PrivateBancorp Reports Second Quarter 2016 Earnings

CHICAGO, July 21, 2016 /PRNewswire/ -- PrivateBancorp, Inc. (NASDAQ: PVTB) today reported net income of $50.4 million, or $0.62 per diluted share, for the second quarter 2016, compared to $46.4 million, or $0.58 per diluted share, for the second quarter 2015, and $49.6 million, or $0.62 per diluted share, for the first quarter 2016. Second quarter 2016 results included $6.3 million of costs related to the Company's recently announced transaction with CIBC, which reduced earnings per share by $0.05 on an after-tax basis. For the six months ended June 30, 2016, the Company had net income of $99.9 million, or $1.24 per diluted share, compared to $87.9 million, or $1.10 per diluted share, for the six months ended June 30, 2015.

"Our second quarter results reflect strong client growth, coupled with lower payoffs, which helped drive net loan growth higher this quarter compared to first quarter," said Larry D. Richman, President and Chief Executive Officer, PrivateBancorp, Inc. "Our success in building deep and lasting client relationships led to an 8 percent increase in net income year over year to $50.4 million, with an 11 percent increase in net interest income and a 12 percent increase in noninterest income.

"At the end of the quarter, we announced our strategic transaction with CIBC, a leading Canadian bank that shares our commitment to clients, communities and team members," Richman continued. "We look forward to continuing to execute our strategy with the additional strength and depth of resources CIBC will bring following the completion of the transaction, currently expected in first quarter 2017."

Second Quarter 2016 Highlights

• During the quarter, total loans grew to $14.0 billion, up $1.5 billion from a year ago and $578.1 million from March 31, 2016, driven primarily by activity in commercial and industrial and commercial real estate loans.
• Total deposits were $14.6 billion, increasing $1.2 billion from a year ago and $92.5 million from March 31, 2016. Noninterest-bearing demand deposits grew 22 percent from a year ago, representing 31 percent of total deposits at June 30, 2016, compared to 30 percent at March 31, 2016.
• Net interest margin was 3.28 percent, compared to 3.17 percent for the second quarter 2015 and 3.30 percent for the first quarter 2016.
• Operating profit of $86.1 million benefited from continued growth in earning assets and higher fee income, increasing 12 percent from the second quarter 2015 and 3 percent from the first quarter 2016. Non-interest expense for the second quarter 2016 included $6.3 million of transaction-related costs, which reduced earnings per share by $0.05 on an after-tax basis.
• The provision for loan and covered loan losses was $5.6 million for the second quarter 2016, compared to $2.1 million for the second quarter 2015 and $6.4 million for the first quarter 2016.
• Return on average assets was 1.14 percent and return on average common equity was 11.2 percent for the second quarter 2016.

Operating Performance

Net interest income grew to $142.0 million in the second quarter 2016, increasing 14 percent from the second quarter 2015 and 2 percent from the first quarter 2016, primarily driven by growth in average loans of 10 percent compared to second quarter 2015 and 3 percent compared to the first quarter 2016. The December 2015 interest rate increase also contributed to higher net interest income compared to the prior year period.

Net interest margin was 3.28 percent in the second quarter 2016, up 11 basis points from a year ago and down 2 basis points from the first quarter 2016. Loan yields were slightly higher on a sequential basis, largely reflecting higher loan fees and interest recoveries on previous nonaccrual loans, which contributed 5 basis points in total to loan yields for the second quarter 2016. The level of loan fees tends to be uneven quarter-to-quarter. Excluding the contribution from loan fees and hedging, loan yields continue to compress in the current environment. Securities yields declined 8 basis points from the first quarter 2016, as the low rate environment has accelerated prepayment speeds and reduced yields on securities purchased during the quarter. Higher rates paid on certain money market accounts contributed to a slight rise in deposit costs on a sequential basis.

Noninterest income was $37.1 million in the second quarter 2016, increasing 12 percent from the second quarter 2015 and 10 percent from the first quarter 2016. Treasury management fees were $8.3 million in the second quarter 2016, up 12 percent from the second quarter 2015 and 1 percent from the first quarter 2016, primarily reflecting the onboarding of new commercial clients. Mortgage banking revenue was seasonally stronger, increasing $1.6 million on a sequential basis and reflecting a higher volume of loans sold. Capital markets revenue for the second quarter 2016 reflected a negative credit valuation adjustment (CVA) of $1.0 million, compared to a negative CVA of $1.9 million for the first quarter 2016. Excluding the CVA impact for all periods, capital markets revenue was $6.9 million in the second quarter 2016, declining slightly from the first quarter 2016.

Asset management revenue was $5.5 million in the second quarter 2016, increasing 17 percent from the second quarter 2015 and the first quarter 2016. The addition of a custodial account totaling $2.4 billion late in the first quarter 2016 contributed approximately two-thirds of the increase in asset management revenue on a sequential basis. It is anticipated that this account will be reduced by approximately $1.4 billion by the end of the third quarter 2016 as funds are disbursed or redeployed. Assets under management and administration were $10.7 billion as of June 30, 2016, compared to $7.5 billion a year ago and $9.6 billion at March 31, 2016.

Expenses

Noninterest expense for the second quarter 2016 increased $12.3 million from the second quarter 2015 and $3.7 million from the first quarter 2016. Included in second quarter 2016 non-interest expense were $6.3 million of transaction-related expenses that were largely reflected in professional services expense. The efficiency ratio was 52.2 percent for the second quarter 2016, compared to 51.6 percent for the second quarter 2015 and 51.9 percent for the first quarter 2016. The transaction-related expenses increased the second quarter 2016 efficiency ratio by 340 basis points.

Salaries and benefits expense declined $3.0 million compared to the first quarter 2016, as sequentially lower payroll taxes and benefits expense were partially offset by a full quarter's impact of annual salary adjustments and additional performance-based incentive compensation accruals. Compared to the second quarter 2015, compensation expense increased $5.3 million, largely reflecting additional hires made over the last year and annual salary adjustments.

The effective tax rate for the second quarter 2016 was 36.5 percent, compared to 37.0 percent for the second quarter 2015 and 35.0 percent for the first quarter 2016. The lower tax rate in the first quarter 2016 was primarily attributable to net tax benefits of $1.5 million, largely related to the adoption of a new accounting standard regarding income taxes associated with share-based compensation.

Credit Quality

The allowance for loan losses was $168.6 million, or 1.20 percent of total loans, at June 30, 2016, compared to $165.4 million, or 1.23 percent of total loans, at March 31, 2016. The provision for loan losses was $5.6 million for the second quarter 2016, increasing $3.5 million from the second quarter 2015 and $866,000 from the first quarter 2016. Annualized net charge-offs to average loans were 0.07 percent for the second quarter 2016, compared to 0.05 percent for the second quarter 2015 and the first quarter 2016.

Nonperforming assets were 0.44 percent of total assets at June 30, 2016, compared to 0.42 percent at March 31, 2016. At June 30, 2016, nonperforming loans were $65.4 million, increasing $6.4 million from March 31, 2016. OREO increased $274,000 to $14.5 million at June 30, 2016.

Balance Sheet

Total assets were $18.2 billion at June 30, 2016, compared to $16.2 billion at June 30, 2015, and $17.7 billion at March 31, 2016. Total loans of $14.0 billion increased 12 percent from June 30, 2015, and 4 percent from March 31, 2016. Loan growth for the second quarter 2016 reflected loans to new clients of $421.9 million, payoffs lower than the five quarter average, and higher draws on revolving loans. At June 30, 2016, commercial loans represented 64 percent of total loans compared to 65 percent at March 31, 2016, and commercial real estate and construction loans represented 30 percent of total loans, compared to 29 percent of total loans at March 31, 2016.

Total liabilities were $16.3 billion at June 30, 2016, compared to $14.6 billion at June 30, 2015, and $15.9 billion at March 31, 2016. Total deposits were $14.6 billion at June 30, 2016, increasing 9 percent from June 30, 2015, and 1 percent from March 31, 2016. Noninterest-bearing demand deposits increased $173.7 million from March 31, 2016, representing 31 percent of total deposits at June 30, 2016, compared to 28 percent a year ago and 30 percent at March 31, 2016. Deposit funding was supplemented during the second quarter 2016 by an increase in traditional brokered deposits and short-term borrowings. At June 30, 2016, the loan-to-deposit ratio was 96 percent, compared to 94 percent as of June 30, 2015, and 93 percent as of March 31, 2016. Given the nature of our commercial client base, deposit balances have historically increased in the second half of the year compared to the first half.

Capital

As of June 30, 2016, the total risk-based capital ratio was 12.42 percent, the Tier 1 risk-based capital ratio was 10.66 percent, and the leverage ratio was 10.56 percent. The common equity Tier 1 ratio was 9.70 percent and the tangible common equity ratio was 9.60 percent at the end of the second quarter 2016.

No Quarterly Conference Call

In light of PrivateBancorp's announcement regarding its proposed transaction with CIBC, PrivateBancorp does not intend to conduct an earnings conference call to discuss second quarter 2016 results.

About PrivateBancorp, Inc.

PrivateBancorp, Inc., through its subsidiary The PrivateBank, delivers customized business and personal financial services to middle-market companies, as well as business owners, executives, entrepreneurs and families in all of the markets and communities it serves. As of June 30, 2016, the Company had 34 offices in 12 states and $18.2 billion in assets. The Company's website is www.theprivatebank.com.  

Forward-Looking Statements

Statements made in this press release that are not historical facts may constitute forward-looking statements within the meaning of federal securities laws. Our ability to predict results or the actual effects of future plans, strategies or events is inherently uncertain. Factors which could cause actual results to differ from those reflected in forward-looking statements include:

• the possibility that the transaction with CIBC does not close when expected or at all because required regulatory, stockholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; or the possibility that, as a result of the announcement and pendency of the proposed transaction, we experience difficulties in employee retention and/or clients or vendors seek to change their existing business relationships with us, or competitors change their strategies to compete against us, any of which may have a negative impact on our business or operations;
• uncertainty regarding geopolitical developments and the U.S. and global economic outlook that may continue to impact market conditions or affect demand for certain banking products and services;
• unanticipated developments in pending or prospective loan transactions or greater-than-expected paydowns or payoffs of existing loans;
• competitive pressures in the financial services industry relating to both pricing and loan structures, which may impact our growth rate;
• unforeseen credit quality problems or changing economic conditions that could result in charge-offs greater than we have anticipated in our allowance for loan losses or changes in value of our investments;
• unanticipated changes in monetary policies of the Federal Reserve or significant adjustments in the pace of, or market expectations for, future interest rate changes;
• availability of sufficient and cost-effective sources of liquidity or funding as and when needed;
• unanticipated losses of one or more large depositor relationships, or other significant deposit outflows;
• loss of key personnel or an inability to recruit appropriate talent cost-effectively;
• greater-than-anticipated costs to support the growth of our business, including investments in technology, process improvements or other infrastructure enhancements, or greater-than-anticipated compliance or regulatory costs and burdens; or
• failures or disruptions to, or compromises of, our data processing or other information or operational systems, including the potential impact of disruptions or security breaches at our third-party service providers.

These factors should be considered in evaluating forward-looking statements and undue reliance should not be placed on our forward-looking statements. Readers should also consider the risks, assumptions and uncertainties set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Form 10-Q for the quarter ended March 31, 2016, as well as those set forth in our subsequent periodic and current reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update any of these statements in light of new information, future events or otherwise unless required under the federal securities laws.

Non-U.S. GAAP Financial Measures

This press release contains both financial measures based on accounting principles generally accepted in the United States (U.S. GAAP) and non-U.S. GAAP based financial measures. We believe that presenting these non-U.S. GAAP financial measures will provide information useful to investors in understanding our underlying operational performance, our business, and performance trends and facilitates comparisons with the performance of others in the banking industry. If non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation of the non-U.S. GAAP financial measure to the comparable U.S. GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-U.S. GAAP performance measures that may be presented by other companies.

Editor's Note: Financial highlights attached. Full financial supplement available on the Company's website at investor.theprivatebank.com.

SOURCE PrivateBancorp, Inc.