PrivateBancorp Reports Third Quarter 2011 Results

CHICAGO, Oct. 25, 2011 /PRNewswire/ -- PrivateBancorp, Inc. (NASDAQ: PVTB) today reported net income available to common shareholders of $10.0 million, or $0.14 per diluted share, for the third quarter 2011, compared to $4.5 million, or $0.06 per diluted share, for the third quarter 2010, and $5.5 million, or $0.08 per diluted share for the second quarter 2011.  For the nine months ended September 30, 2011, the Company had net income available to common shareholders of $23.1 million, or $0.32 per diluted share, compared to a net loss of $20.6 million, or $0.29 loss per diluted share, for the nine months ended September 30, 2010.

"Our third quarter results reflected the continued success in attracting new middle market commercial clients and reshaping the composition of our loan portfolio," said Larry D. Richman, President and Chief Executive Officer, PrivateBancorp, Inc.  "We continue to make progress improving asset quality.  We disposed of $115 million of problem assets this quarter and we are seeing improved performance in the portfolio as evidenced by the 20 percent reduction in special mention and potential problem loans.  While total loans outstanding were relatively flat, commercial loans grew by 3 percent and we funded over $500 million in loans to new relationships in the third quarter and more than $950 million year-to-date.  We are pleased with our net interest margin this quarter in the face of a very competitive commercial lending environment."

Third Quarter Results

• Net revenue was $129.4 million, up 5 percent from the second quarter 2011, and operating profit was $54.4 million, up 15 percent from the second quarter 2011.  Net interest margin increased from the prior quarter to 3.49 percent for the third quarter 2011.  
• Non-interest income increased 28 percent from the prior quarter to $27.6 million for the quarter ended September 30, 2011.  Excluding net securities gains of $4.4 million for the third quarter 2011 and $670,000 for the second quarter 2011, non-interest income increased 11 percent from last quarter primarily due to strength in capital markets and mortgage banking activity.  
• As the Company continues to reposition the loan portfolio, commercial and industrial loans have grown 11 percent to 59 percent of the total loan portfolio at September 30, 2011, compared to 52 percent of the portfolio a year ago.  Commercial real estate and construction loans were 33 percent of the total loan portfolio at September 30, 2011, compared to 39 percent of the portfolio a year ago.
• Special mention and potential problem loans decreased 20 percent from June 30, 2011 and non-performing loans declined 8 percent from the prior quarter to $304.7 million.  
• Non-performing assets at quarter-end decreased 7 percent from last quarter to $421.1 million reflecting ongoing progress in resolution activity. Other real estate owned (OREO) declined 6 percent from the prior quarter.  Disposition activity for the quarter included $83.8 million in problem loans and $30.8 million in OREO.

Operating Performance

Net revenue and operating profit results for the third quarter 2011 were favorably impacted by an increase in non-interest income of 18 percent from the third quarter 2010 and 28 percent from the second quarter 2011.  Net revenue was $129.4 million for the third quarter 2011, an increase from $123.2 million in the third quarter 2010 and $122.8 million in the second quarter 2011.  Operating profit was $54.4 million in the third quarter 2011, compared to $55.1 million in the third quarter 2010 and $47.1 million in the second quarter 2011.  Non-interest income included $4.4 million of net securities gains for the third quarter 2011, compared to $3.0 million net securities gains for the third quarter 2010 and $670,000 net securities gains for the second quarter 2011.

Net interest income was $101.1 million for the third quarter 2011, up from $99.0 million for the third quarter 2010 and $100.5 million in the second quarter 2011.  Net interest margin was 3.49 percent for the third quarter 2011, compared to 3.28 percent in the third quarter 2010 and 3.36 percent in the second quarter 2011.  The third quarter 2011 net interest margin benefited from an improved loan mix as higher-yielding commercial and industrial loans replaced commercial real estate exposure and non-performing loan balances.  Additionally net interest margin benefited from an increase in short-term LIBOR during the quarter.  A portion of the net interest margin improvement, approximately 7 basis points, was due to one-time items recorded through interest income during the quarter related to two transactions.  Deposits continued to reprice downward during the quarter, though at a slowing pace, and the Company increased non-interest bearing demand accounts.

Non-interest income was $27.6 million in the third quarter 2011, compared to $23.4 million in the third quarter 2010 and $21.6 million in the second quarter 2011.  Treasury management income increased 14 percent from the third quarter 2010 and 3 percent from the second quarter 2011, reflecting ongoing cross-sell into our new and existing commercial client base.  Trust and investment fee income was up 3 percent from third quarter 2010 and was down 6 percent compared to the second quarter 2011.  The third quarter 2011 trust and investment income was affected by market conditions at the end of the quarter impacting fees earned on assets under management and administration.  Seasonal tax and one-time fees occurring in the second quarter 2011 also led to the decline in trust and investment income compared to last quarter.  Increased client demand, in part due to loan origination activity, drove capital markets revenue to increase to $5.5 million from $3.1 million in the third quarter 2010 and $3.9 million in the second quarter 2011.  The credit valuation adjustment included in capital markets revenue was a negative $1.2 million in the third quarter 2011, compared to a negative $830,000 adjustment in the third quarter 2010 and a negative $573,000 adjustment in the second quarter 2011.  

Mortgage banking income was $1.6 million for the third quarter 2011, compared to $2.8 million for the third quarter 2010 and $704,000 for the second quarter 2011.  Declining mortgage interest rates led to increased refinancing activity in the second half of the third quarter 2011.

Expenses

Non-interest expense was $75.0 million in the third quarter 2011, compared to $68.1 million in the third quarter 2010 and $75.7 million in the second quarter 2011.  Loan and collection costs and net foreclosed property expense continue to be heavily impacted by our work-out activity and the level of non-performing assets and will continue to have some variability as problem credits move through the work-out process.  Third quarter salary and employee benefits expense was flat compared to the prior quarter but was up compared to a year ago primarily due to lower incentive compensation accruals in the third quarter 2010.

The efficiency ratio was 58.0 percent in the third quarter 2011, compared to 55.3 percent in the third quarter 2010, and 61.6 percent in the second quarter 2011.

Credit Quality

Consistent with the Company's expectations, problem assets continued to decline during the quarter.  Continued problem loan disposition activity and ongoing workout efforts drove the reduction in special mention and potential problem loans, down 20 percent compared to last quarter and 51 percent compared to a year ago.  The Company expects these efforts to lead to further asset quality improvement.  Non-performing loans reduced 8 percent and OREO reduced 6 percent from last quarter.  The amount of non-performing loan inflows composed of primarily potential problem loans moving through the workout process were $68.3 million, compared to inflows averaging over $100.0 million for the last four quarters.  Non-performing loan inflows have moderated as expected with the reduction of potential problem loans.  During the quarter, the Company continued to execute a value driven approach to problem asset disposition and disposed of $83.8 million in problem loans and $30.8 million in OREO at a net incremental charge of 18 percent.  During the past three quarters the Company disposed of approximately $300 million in problem assets with a net incremental charge of 14 percent.  

The third quarter 2011 provision for loan losses was $32.3 million, excluding covered loan provision, compared to $40.0 million in the third quarter 2010 and $31.7 million in the second quarter 2011.  At September 30, 2011, the allowance for loan losses was $200.0 million, or 2.31 percent of total loans, compared to $223.4 million, or 2.48 percent of total loans, at September 30, 2010, and $206.3 million, or 2.38 percent of total loans, at June 30, 2011.  The Company's reserve coverage continues to decline in alignment with improved asset quality in the portfolio.  The allowance for loan losses as a percentage of non-performing loans was 66 percent at September 30, 2011, compared to 60 percent at September 30, 2010, and 62 percent at June 30, 2011.  

Net charge-offs were $38.6 million for the quarter ended September 30, 2011, compared to $49.1 million for the third quarter 2010 and $43.7 million for the second quarter 2011.  Net charge-offs remain at an elevated level primarily due to ongoing loan sale and disposition activity.  

Non-performing assets reduced to $421.1 million at September 30, 2011, compared to $462.1 million at September 30, 2010, and $454.4 million at June 30, 2011.  Non-performing assets to total assets were 3.50 percent at September 30, 2011, compared to 3.67 percent at September 30, 2010, and 3.75 percent at June 30, 2011.   Non-performing loans were $304.7 million at quarter-end, down from $371.2 million at the end of third quarter 2010, and $330.4 million at the end of the second quarter 2011. OREO totaled $116.4 million at September 30, 2011, compared to $90.9 million at September 30, 2010, and $124.0 million at June 30, 2011.

Restructured loans accruing interest were $106.3 million at the end of third quarter 2011, compared to $53.4 million at the end of the third quarter 2010 and $124.6 million at the end of second quarter 2011.  The reduction this quarter in restructured loans accruing interest was due primarily to a large transaction that was repaid.  The Company utilizes loan restructuring as a way to maximize economic recovery.

Credit quality results exclude $319.0 million in covered assets as of the end of the third quarter, referring to certain assets acquired through an FDIC-assisted transaction that are subject to a loss-sharing agreement, compared to $419.9 million in the third quarter 2010 and $346.5 million in the second quarter 2011.  

Balance Sheet

The Company continued to reshape the loan portfolio and focus on its commercial middle market expertise growing commercial and industrial loans to 59 percent of the total portfolio and reducing commercial real estate and construction loans to 33 percent of the total loan portfolio. Commercial and industrial loans were $5.2 billion at September 30, 2011, an increase of 11 percent from a year ago and an increase of 3 percent from the prior quarter.  Total loans were $8.7 billion at quarter-end, compared to $9.0 billion at September 30, 2010 and $8.7 billion at June 30, 2011.  Over $500 million in new relationships were funded this quarter.  However, total loans were relatively flat due to the low demand environment, strategic reshaping of the loan portfolio and ongoing workout efforts.  

Total assets were $12.0 billion at September 30, 2011, compared to $12.6 billion at September 30, 2010, and $12.1 billion at June 30, 2011.  Total deposits were $10.1 billion at September 30, 2011, compared to $10.5 billion at September 30, 2010, and $10.2 billion at June 30, 2011.  Total deposits have declined predominantly from a reduction of brokered deposits.  Client deposits were $10.0 billion at the end of the third quarter 2011, compared to $10.1 billion at the end of third quarter 2010, and up from $9.8 billion at June 30, 2011.  Non-interest bearing deposits at September 30, 2011 were 28 percent of total deposits, an increase from 20 percent a year ago.  

The Company's investment securities portfolio was $2.2 billion at September 30, 2011, compared to $2.1 billion at September 30, 2010, and $2.1 billion at June 30, 2011.  Net unrealized gains were $74.2 million, compared to $78.7 million at the end of the third quarter 2010 and $52.7 million at the end of the second quarter 2011.  The securities portfolio is primarily composed of U.S. government agency backed mortgage pools, agency collateralized mortgage obligations, and investment grade municipal bonds.

Capital

As of September 30, 2011, the Company's total risk-based capital ratio was 14.89 percent, the Tier 1 risk-based capital ratio was 12.95 percent, and the leverage ratio was 11.48 percent.  Tier 1 common capital ratio was 8.38 percent and tangible common equity ratio was 7.86 percent at the end of the third quarter 2011.

Quarterly Conference Call and Webcast Presentation

PrivateBancorp will host a conference call on Tuesday, October 25, 2011, at 10 a.m. CT. The call may be accessed by telephone at (888) 782-9127 (U.S. and Canada) or (706) 634-5643 (International) and entering passcode #11922253. A live webcast of the call can be accessed on the Company website at www.theprivatebank.com by visiting the Investor Relations tab under the About Us section. A rebroadcast will be available beginning approximately two hours after the call until midnight on October 27, 2011, by calling (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (International) and entering passcode #11922253.

About PrivateBancorp, Inc.

PrivateBancorp, Inc., through its subsidiaries, 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 we serve.  As of September 30, 2011, the Company had 34 offices in 10 states and $12.0 billion in assets.  The Company website is www.theprivatebank.com.

Forward-Looking Statements

Statements contained 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, but are not limited to: unforeseen credit quality problems or deterioration in asset quality that could result in charge-offs greater than we have anticipated in our allowance for loan losses; adverse developments impacting one or more large credits; the extent of further deterioration in real estate values in our market areas, particularly in the Chicago area; difficulties in resolving problem credits or slower than anticipated dispositions of OREO which may result in increased losses or higher credit costs; continued uncertainty regarding U.S. and global economic recovery and economic outlook, and ongoing volatility in market conditions, that may impact credit quality or prolong weakness in demand for loans or other banking products and services; weakness in the commercial and industrial sector; unanticipated withdrawals of significant client deposits; lack of sufficient or cost-effective sources of liquidity or funding; the terms and availability of capital when and to the extent necessary or required to repay TARP or otherwise; loss of key personnel or an inability to recruit and retain appropriate talent; potential for significant charges if our deferred tax or goodwill assets suffer impairment; unanticipated changes in interest rates or significant tightening of credit spreads; competitive pricing pressures; uncertainty regarding implications of the Dodd-Frank Act and the rules and regulations to be adopted in connection with implementation of the legislation, including evolving regulatory capital standards; other legislative, regulatory or accounting changes affecting financial services companies and/or the products and services offered by financial services companies; uncertainties related to potential costs associated with pending litigation; or failures or disruptions to our data processing or other information or operational systems.  These factors should be considered in evaluating forward-looking statements and undue reliance should not be placed on our forward-looking statements. Forward-looking statements speak only as of the date they are made, and the Company assumes no obligation to update publicly any of these statements in light of future events unless required under the federal securities laws.

Non-GAAP Measures

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures.  The Company believes that these non-GAAP financial measures provide information useful to investors in understanding the underlying operational performance of the Company, its business, and performance trends and facilitates comparisons with the performance of others in the banking industry.  If non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconcilement to the comparable 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 GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Editor's Note: Financial highlights attached.

SOURCE PrivateBancorp, Inc.