WHEELING, Ill. -- At Cole Taylor Financial Group, timing has been everything.

Cole Taylor Bank At a GlanceParent company Cole Taylor Financial Group Inc.CEO Bruce W. TaylorTotal assets $1.64 billion (9/30)Total loans $1.07 billiontotal C&I $79.4 millionloans (6/30)($1M or less)

The $1.6 billion-asset bank was among the first to take advantage of Illinois branching laws in 1989, letting the company consolidate credit-review functions while expanding beyond unit banking for the first time.

The result: The company had slashed its efficiency ratio to 64% by Sept. 30, from 84% four years earlier.

The consolidation came just in time. After the merger of its back-office functions, the company uncovered loan problems that peaked in 1989 when its bank charged off 0.94% of its average total loans. Nonperforming assets peaked in 1991 at nearly 3% of total loans and repossessed property.

By handling the problems when they appeared, though, the bank was able to get a jump on larger competitors who were just starting to recognize their own problems.

"We were 18 to 24 months ahead of the industry in dealing with our problems," said Bruce Taylor, president and CEO of the company's lead bank. "We were able to develop relationships two to three years ago when the others were dealing with their problems."

An example of that was the bank's push into real estate lending as others were pulling out. cole Taylor developed some lucrative relationships and says it was able to capture nearly 10% of all loans to home builders in the market.

The bank is also taking advantage of turmoil in the market to pick up experienced lenders from competitors. These lenders have brought with them their small-business relationships, something that has helped Cole Taylor boost its commercial and industrial loans of less than $1 million to $74.9 million at midyear.

Despite its recent success, Cole Taylor is not on the growing list of takeover candidates in the fractionalized Chicago market.

"There's a fair amount of consolidation going on in Chicago right now," said Christine Pavel, a banking analyst at Chicago Corp. "Just about every bank in that market, with the exception of Cole Taylor, is a takeover candidate."

The reason: Cole Taylor Financial Group has been trading at more than 200% of book value. Ms. Pavel said the multiple is a function of projections for long-term earnings growth of more than 30%, largely from the company's nationwide used-car finance subsidiary.

Small business banking is also playing a role. The bank has made inroads as a result of internally produced marketing programs. Its "sweat equity" program features television and newspaper ads of Cole Taylor bankers spending a day rolling up their sleeves and working in their customers' businesses.

Once into these businesses, the bank has made good use of the position. "They've used business lending to beef up their retail side by marketing their products to the employees of these companies," said Ms. Pavel, the analyst.

Having grown by competing against some 500 banks in the area, Mr. Taylor thinks the consolidation will ultimately make surviving banks stronger. Meanwhile, though, the newcomers will have it tough.

"I think banks coming into the market don't realize how competitive it is," Mr. Taylor said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.