After nearly two years of rapid asset growth, PrivateBancorp Inc. in Chicago is expected to have a much slower 2010 as it gets its financial house in order.

The $12.1 billion-asset company announced Monday that it expanded its lending in the fourth quarter by less than 1% from the end of the third quarter. That tiny uptick represents the smallest quarter-to-quarter increase in loans since PrivateBancorp announced in 2007 a plan to establish itself as a premier middle-market lender, primarily in the Chicago market, focused on commercial and industrial loans. Since then, PrivateBancorp has logged a 146% increase in assets.

Yet as PrivateBancorp's problem assets rise and the downturn in the economy has made for less creditworthy borrowers, analysts said the company's growth has come to a standstill. And analysts said the company is likely at least a few quarters away from being profitable again.

"We always knew the growth would moderate, but clearly what is happening now is that the company is pulling back as they realized they have to address those legacy credit issues," said Chris McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.

In a conference call with analysts, Larry D. Richman, PrivateBancorp's president and chief executive, said the company's goals this year include growth, yet he said that focusing on asset quality will be a priority as well.

"We are going to take a more careful and selective growth view," Richman said during the call. "We are sitting in a very challenging environment and we are reacting to that environment."

PrivateBancorp's problem assets stem primarily from construction loans made by a management team that preceded Richman and the dozens of former LaSalle Bank lenders he recruited after ABN Amro's sale of LaSalle to Bank of America Corp. in late 2007. Still, the company reported that 20% of its nonperforming assets were from newer loans.

Analysts said that percentage was to be expected, given the volume of loans written in the past two years as well as the economic conditions.

"Obviously, most of the problems are old, but that always is a convenient way of casting the problems," said Christopher Marinac, an analyst at FIG Partners LLC. "But they are definitely dealing with some new issues, too."

At the end of the fourth quarter, nonperforming assets totaled $436.9 million, up 180% from a year earlier, making up 4.79% of assets. Despite the dramatic year-over-year increase, PrivateBancorp highlighted that nonperforming assets rose 10% from the third quarter. It projects a similar increase for the first quarter.

A slowdown in loan growth is not expected to derail PrivateBancorp's plans to be the bank of choice for companies in Chicago as it turns its attention to building relationships through deposits. PrivateBancorp reported a 55% increase in client deposits compared with a year earlier, bringing that total to $9.3 billion at the end of the fourth quarter.

That growth allowed PrivateBancorp to reduce its reliance on wholesale funding. At the end of the quarter, brokered deposits accounted for 6% of the total deposit base, down from 25% a year earlier and 7% in the third quarter.

"That deposit growth was a real blessing for them this quarter," Marinac said.

PrivateBancorp reported a net loss of $18.6 million for the quarter, narrowing its loss by 70% from a year earlier. For 2009, the company lost $42.5 million, more than halving its loss from 2008.

With two years of losses from credit costs and the start-up costs from its growth strategy, Richman said in the conference call that another goal this year will be to return to profitability. Analysts said that would be a tough feat.

"It's important for them to start getting black ink on the bottom line, instead of red ink," said Peyton Green, an analyst at Sterne Agee & Leach Inc. "I think their focus is to get to that point."

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