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Increase in revenues and an impressive credit quality drove PrivateBancorp, Inc. to report yet another strong quarter. Fourth-quarter 2013 earnings per share of 43 cents outpaced the Zacks Consensus Estimate by 3 cents. Moreover, earnings compared favorably with the prior-year quarter figure of 26 cents.

For full-year 2013, PrivateBancorp’s earnings per share of $1.57 came ahead of both the Zacks Consensus Estimate of $1.48 and the prior-year figure of 88 cents. Notably, the company witnessed a positive earning surprise in all four quarters of 2013.

Shares of PrivateBancorp witnessed negative price movement in intraday trading, signifying that investors are not confident with the company’s results. However, this could also be fallout of the negative sentiment running in the market.

PrivateBancorp’s impressive results were driven by increased net interest income, lower expenses and lesser provision for credit losses. Further, improved profitability ratios and a better asset quality were among other positives. However, a decline in non-interest income acted as the headwind for the quarter.

The company’s net income applicable to shareholders of $33.7 million in the reported quarter reflects a significant increase of 68.5% from the year-ago quarter. Also, for 2013 it stood at $122.9 million, marking a solid year-over-year increase of 90.5%.

Performance in Detail

PrivateBancorp’s net revenue in the reported quarter was $136.0 million, up 1% year over year. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $134.0 million.

For 2013, the company’s net revenue stood at $538.3 billion, up 1% year over year. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $530.0 million.

PrivateBancorp’s full-year operating profit increased 14% year over year to 235.0 million owing to reduced costs related to net foreclosed property and share-based compensation.

The company’s net interest income (NII) stood $108.5 million, up 3% from the prior-year quarter. Net interest margin (NIM) improved 2 basis points (bps) to 3.18%.

The company’s non-interest income dropped 9.2% year over year to $26.7 million primarily due to decreased mortgage banking income and syndication fee. Notably, the dismal mortgage market scenario affected the company as well as it witnessed declining mortgage revenue in all four quarters of 2013.

However, non-interest expenses at PrivateBancorp fell 7% year over year to $75.8 million. The decline came on the back of lower foreclosure expenses and share based compensation costs, partly offset by a higher provision for unfunded commitments.

Efficiency rate was 55.7%, down from 60.2% in the year-ago quarter. A decline in efficiency ratio reflects improved profitability.

Assets under management and administration (AUMA) increased 10% year over year to $5.7 billion.

As of Dec 31, 2013 net loans increased 5% year over year to $10.5 billion. However, total deposits fell 1.3% year over year to $12.0 billion.

Credit Quality

Credit quality metrics exhibited a marked improvement with net charge-offs declining 59% year over to $7.3 million in the reported quarter. Provision for loan losses declined 61.1% year over year to $4.9 million.

Further, non-performing assets stood at $122.8 million, reflecting a solid decrease of 44% from the prior-year quarter, while allowance for loan losses as a percentage of total loans declined 25 bps to 1.34% from 1.59% in the year-ago quarter.

Capital Ratios & Profitability Ratios

PrivateBancorp’s capital ratios continued to improve. As of Dec 31, 2013, total risk-based capital increased 13 bps year over year to 13.30% and tier 1 risk-based capital stood at 11.08%, increasing 57 bps year over year.

Return on average common equity came in at 10.28%, an increase of 364 bps from the prior-year quarter. Return on average assets stood at 0.96%, rising 29 bps from 0.67% in the year-ago quarter.

Our Viewpoint

PrivateBancorp’s results reflect an impressive year for the company. Alongside, this Midwest bank is expected to perform well in the upcoming quarters, if it can sustain this trend.

However, we remain cautious as the stressed operating environment, slow economic recovery and a low interest rate environment can put considerable pressure on its top line in the quarters ahead.

PrivateBancorp currently carries a Zacks Rank #3 (Hold).

State Street Corp. (STT - Free Report) is scheduled to report fourth-quarter results on Jan 24, while both KeyCorp. (KEY - Free Report)  and Fifth Third Bancorp (FITB - Free Report) are expected to release results on Jan 23.

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