in accordance with Paragraph 15, that the term of this Agreement shall not be so extended. Anything in this Agreement to the contrary, if at any time during the Executive's period of employment under this Agreement there is a Change in Control (as defined in Paragraph 7), the term of this Agreement shall automatically extend to a date which is two (2) years from the date of the Change in Control (and shall be further extended pursuant to the foregoing provisions of this Paragraph 1(b), unless written notice to the contrary is given in accordance with this Paragraph 1(b)). 2. Duties and Responsibilities. (a) The duties and responsibilities of the Executive shall be of an executive nature as shall be required by the Employer in the conduct of its business. The Executive's powers and authority shall be as prescribed by the by-laws of the Employer, if applicable, and shall include all those presently delegated to the Executive, together with the performance of such other duties and responsibilities as the Chief Executive Officer of the Employer may from time to time assign to the Executive not inconsistent with the Executive's position(s) with the Employer. The Executive recognizes, that during the period of the Executive's employment hereunder, the Executive owes an undivided duty of loyalty to the Employer, and agrees to devote the Executive's entire business time and attention to the performance of said duties and responsibilities and to use the Executive's best efforts to promote and develop the business of the Employer. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Employer and the goodwill pertaining thereto, the Executive shall perform his duties under this Agreement professionally, in accordance with the applicable laws, rules and regulations and such standards, policies and procedures established by the Employer and the industry from time to time, including the Employee's Corporate Code of Ethics. The Executive will not perform any duties for any other business without the prior written consent of the Employer, but may engage in charitable, civic or community activities, provided that such duties or activities do not materially interfere with the proper performance of the Executive's duties under this Agreement. During the period of employment, the Executive agrees to serve as a director on the Board of Directors of the Employer and/or the board of directors or managers, as applicable, of any of its subsidiaries and affiliates, as well as to serve as a member of any committee of any said boards, to which the Executive may be elected or appointed. (b) Notwithstanding that this Agreement provides for the employment of the Executive in the Executive's capacity as the Chairman and Chief Executive Officer of the Bank, nothing herein contained shall assure the Executive of, nor in any manner shall be construed to constitute an agreement by the Employer to the, continued employment of the Executive after the expiration or termination of this Agreement in such capacity or in any other capacity. 3. Base Salary. For services performed by the Executive for the Employer pursuant to this Agreement during the period of employment as provided in Paragraph 1(b) hereof, the Employer shall pay the Executive a base salary at the rate of one hundred eighty two thousand dollars ($182,000) per year, payable in substantially equal installments in accordance with the Employer's regular payroll practices. The Executive's base salary (with any increases under this Paragraph 3) shall not be subject to reduction without the Executive's written consent. Any compensation which may be paid to the Executive under any additional compensation or incentive plan of the Employer or which may be otherwise authorized from time to time by the Board (or an appropriate committee thereof) shall be in addition to the base salary to which the Executive shall be entitled under this Agreement. Executive's base salary shall be subject to review from time to time, and the Employer may (but is not required to) increase the base salary as the Board, in its discretion, may determine. 4. Annual Bonuses. For each fiscal year during the term of employment, the Executive shall be eligible to receive a bonus in the amount, if any, as may be determined from time to time by the Board in its discretion. 5. Equity Incentive Compensation. During the term of employment hereunder, the Executive shall be eligible to participate in the PrivateBancorp, Inc. Incentive Compensation Plan, and in any other equity-based incentive compensation plan or program adopted by the Employer, including (but not by way of limitation) any plan providing for the granting of (a) options to purchase stock, (b) restricted stock or (c) similar equity-based units or interests to officers of the Employer. 2 6. Other Benefits. In addition to the compensation described in Paragraphs 3, 4 and 5, above, the Executive shall also be entitled to the following: (a) Participation in Benefit Plans. The Executive shall be entitled to participate in such life insurance, disability, medical, dental, pension, profit sharing and retirement plans and other programs as may be made generally available from time to time by the Employer for the benefit of executives of the Executive's level or its employees generally. (b) Vacation. The Executive shall be entitled to such number of days of vacation with pay during each calendar year during the period of employment in accordance with the Employer's applicable personnel policy as in effect from time to time. (c) Executive Perquisites. The Employer shall furnish Executive with such perquisites as are provided from time to time by the Employer to its officers generally and are suitable to the Executive's position, adequate for the performance of the Executive's duties hereunder, and reasonable in the circumstances. Without limitation of the foregoing, Employer shall pay the cost of Executive's membership in one downtown club and shall reimburse Executive for the cost of annual country club dues at one country club of which Executive is a member, in each case subject to Employer approval of the club. (d) Expense Reimbursement. The Employer shall reimburse the Executive for all reasonable expenses incurred by the Executive in performing services hereunder, which are incurred and accounted for in accordance with the Employer's policies and procedures applicable thereto. 7. Termination. Unless earlier terminated in accordance with the following provisions of this Paragraph 7, the Employer shall continue to employ the Executive and the Executive shall remain employed by the Employer during the entire term of this Agreement as set forth in Paragraph 1(b). Paragraph 8 hereof sets forth certain obligations of the Employer in the event that the Executive's employment hereunder is terminated. Certain capitalized terms used in this Paragraph 7 and in Paragraph 8 hereof are defined in Paragraph 7(d), below. In the event of termination of the Executive's employment with the Employer for any reason, or if the Executive is required by the Board, the Executive agrees to resign, and shall automatically be deemed to have resigned, from any offices (including any directorship) the Executive holds with the Employer and/or any of its affiliates effective as of the termination date of the Executive's employment hereunder, or, if applicable, effective as of a date selected by the Board; provided, however, that the foregoing resignation shall not prejudice or otherwise affect the Executive's rights and obligations, if any, under this Agreement. (a) Death or Disability. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to death benefits and certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event of the Executive's death or in the event that the Executive becomes Disabled (as hereinafter defined). The Board shall promptly give the Executive written notice of any such determination of the Executive's Disability and of any decision of the Board to terminate the Executive's employment by reason thereof. In the event of Disability, until the Date of Termination, the base salary payable to the Executive under Paragraph 3 hereof shall be 3 reduced dollar-for-dollar by the amount of disability benefits, if any, paid to the Executive in accordance with any disability policy or program of the Employer. (b) Discharge for Cause. In accordance with the procedures hereinafter set forth, the Board may discharge the Executive from the Executive's employment hereunder for Cause (as hereinafter defined). Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged for Cause. Any discharge of the Executive for Cause shall be communicated by a Notice of Termination to the Executive given in accordance with Paragraph 15 of this Agreement. (c) Termination for Other Reasons. The Employer may discharge the Executive without Cause by giving written notice to the Executive in accordance with Paragraph 15. The Executive may resign from the Executive's employment with or without Good Reason, without liability to the Employer, by giving written notice to the Employer in accordance with Paragraph 15 at least thirty (30) days prior to the Date of Termination; provided, however, that no resignation shall be treated as a resignation for Good Reason unless the written notice thereof is given within sixty (60) days after the occurrence which constitutes "Good Reason" or during the ninety (90) day period described in the final sentence of Paragraph 7(d)(vi); provided, further, that the Employer retains the right after proper notice of the Executive's voluntary termination to require the Executive to cease the Executive's employment immediately. Except to the extent otherwise provided in Paragraphs 8, 12 and 13 with respect to certain post-Date of Termination obligations of the parties, this Agreement shall terminate immediately as of the Date of Termination in the event the Executive is discharged without Cause or resigns for any reason or no reason. (d) Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Executive's base salary under Paragraph 3 through the Date of Termination to the extent not theretofore paid, (B) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (D) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and (E) all other benefits which have accrued as of the Date of Termination. For the purpose of this Paragraph 7(d)(i), except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy. (ii) "Cause" shall mean (A) the Executive's willful and continued (for a period of not less than ten (10) business days after written notice thereof) failure to perform substantially the duties of his employment (other than as a result of physical or 4 mental incapacity, or while on vacation); or (B) the Executive's willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer; or (C) the Executive's conviction of a felony involving moral turpitude, but specifically excluding any conviction based entirely on vicarious liability (with "vicarious liability" meaning liability based on acts of the Employer for which the Executive is charged solely as a result of his offices with the Employer and in which he was not directly involved and did not have prior knowledge of such actions or intended actions); provided, however, that no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Employer; and provided further that no act or omission by the Executive shall constitute Cause hereunder unless the Employer has given detailed written notice thereof to the Executive, and the Executive has failed to remedy such act or omission. (iii) "Change in Control" shall mean the occurrence of any one of the following events: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of PrivateBancorp or any of its subsidiaries, or (ii) a corporation owned directly or indirectly by the stockholders of PrivateBancorp in substantially the same proportions as their ownership of stock of PrivateBancorp, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of PrivateBancorp representing 20% or more of the total voting power of the then outstanding shares of capital stock of PrivateBancorp entitled to vote generally in the election of directors (the "Voting Stock"), provided, however, that the following shall not constitute a change in control: (1) such person becomes a beneficial owner of 20% or more of the Voting Stock as the result of an acquisition of such Voting Stock directly from PrivateBancorp, or (2) such person becomes a beneficial owner of 20% or more of the Voting Stock as a result of the decrease in the number of outstanding shares of Voting Stock caused by the repurchase of shares by PrivateBancorp; provided, further, that in the event a person described in clause (1) or (2) shall thereafter increase (other than in circumstances described in clause (1) or (2)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall be deemed to become a beneficial owner of 20% or more of the Voting Stock for purposes of this Paragraph (A), provided such person continues to beneficially own 20% or more of the Voting Stock after such subsequent increase in beneficial ownership, or (B) During any period of two consecutive years, individuals (the "Incumbent Board"), who at the beginning of such period constitute the Board, and any new director, whose election by the Board or nomination for election by PrivateBancorp's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the 5 beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (C) Consummation of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of the assets of PrivateBancorp (a "Business Combination"), in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns PrivateBancorp or all or substantially all of PrivateBancorp's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of PrivateBancorp, and (2) at least a majority of the members of the board of directors of the corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or (D) Approval by the stockholders of PrivateBancorp of a plan of complete liquidation or dissolution of PrivateBancorp. The Board has final authority to construe and interpret the provisions of the foregoing Paragraphs (A), (B), (C) and (D) and to determine the exact date on which a Change in Control has been deemed to have occurred thereunder. (iv) "Date of Termination" shall mean (A) in the event of a discharge of the Executive for or without Cause, the date the Executive receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a resignation by the Executive, the date specified in the written notice to the Employer, which date shall be no less than thirty (30) days from the date of such written notice (or such earlier date as the Employer may elect in its sole discretion), (C) in the event of the Executive's death, the date of the Executive's death, and (D) in the event of termination of the Executive's employment by reason of Disability pursuant to Paragraph 7(a), the date the Executive receives written notice of such termination. (v) "Disabled" and "Disability" shall mean that the Executive will be deemed to be disabled upon the earlier of (i) the end of a six (6) consecutive month period, or an aggregate period of nine (9) months out of any consecutive twelve (12) months, during which, by reason of physical or mental injury or disease, the Executive has been unable to perform substantially all of the Executive's usual and customary duties under this Agreement or (ii) the date that a reputable physician selected by the Board, and as to whom the Executive has no reasonable objection, determines in writing that the Executive will, by reason of physical or mental injury or disease, be unable to perform substantially all of the Executive's usual and customary duties under 6 this Agreement for a period of at least six (6) consecutive months. If any question arises as to whether the Executive is Disabled, upon reasonable request therefore by the Board, the Executive shall submit to a reasonable medical examination for the purpose of determining the existence, nature and extent of any such disability. (vi) "Good Reason" shall mean the occurrence, other than in connection with a discharge, of any of the following without the Executive's consent: (A) the Executive is not re-elected or is removed from the positions with the Employer set forth in Paragraph 1(a), other than as a result of the Executive's election or appointment to positions of equal or superior scope and responsibility; or (B) the Executive shall fail to be vested by the Employer with the power and authority of any of said positions, excluding for this purpose any isolated action not taken in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; or (C) any failure by the Employer to materially comply with any of the provisions of this Agreement, other than any isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of written notice thereof given by the Executive in accordance with Paragraph 15; (D) the Employer giving notice to the Executive pursuant to Paragraph 1(b) that the term of this Agreement shall not be extended upon the expiration of the then-current term; or (E) the Employer requiring the Executive to be based at an office or location which is more than 50 miles from the Executive's office as of the Effective Date or any renewal date of the extended term of this Agreement. In addition, any termination by the Executive during the ninety (90) day period beginning on the first anniversary of the date of a Change in Control shall be deemed to be for "Good Reason." (vii) "Notice of Termination" shall mean a written notice which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination is to be other than the date of receipt of such notice or the date otherwise specified under this Agreement, specifies the termination date. 8. Obligations of the Employer Upon Termination. The following provisions describe the obligations of the Employer to the Executive under this Agreement upon termination of employment. However, except as explicitly provided in this Agreement, nothing in this Agreement shall limit or otherwise adversely affect any rights which the Executive may have under applicable law, under any other agreement with the Employer or any of its affiliates or subsidiaries, or under any compensation or benefit plan, program, policy or practice of the Employer or any of its affiliates or subsidiaries. (a) Death, Disability, Discharge for Cause, or Resignation without Good Reason. In the event this Agreement terminates pursuant to Paragraph 7(a) by reason of the death or Disability of the Executive, pursuant to Paragraph 7(b) by reason of the discharge of the Executive by the Employer for Cause, or pursuant to Paragraph 7(c) by reason of the resignation of the Executive other than for Good Reason, the Employer shall pay to the Executive, or the Executive's heirs or estate in the event of the Executive's death, all Accrued Obligations in a 7 lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive. In addition, in the event this Agreement terminates pursuant to Paragraph 7(a) by reason of death of the Executive, the Employer shall pay to the Executive's heirs or estate death benefits in a lump sum amount equal to six (6) months of the Executive's then-current annual base salary. (b) Discharge without Cause or Resignation with Good Reason. In the event that this Agreement terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) Severance payments equal to one hundred percent (100%) of the sum of (A) the Executive's then-current annual base salary, plus (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, payable in substantially equal monthly installments for a period of twelve (12) months (the "Severance Period") in accordance with the Employer's regular payroll practices; and (iv) Continuation for the Severance Period of the Executive's right to maintain COBRA continuation coverage under the applicable plans at premium rates on the same "cost-sharing" basis as the applicable premiums paid for such coverage by active employees as of the Date of Termination. In the event that upon the expiration of the Severance Period, Executive is not employed or otherwise providing compensated services of any type, and has not done so during the final ninety (90) days of the Severance Period, the Employer may, in its sole discretion (which discretion need not be applied in a consistent manner from one executive to another), agree to extend the Severance Period for up to an additional six (6) months (the "Extended Severance Period"). The payments to Executive described in subParagraph (iii) above and the reduced COBRA continuation premium described in subParagraph (iv) above shall continue during the 8 Extended Severance Period, subject to earlier termination effective as of the first day of the month following the date on which the Executive becomes employed or provides compensated services of any type (including self-employment). The Executive shall provide such information as the Employer may reasonably request to determine Executive's continued eligibility for the payments and benefits provided by this Paragraph 8(b). (c) Effect of Change in Control. In the event that a Change in Control occurs and this Agreement thereafter terminates pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability, or by reason of the resignation of the Executive for Good Reason: (i) The Employer shall pay all Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days after the Date of Termination; provided, however, that any portion of the Accrued Obligations which consists of bonus, deferred compensation, incentive compensation, insurance benefits or other employee benefits shall be determined and paid in accordance with the terms of the relevant plan or policy as applicable to the Executive; (ii) Within thirty (30) days after the Date of Termination, the Employer shall pay to the Executive a bonus for the year during which termination occurs, calculated as a prorata portion of the Executive's prior year's bonus amount (if any) based on the number of days elapsed during the year through the Date of Termination; (iii) The Employer shall pay the Executive a lump sum payment within thirty (30) days after such termination of employment in the amount of two (2) times the sum of the following: (A) the amount of the Executive's annual base salary determined as of the Date of Termination, or the date immediately preceding the date of the Change in Control, whichever is greater; plus (B) the greater of (A) the Executive's bonus amount, if any, for the calendar year immediately preceding that in which the Date of Termination occurs, or (B) the average of the sum of the bonus amounts earned by the Executive with respect to the three (3) calendar years (or such fewer number of years as Executive has been employed) immediately preceding the calendar year in which the Executive's Date of Termination occurs, or if such sum would be greater, with respect to the three (3) calendar years immediately preceding the calendar year of the date of the Change in Control; plus (C) the sum of: (I) the annual value of the contributions that would have been expected to be made or credited by the Employer to, and benefits expected to be accrued under, the qualified and non-qualified 9 employee profit sharing, 401(k), pension and any other benefit plans maintained by the Employer to or for the benefit of the Executive; plus (II) the annual value of the Other Benefits described in Paragraph 6(a) and (c) above. For purposes of subParagraph (C)(I) above, the annual value of the contributions and accruals to or under the employee benefit plans shall be determined on the basis of the actual rate of contributions or accruals, as applicable, and the provisions of the plans as in effect during the calendar year immediately preceding the date of the Change in Control, or if the value so determined would be greater, during the calendar year immediately preceding the Date of Termination. The "annual value" of the executive perquisites described in Paragraph 6(c) for purposes of subParagraph (C)(II) above shall be deemed to equal 7.5% of the annual base salary amount applicable under clause (iii)(A) above. The Executive shall also be entitled to outplacement services for a reasonable period of time as agreed between the Executive and the Employer. Notwithstanding the foregoing, if a Change in Control occurs and this Agreement is terminated prior to the Change in Control pursuant to Paragraph 7(c) by reason of the discharge of the Executive by the Employer other than for Cause, death or Disability or by reason of the resignation of the Executive for Good Reason, then the Executive shall be deemed for purposes of this Paragraph 8(c) to have so terminated pursuant to Paragraph 7(c) immediately following the date the Change in Control occurs if it is reasonably demonstrated by the Executive that such earlier termination was (i) at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose, or the circumstances that precipitated the termination otherwise arose, in connection with or in anticipation of the Change in Control. (d) Effect on Other Amounts. The payments provided for in this Paragraph 8 shall be in addition to all other sums then payable and owing to the Executive, shall be subject to applicable federal and state income and other withholding taxes and shall be in full settlement and satisfaction of all of the Executive's claims and demands. Upon such termination of this Agreement, the Employer shall have no rights or obligations under this Agreement, other than its obligations under this Paragraph 8, and the Executive shall have no rights and obligations under this Agreement, other than the Executive's obligations under Paragraphs 12 and 13 hereof (to the extent applicable); provided, however, termination of this Agreement shall not terminate the obligation of the Executive to pay to the Employer any amounts for which the Executive may be liable to the Employer under any provision of the Sarbanes-Oxley Act of 2002 (including, without limitation, Section 304 of such Act), or any rules and regulations promulgated thereunder, as amended from time to time. (e) Conditions. Any payments or benefits made or provided pursuant to this Paragraph 8 are subject to the Executive's: (i) compliance with the provisions of Paragraphs 12 and 13 hereof (to the extent applicable); 10 (ii) delivery to the Employer of an executed Release and Severance Agreement, which shall be substantially in the form attached hereto as Exhibit A, with such changes therein or additions thereto as needed under then applicable law to give effect to its intent and purpose; and (iii) delivery to the Employer of a resignation from all offices, directorships and fiduciary positions with the Employer, its affiliates and employee benefit plans. Notwithstanding the due date of any post-employment payments, any amounts due under this Paragraph 8 shall not be due until after the expiration of any revocation period applicable to the Release and Severance Agreement. 9. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Paragraph 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Paragraph (c), below, all determinations required to be made under this Paragraph 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the independent public accountants then regularly retained by the Employer (the "Accounting Firm") in consultation with counsel acceptable to Executive, which shall provide detailed supporting calculations both to the Employer and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder) in consultation with counsel acceptable to Executive. All fees and expenses of the Accounting Firm and such counsel shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Paragraph 9, shall be paid by the Employer to the Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise 11 Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any good faith determination by the Accounting Firm shall be binding upon the Employer and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Paragraph (c), below, and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30)-day period following the date on which Executive gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) Give the Employer any information reasonably requested by the Employer relating to such claim, (ii) Take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer, (iii) Cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) Permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Paragraph (c), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner; and the Executive agrees to prosecute such contest 12 to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Paragraph (c), above, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of said Paragraph (c)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to said Paragraph (c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid; and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 10. Dispute Resolution. In the event any dispute arises and the parties after good faith efforts are unable to agree as to the calculation of the amounts payable under this Agreement, it shall be settled in accordance with the majority opinion of a committee consisting of an accountant chosen by the Employer, an accountant chosen by the Executive and an independent accountant acceptable to both the Executive and the Employer, as the case may be. The committee's determination shall be binding and conclusive on the parties hereto. The Employer shall pay all fees and expenses of the dispute resolution. 11. Enforcement. In the event the Employer shall fail to pay any amounts due to the Executive under this Agreement as they come due, the Employer agrees to pay interest on such amounts at a rate equal to the prime rate plus four percent (4%) per annum (as from time to time published in The Wall Street Journal (Midwest Edition)). The Employer agrees that Executive and any successor shall be entitled to recover all costs of successfully enforcing any provision of this Agreement, including reasonable attorneys fees and costs of litigation, if Executive is the prevailing party. 12. Confidential Information. The Executive shall not at any time during or following the Executive's employment with the Employer, directly or indirectly, disclose or use on the Executive's behalf or another's behalf, publish or communicate, except in the course of the Executive's employment 13 and in the pursuit of the business of the Employer or any of its subsidiaries or affiliates, any proprietary information or data of the Employer or any of its subsidiaries or affiliates, which is not generally known to the public or which could not be recreated through public means and which the Employer may reasonably regard as confidential and proprietary. The Executive recognizes and acknowledges that all knowledge and information which the Executive has or may acquire in the course of the Executive's employment, such as, but not limited to the business, developments, procedures, techniques, activities or services of the Employer or the business affairs and activities of any customer, prospective customer, individual firm or entity doing business with the Employer are its sole valuable property, and shall be held by Executive in confidence and in trust for their sole benefit. All records of every nature and description which come into the Executive's possession, whether prepared by the Executive, or otherwise, shall remain the sole property of the Employer and upon termination of the Executive's employment for any reason, said records shall be left with the Employer as part of its property. 13. Non-Competition; Non-Solicitation. The Executive acknowledges that the Employer and its affiliates and subsidiaries by nature of their respective businesses have a legitimate and protectable interest in their clients, customers and employees with whom they have established significant relationships as a result of a substantial investment of time and money, and but for the Executive's employment hereunder, the Executive would not have had contact with such clients, customers and employees. The Executive agrees that during the period of the Executive's employment with the Employer and for a period of one (1) year after termination of the Executive's employment for any reason (the "Non-Compete Period"), the Executive will not (except in the Executive's capacity as an employee of the Employer) directly or indirectly, for the Executive's own account, or as an agent, employee, director, owner, partner, or consultant of any corporation, firm, partnership, joint venture, syndicate, sole proprietorship or other entity which has a place of business (whether as a principal, division, subsidiary, affiliate, related entity, or otherwise) located within the Market Area (as hereinafter defined): (a) engage, directly or indirectly, in any business that provides banking products or services or that otherwise competes in any way with the Employer or any of its subsidiaries or affiliates; (b) solicit or induce, or attempt to solicit or induce any client or customer of the Employer or any of its subsidiaries or affiliates not to do business with the Employer or any of its subsidiaries or affiliates; or (c) solicit or induce, or attempt to solicit or induce, any employee or agent of the Employer or any of its subsidiaries or affiliates to terminate his or her relationship with the Employer or any of its subsidiaries or affiliates. For purposes of this Agreement, "Market Area" shall be an area encompassed within a fifty (50) mile radius surrounding Executive's office as of the Date of Termination of employment. The foregoing provisions shall not be deemed to prohibit (i) the Executive's ownership, not to exceed five percent (5%) of the outstanding shares, of capital stock of any corporation whose securities are publicly traded on a national or regional securities exchange or in the over- 14 the-counter market or (ii) the Executive serving as a director of other corporations and entities to the extent these directorships do not inhibit the performance of the Executive's duties hereunder or conflict with the business of the Employer. 14. Remedies. (a) The Executive acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of Paragraphs 12 and 13 will not cause the Executive undue hardship and that said provisions are reasonably necessary and commensurate with the need to protect the Employer and its legitimate and proprietary business interests and property from irreparable harm. The Executive acknowledges and agrees that (a) a breach of any of the covenants and provisions contained in Paragraphs 12 or 13 above, will result in irreparable harm to the business of the Employer, (b) a remedy at law in the form of monetary damages for any breach by the Executive of any of the covenants and provisions contained in Paragraphs 12 and 13 is inadequate, (c) in addition to any remedy at law or equity for such breach, the Employer shall be entitled to institute and maintain appropriate proceedings in equity, including a suit for injunction to enforce the specific performance by Executive of the obligations hereunder and to enjoin Executive from engaging in any activity in violation hereof and (d) the covenants on the Executive's part contained in Paragraphs 12 and 13, shall be construed as agreements independent of any other provisions in this Agreement, and the existence of any claim, setoff or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense or bar to the specific enforcement by the Employer of said covenants. In the event of a breach or a violation by the Executive of any of the covenants and provisions of this Agreement, the running of the Non-Compete Period (but not of Executive's obligation thereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 12 and 13 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraph 12 or 13 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 15. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (a) upon delivery to the address of such party specified below if delivered personally or by courier; (b) upon dispatch if transmitted by telecopy or other means of facsimile, provided a copy thereof is also sent by regular mail or courier; (c) within forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as certified mail, return receipt requested; or (d) within twenty-four (24) hours after deposit thereof with a reputable overnight courier (charges prepaid), addressed, in any case to the party at the following address(es) or telecopy numbers: 15 (a) If to Executive, at the address set forth on the signature page hereof. (b) If to the Employer: PrivateBancorp, Inc. The PrivateBank (St. Louis) Ten North Dearborn Street Suite 900 Chicago, IL 60602 Attn: Chief Executive Officer Telecopy No.: (312) 683-7111 with a copy to: Vedder, Price, Kaufman & Kammholz 222 North LaSalle Street Chicago, Illinois 60601-1003 Attn: Ms. Jennifer R. Evans Telecopy No.: (312) 609-5005 or to such other address(es) or telecopy number(s) as any party may designate by written notice in the aforesaid manner. 16. Indemnification. (a) In the event that legal action is instituted against the Executive during or after the term hereof by a third party (or parties) based on the performance or nonperformance by the Executive of the Executive's duties hereunder, the Employer will assume the defense of such action by its attorneys or attorneys selected by the Executive reasonably satisfactory to the Employer and advance the costs and expenses thereof (including reasonable attorneys' fees) without prejudice to or waiver by the Employer of its rights and remedies against the Executive. In the event that there is a final judgment entered against the Executive in any such litigation, and Executive is obligated, in accordance with its charter, by-laws, or insurance, to reimburse such entities, the Executive shall be liable to the Employer for all such costs and expenses paid or incurred by them in the defense of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount shall be paid by the Executive within thirty (30) days after rendition of the final judgment. The Employer shall be entitled to set off the reimbursement amount against all sums which may be owed or payable by the Employer to the Executive hereunder or otherwise. The parties shall cooperate in the defense of any asserted claim, demand or liability against the Executive or the Employer or its subsidiaries or affiliates. The term "final judgment" as used herein shall be defined to mean the decision of a court of competent jurisdiction, and in the event of an appeal, then the decision of the appellate court, after petition for rehearing has been denied, or the time for filing the same (or the filing of further appeal) has expired. (b) The rights to indemnification under this Section 16 shall be in addition to any rights which the Executive may now or hereafter have under the charter or By-laws of the Employer or any of its affiliates or subsidiaries, under any insurance contract maintained by the 16 Employer or any of its affiliates or subsidiaries, or any agreement between the Executive and the Employer or any of its affiliates or subsidiaries. 17. Full Settlement; No Mitigation. The Employer's obligation to make the payments and provide the benefits provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employer may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 18. Payment in the Event of Death. In the event payment is due and owing by the Employer to the Executive under this Agreement upon the death of the Executive, payment shall be made to such beneficiary as the Executive may designate in writing, or failing such designation, then the executor of the Executive's estate, in full settlement and satisfaction of all claims and demands on behalf of the Executive, shall be entitled to receive all amounts owing to the Executive at the time of the Executive's death under this Agreement. Such payments shall be in addition to any other death benefits of the Employer and in full settlement and satisfaction of all severance benefit payments provided for in this Agreement. 19. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to Executive's employment hereunder and supersedes and cancels all prior written and oral understandings and agreements with respect to such matters and except for the terms and provisions of any employee benefit or other compensation plans (or any agreements or awards thereunder), referred to in this Agreement, or as otherwise expressly contemplated by this Agreement. 20. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the successors and assigns of the Employer. The Employer shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform this Agreement if no such succession had taken place. Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of the Employer in accordance with the operation of law, and such successor shall be deemed the "Employer" for purposes of this Agreement. 21. Tax Withholding. The Employer shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Employer to or for the benefit of the Executive under this Agreement or otherwise. The Employer may, at its option: (a) withhold such taxes from any cash payments owing from the Employer to the Executive, (b) require the Executive to pay to the Employer in cash such amount as may be required to satisfy such 17 withholding obligations and/or (c) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 22. No Assignment. Except as otherwise expressly provided herein, this Agreement is not assignable by any party and no payment to be made hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or other charge. 23. Execution in Counterparts. This Agreement may be executed by the parties hereto in two (2) or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 24. Jurisdiction and Governing Law. Except as provided in Paragraph 10, jurisdiction over disputes with regard to this Agreement shall be exclusively in the courts of the State of Illinois, and this Agreement shall be construed, interpreted and enforced in accordance with and governed by the laws of the State of Illinois, without regard to the choice of laws provisions of such State. 25. Severability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement. Furthermore, if the scope of any restriction or requirement contained in this Agreement is too broad to permit enforcement of such restriction or requirement to its full extent, then such restriction or requirement shall be enforced to the maximum extent permitted by law, and the Executive consents and agrees that any court of competent jurisdiction may so modify such scope in any proceeding brought to enforce such restriction or requirement. 26. Survival. Provisions of this Agreement shall survive the termination of the Executive's employment with the Employer to the extent provided herein. 27. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 28. Amendment. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. 29. Construction. The language used in this Agreement will be deemed to be the language chosen by Employer and the Executive to express their mutual intent and no rule of strict construction shall be applied against any person. Wherever from the context it appears appropriate, each term stated in either the singular of plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine or neuter. The headings of the Paragraphs of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. 30. No Duplication. Notwithstanding anything herein to the contrary, to the extent that any compensation or benefits are paid to or received by the Executive from the Bank, 18 PrivateBancorp or any other subsidiary of PrivateBancorp or the Bank, such compensation or benefits shall be subtracted from any amounts simultaneously due hereunder from PrivateBancorp and/or the Bank, as the case may be. [Signature Page Follows] 19 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PRIVATEBANCORP, INC. By: /s/ Ralph B. Mandell ------------------------------------- Title: Chief Executive Officer ---------------------------------- THE PRIVATEBANK (ST. LOUIS) By: /s/ Richard C. Jensen ------------------------------------- Title: Chairman and Chief Executive Officer EXECUTIVE Address: __________________________ /s/ Richard C. Jensen ___________________________________ ----------------------------------------- ___________________________________ Name: Richard C. Jensen Telecopy No.:______________________ 20 EXHIBIT A TO EMPLOYMENT AGREEMENT --------------------------------- RELEASE AND SEVERANCE AGREEMENT ------------------------------- THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day of _________, _____ by and between PrivateBancorp, Inc. and its subsidiaries and affiliates (including, without limitation, The PrivateBank (St. Louis)) (collectively, "PBI") and Richard C. Jensen (hereinafter "EXECUTIVE"). EXECUTIVE'S employment with PBI terminated on __________, ______; and EXECUTIVE has voluntarily agreed to the terms of this RELEASE AND SEVERANCE AGREEMENT in exchange for severance benefits under the Employment Agreement ("Employment Agreement") to which EXECUTIVE otherwise would not be entitled. NOW THEREFORE, in consideration for severance benefits provided under the Employment Agreement, EXECUTIVE on behalf of EXECUTIVE and EXECUTIVE'S spouse, heirs, executors, administrators, children, and assigns does hereby fully release and discharge PBI, its officers, directors, employees, agents, subsidiaries and divisions, benefit plans and their administrators, fiduciaries and insurers, successors, and assigns from any and all claims or demands for wages, back pay, front pay, attorneys' fees and other sums of money, insurance, benefits, contracts, controversies, agreements, promises, damages, costs, actions or causes of action and liabilities of any kind or character whatsoever, whether known or unknown, from the beginning of time to the date of these presents, relating to EXECUTIVE'S employment or termination of employment from PBI, including but not limited to any claims, actions or causes of action arising under the statutory, common law or other rules, orders or regulations of the United States or any State or political subdivision thereof including the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act. EXECUTIVE acknowledges that EXECUTIVE'S obligations pursuant to Paragraphs 12 and 13, of the Employment Agreement relating to the use or disclosure of confidential information and non-solicitation of customers and employees shall continue to apply to EXECUTIVE. This Release and Settlement Agreement supersedes any and all other agreements between EXECUTIVE and PBI except agreements relating to proprietary or confidential information belonging to PBI, and any other agreements, promises or representations relating to severance pay or other terms and conditions of employment are null and void. This release does not affect EXECUTIVE'S right to any benefits to which EXECUTIVE may be entitled under any employee benefit plan, program or arrangement sponsored or provided by PBI, including but not limited to the Employment Agreement and the plans, programs and arrangements referred to therein. EXECUTIVE and PBI acknowledge that it is their mutual intent that the Age Discrimination in Employment Act waiver contained herein fully comply with the Older Workers Benefit Protection Act. Accordingly, EXECUTIVE acknowledges and agrees that: A-1 (a) The severance benefits exceed the nature and scope of that to which EXECUTIVE would otherwise have been legally entitled to receive. (b) Execution of this Agreement and the Age Discrimination in Employment Act waiver herein is EXECUTIVE'S knowing and voluntary act; (c) EXECUTIVE has been advised by PBI to consult with EXECUTIVE'S personal attorney regarding the terms of this Agreement, including the aforementioned waiver; (d) EXECUTIVE has had at least twenty-one (21) calendar days within which to consider this Agreement; (e) EXECUTIVE has the right to revoke this Agreement in full within seven (7) calendar days of execution and that none of the terms and provisions of this Agreement shall become effective or be enforceable until such revocation period has expired; (f) EXECUTIVE has read and fully understands the terms of this Agreement; and (g) Nothing contained in this Agreement purports to release any of EXECUTIVE'S rights or claims under the Age Discrimination in Employment Act that may arise after the date of execution. IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above. PRIVATEBANCORP, INC., EXECUTIVE for itself and its Subsidiaries and Affiliates By:___________________________________ _________________________________ Its:__________________________________ Richard C. Jensen A-2 EX-15 7 ex15-0_110303.txt ACKNOWLEDGMENT OF INDEPENDENT AUDITORS EXHIBIT 15.0 ACKNOWLEDGEMENT OF INDEPENDENT AUDITORS The Board of Directors and Audit Committee PrivateBancorp, Inc. We are aware of the incorporation by reference in the following Registration Statements of our report dated November 14, 2003 relating to our review of the unaudited consolidated interim financial statements of PrivateBancorp, Inc. as of and for the three and nine month periods ended September 30, 2003 that is included in its Form 10-Q for the quarter ended September 30, 2003: o Registration Statement (Form S-8 No. 333-104807) pertaining to the PrivateBancorp, Inc. Incentive Compensation Plan and the PrivateBancorp, Inc. Deferred Compensation Plan o Registration Statement (Form S-8 No. 333-43830) pertaining to the PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan and the PrivateBancorp, Inc. Savings and Retirement Plan (formerly known as The PrivateBank and Trust Company Savings and Retirement Plan) o Registration Statement (Form S-8 No. 333-88289) pertaining to the PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan /s/ Ernst & Young LLP Chicago, Illinois November 14, 2003 EX-31.1 8 ex31-1_110303.txt CERTIFICATION OF RALPH B. MANDELL EXHIBIT 31.1 CERTIFICATIONS I, Ralph B. Mandell, Chairman, President and Chief Executive Officer of PrivateBancorp, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PrivateBancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Ralph B. Mandell - ------------------------------------------ Ralph B. Mandell Chairman, President and Chief Executive Officer PrivateBancorp, Inc. EX-31.2 9 ex31-2_110303.txt CERTIFICATION OF DENNIS L. KLAESER EXHIBIT 31.2 CERTIFICATIONS I, Dennis L. Klaeser, Chief Financial Officer of PrivateBancorp, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PrivateBancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Dennis L. Klaeser - ------------------------------------------- Dennis L. Klaeser Chief Financial Officer PrivateBancorp, Inc. EX-32.0 10 ex32-0_110303.txt CERTIFICATION EXHIBIT 32.0 THE FOLLOWING CERTIFICATION IS PROVIDED BY EACH OF THE UNDERSIGNED CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF PRIVATEBANCORP, INC. ON THE BASIS OF SUCH OFFICER'S KNOWLEDGE AND BELIEF FOR THE SOLE PURPOSE OF COMPLYING WITH 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. CERTIFICATION ------------- In connection with the Quarterly Report of PrivateBancorp, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on November 14, 2003 (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Ralph B. Mandell ------------------------------------ Name: Ralph B. Mandell Title: Chairman, President and Chief Executive Officer Date: November 14, 2003 By: /s/ Dennis L. Klaeser ------------------------------------ Name: Dennis L. Klaeser Title: Chief Financial Officer Date: November 14, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission upon request. This certification accompanies the Report and shall not be treated as having been filed as part of the Report. EX-99.1 11 ex99-1_110303.txt INDEPENDENT ACCOUNTANT'S REVIEW REPORT EXHIBIT 99.1 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Audit Committee PrivateBancorp, Inc. We have reviewed the accompanying consolidated balance sheet of PrivateBancorp, Inc. as of September 30, 2003, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the three and nine month periods ended September 30, 2003. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements at September 30, 2003, and for the three and nine month periods then ended, for them to be in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Chicago, Illinois November 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----