PrivateBancorp Inc. of Chicago announced Thursday that it expects its nonperforming loans to rise this quarter because of the softening real estate market.
The $4.3 billion-asset company said nonperforming assets as a percentage of total assets would be around 0.70% at the end of the period, compared with 0.34% at the end of the first quarter. Related Link
Ralph B. Mandell, PrivateBancorp's chairman, president, and chief executive, said in an interview Thursday that his was not the only bank affected by the real estate market's troubles but that he wanted to inform investors right away in order to be transparent to the market.
"We're not going to be unique in this, by the way. We're just saying this as quickly as we know it," he said.
Mr. Mandell said about half the company's nonperforming loans stem from residential construction. Most of the problems came from St. Louis, but nonperformers were also traced to Chicago, Michigan, and Atlanta, he said. The company also has offices in Milwaukee and Kansas City, Mo.
In the past two years, PrivateBancorp has started a bank in Wisconsin, acquired Bloomfield Hills Bancorp Inc. of Michigan and Piedmont Bancshares Inc. of Atlanta, and opened the Kansas City loan production office. It is applying for a thrift charter for the Kansas City office.
Mr. Mandell said most of the loans were well secured. He said he did not expect a large increase in chargeoffs, and that PrivateBancorp would be able to work out most of the problem loans.
"We are very satisfied with our underwriting and our loan process," he said.
Daniel Cardenas, director of research at Howe Barnes Hoefer & Arnett Inc. in Chicago, said he expected Private to be able to turn the page on this episode.
"They have taken a look at their loan portfolios and scrubbed them pretty well," he said.
Mr. Cardenas said that the market's reaction was not surprising and that Private would have to show it can manage the high level of nonperformers before investors restore its stock to its customary levels. "Even though they have taken a hard look at their credit quality, there is always in the back of the people's minds, Is there something new coming down the pike?" he said.
Private remains in growth mode. In the press release it said that it had 9% annualized loan growth in the first quarter and that it expects second-quarter loan growth of 10%-15%. It also plans to add 10 managing directors, each assigned to manage a client's entire relationship with Private.
Mr. Mandell acknowledged the problems but said the company just needed some time to clear them up.
"It doesn't mean it will all be worked out in the next three weeks or three months, but we believe over the next six months we will be able to bring these nonperformers down," he said.
