PrivateBancorp Reports Third Quarter 2016 Earnings

CHICAGO, Oct. 20, 2016 /PRNewswire/ -- PrivateBancorp, Inc. (NASDAQ: PVTB) today reported net income of $48.9 million, or $0.60 per diluted share, for the third quarter 2016, compared to $45.3 million, or $0.57 per diluted share, for the third quarter 2015, and $50.4 million, or $0.62 per diluted share, for the second quarter 2016. For the nine months ended September 30, 2016, the Company had net income of $148.8 million, or $1.84 per diluted share, compared to $133.2 million, or $1.67 per diluted share, for the nine months ended September 30, 2015.

"Our third quarter results reflect our continued focus on consistent execution of our strategy to build long-term client relationships," said Larry D. Richman, President and Chief Executive Officer, PrivateBancorp, Inc. "Net loan growth was $619 million, which helped to drive net interest income to $145.5 million, 11 percent higher than the year-ago quarter, and noninterest income was up over third quarter 2015 to $37.6 million. Third quarter net income of $48.9 million was up 8 percent from a year ago. Overall asset quality remains strong, although we saw higher provision expense this quarter. I am pleased with the momentum in our business as we enter the final quarter of the year.

"We remain on track to close our pending transaction with CIBC, announced in June, by the end of the first quarter 2017 and remain eager for the opportunities this proposed merger presents for both PrivateBancorp and CIBC," Richman continued.

Third Quarter 2016 Highlights

• During the quarter, total loans grew to $14.7 billion, up $1.6 billion from a year ago and $618.8 million from June 30, 2016, driven primarily by activity in commercial and industrial loans.
• Total deposits were $15.5 billion, increasing $1.6 billion from a year ago and $931.5 million from June 30, 2016. Noninterest-bearing demand deposits grew 19 percent from a year ago, representing 31 percent of total deposits at September 30, 2016.
• Net interest margin was 3.18 percent, compared to 3.23 percent for the third quarter 2015 and 3.28 percent for the second quarter 2016. A lower level of loan fees primarily drove the decline in net interest margin on a sequential basis.
• Growth in earning assets continued to benefit operating profit, which increased 19 percent from the third quarter 2015 and 7 percent from the second quarter 2016. On a sequential basis, operating profit also benefited from lower professional services expense, largely related to $6.3 million of transaction-related costs reflected in the results for the second quarter 2016.
• The provision for loan and covered loan losses was $15.7 million for the third quarter 2016, reflecting loan growth and some credit migration, compared to $4.2 million for the third quarter 2015 and $5.6 million for the second quarter 2016.
• Return on average assets was 1.04 percent and return on average common equity was 10.4 percent for the third quarter 2016.

Operating Performance

Net interest income grew to $145.5 million in the third quarter 2016, increasing 11 percent from the third quarter 2015 and 2 percent from the second quarter 2016, primarily driven by growth in average loans of 12 percent compared to third quarter 2015 and 4 percent compared to the second quarter 2016.

Net interest margin was 3.18 percent in the third quarter 2016, declining 5 basis points from a year ago and 10 basis points from the second quarter 2016, primarily related to lower loan yields and, to a lesser extent, security yields. Loan yields decreased 9 basis points compared to the second quarter 2016, largely related to lower loan fees on a comparative basis. Second quarter results included an elevated fee impact from payoffs and interest recoveries on previous nonaccrual loans. The level of loan fees tends to be uneven quarter-to-quarter, dependent on when loans pays off during their term as well as whether early termination fees exist. Loan yields also reflected a continued upwards move in LIBOR over the last two quarters, benefiting loan yields for the third quarter by 3 basis points. Excluding the contribution from loan fees, hedging, and movement in LIBOR, loan yields were stable in the current environment. Securities yields declined 9 basis points on a sequential basis, as the low rate environment has accelerated prepayment speeds and reduced yields on securities purchased during the quarter. A higher Fed funds effective rate contributed to a slight rise in deposit costs on a sequential basis.

Noninterest income was $37.6 million in the third quarter 2016, increasing $6.8 million from the third quarter 2015 and $484,000 from the second quarter 2016. Other income for the third quarter 2016 reflected a $1.3 million gain on sale of a loan. Treasury management fees were $8.6 million in the third quarter 2016, up 8 percent from the third quarter 2015 and 4 percent from the second quarter 2016, primarily reflecting the onboarding of new commercial clients. Mortgage banking revenue increased $1.7 million from the third quarter 2015 and $453,000 on a sequential basis, reflecting a higher volume of loans sold.

Syndication fees of $4.7 million for the third quarter 2016 increased $357,000 from the third quarter 2015 and declined $943,000 from the second quarter 2016, reflecting a somewhat lower volume of deals compared to the sequential quarter. Capital markets revenue for the third quarter 2016 reflected a positive credit valuation adjustment (CVA) of $910,000, compared to a negative CVA of $1.2 million for the third quarter 2015 and $1.0 million for the second quarter 2016. Excluding the CVA impact for all periods, capital markets revenue was $4.5 million in the third quarter 2016, compared to $4.3 million for the third quarter 2015 and $6.9 million in the second quarter 2016. The sequential decline reflected moderated interest rate derivative activity compared to the first half of 2016. Interest rates derivatives activity is significantly influenced by clients' views on the extent and timing of future interest rate movements. Foreign exchange revenue for the third quarter 2016 was comparable to the year ago quarter and on a sequential basis.

Asset management revenue was $5.6 million in the third quarter 2016, increasing 25 percent from the third quarter 2015 and up slightly from the second quarter 2016. Assets under management and administration were $10.0 billion as of September 30, 2016, compared to $7.2 billion a year ago and $10.7 billion at June 30, 2016. Managed assets grew $178.2 million, or 4 percent, on a sequential basis. Custody assets declined by $818.7 million, largely reflecting a continuation of expected outflows from a corporate trust added during the first quarter 2016. It is anticipated that this account will be reduced by approximately $500 million by the end of the year as funds are disbursed or redeployed.

Expenses

Noninterest expense for the third quarter 2016 increased $6.7 million from the third quarter 2015 and declined $2.3 million from the second 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.

Other expenses includes the provision for unfunded commitments, which was $1.9 million for the third quarter 2016, compared to $2.0 million for the third quarter 2015 and $1.4 million for the second quarter 2016. The increase in the provision on a sequential basis primarily reflected growth in unfunded commitments, as well as some credit migration related to unfunded commercial commitments.

The efficiency ratio was 49.9 percent for the third quarter 2016, compared to 52.2 percent for the third quarter 2015 and 52.2 percent for the second quarter 2016.

Credit Quality

The allowance for loan losses was $180.3 million, or 1.23 percent of total loans, at September 30, 2016, compared to $168.6 million, or 1.20 percent of total loans, at June 30, 2016. The provision for loan losses was $15.9 million for the third quarter 2016, increasing from $4.2 million for the third quarter 2015 and $5.6 million from the second quarter 2016. While asset quality remained strong, the provision was higher following several quarters of unusually low credit costs. The increase in the general reserve reflected strong loan growth and some level of credit migration. Higher nonperforming loan levels at September 30, 2016 reflected irregularities with a single lending relationship, which increased specific reserves by approximately $5 million. The provision for loan loss will fluctuate from period to period depending on the level of loan growth and unevenness in credit quality due to the size of individual credits. Charge-offs were elevated on a comparative basis largely related to a single relationship that was identified during the quarter. Annualized net charge-offs to average loans were 0.12 percent for the third quarter 2016, compared to 0.07 percent for the second quarter 2016 and annualized net recoveries to average loans of 0.05 percent for the third quarter 2015.

Nonperforming assets were 0.52 percent of total assets at September 30, 2016, compared to 0.44 percent at June 30, 2016. At September 30, 2016, nonperforming loans were $87.4 million, increasing $21.9 million from June 30, 2016. OREO decreased $2.5 million from June 30, 2016 to $12.0 million at September 30, 2016.

Balance Sheet

Total assets were $19.1 billion at September 30, 2016, compared to $16.9 billion at September 30, 2015, and $18.2 billion at June 30, 2016. Total loans of $14.7 billion increased 12 percent from September 30, 2015, and 4 percent from June 30, 2016. Loan growth for the third quarter 2016 reflected loans to new clients of $456.4 million, payoffs lower than the five quarter average, and higher draws on revolving loans. At September 30, 2016, commercial loans represented 65 percent of total loans compared to 64 percent at June 30, 2016, and commercial real estate and construction loans represented 29 percent of total loans, compared to 30 percent of total loans at June 30, 2016.

Total liabilities were $17.2 billion at September 30, 2016, compared to $15.2 billion at September 30, 2015, and $16.3 billion at June 30, 2016. Total deposits were $15.5 billion at September 30, 2016, increasing 11 percent from September 30, 2015, and 6 percent from June 30, 2016. Deposit growth included an increase in noninterest-bearing demand deposits of $788.7 million from a year ago and $345.6 million from June 30, 2016. Noninterest-bearing demand deposits represented 31 percent of total deposits at September 30, 2016, compared to 29 percent a year ago and consistent with June 30, 2016. At September 30, 2016, the loan-to-deposit ratio was 95 percent, compared to 94 percent as of September 30, 2015, and 96 percent as of June 30, 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 September 30, 2016, the total risk-based capital ratio was 12.41 percent, the Tier 1 risk-based capital ratio was 10.64 percent, and the leverage ratio was 10.43 percent. The common equity Tier 1 ratio was 9.71 percent and the tangible common equity ratio was 9.40 percent at the end of the third quarter 2016.

No Quarterly Conference Call

In light of PrivateBancorp's announcement regarding its pending transaction with CIBC, PrivateBancorp does not intend to conduct an earnings conference call to discuss third 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 September 30, 2016, the Company had 34 offices in 12 states and $19.1 billion in assets. The Company's website is www.theprivatebank.com. On June 29, 2016, PrivateBancorp announced plans to merge with CIBC, a leading Canadian bank. The transaction is expected to close by the end of the first quarter 2017, pending regulatory and stockholder approval and other customary closing conditions.

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 June 30, 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.

Related Links

http://www.theprivatebank.com