Now that PrivateBancorp Inc. has established itself in some of the Midwest's more affluent markets, it is ready to start following its customers to Florida and Arizona, where many of them spend their winters.
The $2.6 billion-asset company was founded in Chicago in 1991 and has expanded to St. Louis, Milwaukee, and Detroit, which it entered last month by acquiring the $338 million-asset Bloomfield Hills Bancorp.
Ralph B. Mandell, PrivateBancorp's chairman, president, and chief executive officer, said that having customers in four major markets gives his company "enough critical mass" to justify expanding outside the Midwest. It plans to do so within the next two years, he said.
"We are in the position now that we can leverage our client base as they start spending more and more time in the Sun Belt," Mr. Mandell said.
When it opened, PrivateBancorp focused on building branches in affluent suburbs of Chicago. In 2000 it made its first acquisition, the $133 million-asset Johnson Bank Illinois, and opened a bank in St. Louis under a separate charter.
Since then it has bought the investment manager Lodestar Investment Counsel LLC and a mortgage banking company, Corley Financial Corp., both of Chicago, started PrivateBank Mortgage Co., and opened a Milwaukee branch.
PrivateBancorp looks for metropolitan markets with a population of at least 1 million and a solid concentration of high-net-worth individuals. Whether it buys or builds its way into new markets will depend on which banks are selling and whether it believes it could do better by finding qualified management and starting a new bank from scratch. For example, it entered Milwaukee by hiring Jay B. Williams, formerly the president of U.B. Bancorp's U.S. Bank, Wisconsin, to build its business in that state.
Unlike many private banks, PrivateBancorp wants to make its money from its net interest margin and not on fee income from wealth management and the like. Mr. Mandell said the overall strategy is to have lifelong relationships with customers so that they think of PrivateBancorp first whenever they need banking services.
"What we want to be prepared to do is provide the product when the client needs its, not when we want to sell it," he said.
PrivateBancorp keeps costs down by having a low head count. It has about 350 employees, including 84 it calls managing directors and who work directly with clients as lenders and personal bankers (on average, banks with assets between $1 billion and $10 billion have about 638 employees, according to Federal Deposit Insurance Corp. statistics). At the end of the first quarter PrivateBancorp's efficiency ratio was 44.95%; its peer group's average was 56.94%.
So far the strategy seems to be working.
Since going public in 1999, PrivateBancorp's total assets have grown from $519 million to $2.6 billion. Assets under management in its wealth management division have grown from $730 million to $1.7 billion. Its return on equity has been around 15% for the past three years and was 15.8% at the end of the first quarter, versus an average of 13.21% for commercial banks in its asset class.
The outlook for banks targeting the wealthy appears strong - especially in Illinois, according to a report issued last week by Kevin K. Reevey, an analyst with Ryan Beck & Co. Inc. of Florham Park, N.J.
The market "has few nimble full-service banks catering to the myriad needs of the Heartland's toniest communities," Mr. Reevey wrote.
PrivateBancorp and the $7.5 billion-asset Wintrust Financial Corp. of Lake Forest, Ill., are two that stand to benefit from these conditions, Mr. Reevey wrote. He noted that Illinois' median income of $51,444 was far above the U.S. median of $46,475 and that Chicago is expected to create $44.5 billion in wealth by 2009.
Others have noticed the opportunities in private banking in Chicago, as evidenced by the creation of the $10.8 million-asset Metropolitan Capital Bank, which opened its doors in January.
Lana Chan, the managing director of bank research at Bank of Montreal's Harris Nesbitt Corp. in New York, said that PrivateBancorp's growth outside of Chicago diversifies its loan portfolio and lets it move into markets where there are even fewer competitors.
"Now they feel they have enough critical mass in the Midwest that they can look at the Sun Belt areas, both coastal Florida and the Phoenix-Scottsdale area," Ms. Chan said.
