Following second-quarter 2014 earnings release before the opening bell last Thursday, the shares of PrivateBancorp, Inc. (PVTB) gained 2.0%. The company reported earnings per share of 52 cents, beating the Zacks Consensus Estimate by 18.2% and marking the sixth consecutive earnings beat. Also, the earnings came in higher than the prior-year quarter figure of 37 cents.
Our proven model had rightly predicted that PrivateBancorp will post an earnings beat as it had the right combination of two key ingredients – a positive Earnings ESP and a favorable Zacks Rank #3 (Hold).
Net income applicable to shareholders came in at $40.8 million, up 41.2% year over year.
The stellar performance of PrivateBancorp was driven by an increase in net interest and non interest income, and fall in provision for loan and covered loan losses, and lower non-interest expenses. Credit quality and profitability ratios during the quarter were strong while capital ratios represented a mixed bag.
Performance in Detail
PrivateBancorp generated net revenues of $142.6 million, up 7.4% year over year and above the Zacks Consensus Estimate of $138.0 million. Operating profit grew 20.6% year over year on the back of higher revenues driven by loan growth and lower credit costs.
Net interest income (NII) was $112.4 million, up 8.3% year over year while net interest margin (NIM) decreased 1 basis point to 3.21%.
Non-interest income rose 4.3% year over year to $30.3 million. The rise was mainly due to an increase in treasury management income, syndication fees, net securities gains and loan and letter of credit and commitment fees, partly offset by a fall in asset management income, mortgage banking, capital market products, deposit service charges and fees and other income.
PrivateBancorp recorded a 2.3% year over year decrease in non-interest expenses that came in at $75.5 million. The decline was mainly due to lower net foreclosed property expenses, loan and collection expenses and technology and related costs.
Efficiency ratio was 52.64%, down from 57.85% in the year-ago quarter. A decline in the efficiency ratio reflects improved profitability.
Assets under management and administration increased 17.2% year over year to $6.4 billion.
As of Jun 30, 2014, PrivateBancorp's net loans were $10.9 billion, up 10.5% year over year. Total deposits increased 8.2% year over year to $12.2 billion.
Credit Quality
Credit quality metrics exhibited a marked improvement with net charge-offs dropping 83.8% year over year to $2.3 million. Provision for loan and covered loan losses plunged 96.3% year over year to $3.3 million.
Further, PrivateBancorp's non-performing assets were $96.4 million, reflecting a solid decline of 46.1% from the prior-year quarter; while allowance for loan losses, as a percentage of total loans, fell 15 basis points (bps) to 1.32% from 1.47% in the year-ago quarter.
Capital Ratios & Profitability Ratios
PrivateBancorp’s capital ratios exhibited a mixed performance. As of Jun 30, 2014, total risk-based capital decreased 29 bps year over year to 13.41%, while tier 1 risk-based capital was 11.24%, increasing 20 bps year over year.
Profitability ratios of the company were strong during the quarter. Return on average common equity came in at 11.88%, increasing 260 bps from the prior-year quarter. Return on average assets were 1.14%, rising 28 bps from 0.86% in the year-ago quarter.
Our Viewpoint
Going forward, PrivateBancorp’s strong top-line growth and solid balance sheet position will keep its growth momentum alive.
However, sluggish economic recovery, a low interest rate scenario and various regulatory issues might keep the company’s financials under pressure.
Other Banks
Among other Midwest banks, Associated Banc-Corp (ASBC) reported in-line second-quarter earnings of 28 cents per share.
Huntington Bancshares Incorporated (HBAN) posted earnings of 19 cents per share, beating the Zacks Consensus Estimate by a penny.
Old National Bancorp. (ONB) is scheduled to report on Aug 4.
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