In many respects, PrivateBancorp Inc.'s 15-month-old initiative to transform itself into the Chicago region's premier middle-market lender is working. Client deposits grew by $1 billion in the fourth quarter alone, total loans have roughly doubled in the last year, and fee income is soaring.

But after reporting a much-larger-than-expected $62 million fourth-quarter loss Monday — mostly on soured loans to residential developers — the $10 billion-asset company is starting to tap the brakes.

While loan demand remains strong, Larry D. Richman, the president and chief executive, said in a conference call Monday that PrivateBancorp's "risk appetite" is decreasing and that the company would stick to making commercial loans to customers it knows.

PrivateBancorp is approaching business "with an extra dose of caution," Mr. Richman said in a conference call Monday. "We are keenly aware of the current operating environment."

The size of the loss, which amounted to $1.96 per share, spooked investors and caught analysts by surprise.

In very heavy trading, PrivateBancorp's shares plunged 22.2% Monday, to $15.32.

Analysts said that though they had expected the company to record a loss for the quarter, they thought it would be more in line with consensus estimate of around 14 cents. Given the magnitude of the loss and the weakening economy, they said it is wise for PrivateBancorp to slow its commercial and industrial loan growth.

"Our expectation is that the next shoe to drop is going to be commercial business lending and parts of commercial real estate," said Lana Chan, an analyst with Bank of Montreal's BMO Capital Markets Corp. "I don't think that PrivateBank will be immune to that."

The steep loss was driven largely by a $119.3 million loan-loss provision, a twelvefold increase from a year earlier, after an aggressive evaluation of the company's construction lending portfolio.

Nonperforming assets more than tripled from a year earlier, to $155.7 million. More than two-thirds of the nonperformers were in the residential construction portfolio, with the balance divided among commercial real estate, commercial, and industrial and personal loans. The company attributed much of weakness in the residential construction portfolio to further deterioration of real estate conditions in its Michigan and Georgia markets.

Kevin Van Solkema, PrivateBancorp's chief risk officer, said during the call that the company decided to aggressively go through its loan portfolio and take chargeoffs where weakness seemed imminent, rather than "waiting for the problems to come to us."

Despite its asset-quality problems, PrivateBancorp said its loans grew 92%, to $8 billion, from the end of 2007, while total deposits grew 112%, to $7.9 billion.

For the year the company lost $91.5 million, or $3.11 a share, compared with earnings of $11.8 million, or 53 cents a share, in 2007. Not all the loss is attributed to credit quality, however; the company's expenses rose drastically as it hired dozens of former lenders from LaSalle Bank, including Mr. Richman, to execute its plan to become a top middle-market lender. (ABN Amro sold LaSalle to Bank of America Corp. in late 2007.)

PrivateBancorp has said that none of the loans underwritten since the launch of the growth plan have shown any material weakness. But Ms. Chan said those loans are "not fully seasoned, so may not show the same rate of deterioration."

In an interview, Mr. Richman said his company is still seeing significant deal flow but is "looking at everything with a disciplined approach of only underwriting those credits that can pay you back."

Fewer candidates are meeting its underwriting standards, the CEO said. "We are committed to being an active lender, but we are a very prudent lender. We are really following strict underwriting guidelines."

David Long, an analyst with William Blair & Co. LLC in Chicago, said PrivateBancorp's lending standards "remain more stringent than their peers, so that gives me some confidence" in the strength of its loan portfolio.

Also working in PrivateBancorp's favor, analysts said, is that it is well capitalized. Its total risk-based capital ratio at Dec. 31 was 10.32%, and it said Monday that it has received preliminary approval for a $244 million capital infusion from the Treasury Department.

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