Mounting defaults on loans to residential developers led to large second-quarter losses for PrivateBancorp Inc. and Taylor Capital Group Inc., but if there is a silver lining in the two Chicago-area companies' results, it is that both are making good on promises to beef up their commercial and industrial books.
The $7.5 billion-asset PrivateBancorp said that total loans increased 54% during the first half, to $6.4 billion, and that the bulk of the new loans went to commercial borrowers.
Taylor Capital said that commercial and industrial loans increased nearly $200 million, or 46%, in the first half, and that commercial loans made up 38.3% of the portfolio, compared with 33.7% a year earlier.
The companies have expanded their commercial portfolios by taking advantage of the market disruption caused by Bank of America Corp.'s October acquisition of LaSalle Bank Corp. from ABN Amro Holding NV. PrivateBancorp has hired roughly 150 bankers from LaSalle since then, while the $3.7 billion-asset Taylor has hired more than three dozen. Many of the lenders brought books of business with them.
"A unique opportunity exists in the Chicago-area middle market, and we are fortunate to have been able to add the talent to exploit this opportunity," Bruce Taylor, the chairman of Taylor Capital, said Tuesday in a press release.
Still, both companies are wading through problem credits relating to residential construction, and investors seem particularly concerned about Taylor Capital, which said its nonperforming asset ratio was 4.27% of total assets at June 30.
The parent of Cole Taylor Bank reported a second-quarter loss of $25.3 million, or $2.42 a share, compared with a profit of $7.2 million, or 65 cents a share, a year earlier. The Rosemont, Ill., company attributed the loss primarily to a loan-loss provision that grew 318% from the first quarter, to $49.4 million. In the second quarter of last year its provision was $1.9 million.
Taylor Capital's shares plunged 15.2% in heavy trading Tuesday, to close at $6.74.
Also Tuesday, the company announced it intends to raise $50 million of capital by selling preferred stock to an investor team led by Harrison I. Steans, the former chairman of LaSalle Bank Illinois, and his daughter, Jennifer W. Steans, who chairs the year-old USAmeribancorp Inc. in Largo, Fla.
Taylor Capital also said it infused Cole Taylor Bank with $12 million of capital July 18 and suspended its dividend payment for the second quarter.
The capital strengthening is a two-fold tactic, that allows the company to address credit issues with home builders while taking advantage of the opportunity to attract talent to expand the commercial and industrial loan portfolio, Mr. Taylor said in a conference call.
Sluggish sales and falling prices are making it harder for builders to repay their debt, he said. Taylor Capital has scrubbed its portfolio and is "confident in our ability to work through it."
Terry McEvoy, an analyst at Oppenheimer & Co., said that in terms of credit issues, PrivateBancorp is on better footing than many companies of its size. As of June 30 it had $73.1 million of nonperforming assets, or 0.98% of total assets.
That could explain why PrivateBancorp's shares soared 10.4% Tuesday, to close at $28.93.
PrivateBancorp lost $13.3 million, or 48 cents a share, in the second quarter versus a profit of $8.8 million, or 40 cents a share, a year earlier. The loss was at least partially driven by a loan-loss provision that climbed 666.6% from a year earlier, to $23 million, but Mr. McEvoy said that the earnings have been skewed in recent quarters by the expense of adding teams of lenders.
"The big picture here is the strategic growth plan," he said. "This is truly a unique story in Chicago."
Larry Richman, its president and chief executive, said that three quarters of the $2.2 billion of loans it has added this year can be attributed to relationships brought over by new staff members, with the rest coming through referrals.
"All of our loans are to companies and people we know," he said. "We are being very selective in booking new loans with clients. Our approach right now is no strangers."
He added that the company is poised to keep growing in its quest to become the "bank of choice" in Chicago. The company raised $310 million in capital during the second quarter.