The softening Midwest economy is taking a toll on Chicago-area banks.
Taylor Capital Group of Rosemont, Ill., and Midwest Banc Holdings Inc. of Melrose Park, Ill., said their first-quarter earnings fell and worsening credit quality and higher expenses, particularly deposit costs, were partly to blame.
Even a company in the area that posted strong earnings growth, First Midwest Bancorp Inc., of Itasca, Ill., reported higher expenses and a higher loan-loss provision.
Taylor, which has assets of $3.3 billion, had a $3.6 million loan-loss provision, 300% more than a year earlier. That largely explains why earnings fell 40%, to $5.3 million, it said.
Diluted earnings per share also fell 40%, to 48 cents, 18 cents short of analysts' average estimate, according to Thomson Financial.
Taylor's stock plummeted on the news, closing at $31.70 Wednesday, down 13.7%.
Bruce W. Taylor, Taylor Capital's chairman, president, and chief executive officer, said during a conference call that his company increased its loan-loss provision because of concern about a slowdown in residential construction in its markets.
"We felt it was prudent to reflect current market conditions in our evaluation of reserve adequacy," Mr. Taylor said. He said the loan-loss provision accounted for 16 cents of the drop in per-share earnings.
Taylor's net interest income fell 16% from a year earlier, to $22.9 million, and noninterest income fell 27%, to $3.3 million. Deposit expenses jumped 31%, to $23.7 million, due largely to fierce competition in its markets.
Midwest Banc Holdings, which reported earnings Tuesday night, said they fell 26% from a year earlier, to $4.4 million. Diluted earnings per share fell 33%, to 18 cents. Per-share earnings were in line with analyst estimates.
The $2.98 billion-asset Midwest attributed its lower profit to the lackluster economy in its region and the inverted yield curve. Net interest income fell 7%, to $18.4 million.
Midwest's interest expense rose 59%, to $25.7 million; deposit expenses 67%, to $17.9 million; noninterest income 23%, to $3.7 million; and noninterest expense 44%, to $17.1 million.
Midwest has also had credit-quality problems. In the first quarter it had loan-loss provisions of $645,000 related to one large credit. In the year-earlier quarter it made no provision.
Midwest's shares fell 4.1% Wednesday, to close at $16.25.
The $8.2 billion-asset First Midwest said net income rose 13%, to $29 million. Diluted earnings per share rose 5% from a year earlier, to 58 cents, in line with analyst estimates.
First Midwest said it used the sale of lower-yielding securities to reinvest in loans, which led to a 3% increase in net interest income, to $57.4 million.
But much of its earnings growth was from fee income. First Midwest attributed a 34% rise in noninterest income, to $28.7 million, to securities gains; stronger revenue from trust, investments, cards, and service charges; and its May 2006 acquisition of Bank Calumet in Hammond, Ind.
Like its competitors, though, First Midwest reported hefty increases in interest expense up 39%, to $61.2 million and loan-loss provisions, which rose 86%, to $2.96 million.
First Midwest's stock closed at $37.18 per share Wednesday, up 2.5%.
