After five consecutive quarters of losses, PrivateBancorp Inc. of Chicago might have expected a more positive reaction to its surprising $4.8 million profit for the first quarter.

Instead, analysts focused on weakening credit quality, saying the $10.4 billion-asset company should have set aside a higher provision for loan losses.

They also said Private — which has raised $650 million from private investors since November 2007 to support an expansion plan — should raise more soon to bolster its tangible common equity ratio.

Larry D. Richman, Private's president and chief executive, described the quarterly results as satisfying on a conference call with analysts Monday. He said the company — which scooped up commercial lenders last year to capitalize on disruption in its hometown — is seeing a payoff in loan and deposit growth. But he acknowledged that the recession is hurting its credit quality. "We know there is still much work to be done," he said.

Private has lost $106.6 million since the fourth quarter of 2007, driven partly by loan troubles and partly by its growth initiative. Though analysts had forecast another loss for the first quarter — on average, they expected Private to lose 2 cents a share, according to Thomson Reuters — its earnings of 14 cents a share left them largely unmoved.

In a research note Monday, Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. in Chicago, attributed the upside surprise to a smaller-than-expected provision.

The provision for loan losses edged up only 4% from a year earlier and fell 85% from the fourth quarter, to $17.8 million. Nonperforming assets increased threefold from a year earlier and 23% from the fourth quarter, to $191.6 million, or 1.85% of assets.

"Credit-quality trends weakened further," Cardenas wrote. Instead of earnings, "investors would have preferred to see additional reserve strengthening."

On the call, analysts asked about the nearly flat provision and whether further chargeoffs might force it higher in coming quarters. Richman would say only that more chargeoffs are likely. "Do I think that we've pulled forward or something like that for chargeoffs from this year? No, I would not say that," he said.

Private has healthy regulatory capital levels. In February it received a $244 million cash infusion from the Treasury Department's Troubled Asset Relief Program.

But analysts cited the tangible common equity ratio as a concern. That ratio has been getting more attention lately as a measure of a company's health, and Private's slipped to 4.58% in the first quarter, below the 5% level that analysts generally consider acceptable.

Private has been looking to preserve capital lately. In March it slashed its dividend 86%, to a penny a share. The company also asked shareholders to approve the conversion of $100 million of preferred shares owned by GTCR Golder Rauner LLC to common equity. Should the plan gain approval, the tangible common equity ratio would increase by 56 basis points, to 5.14%, executives said during the call.

Cardenas wrote that Private could seek additional capital as well and "has enough cachet among investors to do so."

Its stock, which plunged after the company reported fourth-quarter earnings, has rebounded in recent weeks. Since hitting a 52-week low of $9.08 on March 9, it has nearly doubled in value. The stock closed Monday at $17.82 a share.

Richman said on the call that loan growth remains a highlight, but that the pace of the growth has slowed, partly because demand has slackened and partly because the company is being more cautious.

Total loans increased two-thirds from a year earlier, but were up only 6.25% from the fourth quarter, to $8.5 billion.

"The economy has caused many of our clients and potential clients to rethink their needs and in some cases reduce their working capital requirements and put projects and investments on the back burner," Richman said.

The company's net interest income totaled $63.9 million, up 78% from a year earlier. Noninterest income rose threefold to $22.8 million.

In November 2007, the then-$4.5 billion-asset company launched a massive expansion plan, and it has more than doubled its asset size since then. It has hired dozens of lenders from LaSalle Bank, including Richman, to execute its plan to become a top middle-market lender. (ABN Amro sold LaSalle to Bank of America Corp. in late 2007.)

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