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April 26
After another tough quarter, PrivateBancorp Inc. appears to be slumping.
The Chicago company said Monday that its loans declined slightly in the first quarter as it struggled to find new qualified borrowers and focused its attention on resolving the troubled loan portfolio that has dogged it in the past two years.
Though PrivateBancorp began tapping the brakes on its plans last year, these results are the first evidence of a halt in growth since the $12.8 billion-asset company embarked on an aggressive expansion plan in late 2007.
"This is very different from the PrivateBancorp we've seen over the last few years," said Christopher McGratty, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "And it suggests that any prospects of near-term earnings are low."
The company said its loss of $24.3 million, compared with earnings of $4.8 million a year earlier, stemmed largely from a $72.1 million provision for loan losses. Its per-share loss of 35 cents was far worse than the 19-cent loss analysts predicted.
The decline in loan growth — a roughly 2% drop from the fourth quarter — is noteworthy given the company's rapid asset growth over the past two years, from $5.1 billion to $12.8 billion.
"Nobody is growing loans right now, so it is not a PrivateBanc-specific issue," said Daniel Arnold, an analyst at Sandler O'Neill & Partners LP. "It is just more pronounced for them because they were a growth story. When the growth stops, it becomes an issue."
The surprisingly large loss sent PrivateBancorp's stock down nearly 13% Monday, closing at $14.86. That erodes much of the gain its shares recorded last week as similarly sized banking companies reported loan improvement, McGratty said.
PrivateBancorp was part of this encouraging trend. As of March 31, its nonperforming assets totaled $442 million, up a mere 1.1% from the fourth quarter.
But its chargeoffs rose 42% from the fourth quarter, to $56.9 million.
The company maintained that its credit problems are easing, as a net $70 million worth of new credits were classified as nonperforming in the first quarter, compared with $100 million in the fourth quarter.
"We are gaining greater visibility into our portfolio, which gives us better insight into the future direction of our loan quality," President and Chief Executive Larry D. Richman said in a conference call Monday. "So while risk remains given the broader economic environment, we expect nonperforming-asset growth to continue to moderate in the second quarter."
Analysts said PrivateBancorp's prospects for returning to sustained profitability are unlikely in 2010.
The bulk of the stress in the portfolio stems from loans made before the company's strategic growth initiative in late 2007 — which focused on commercial and industrial lending in the Chicago area.
Though many of its peers are showing signs of improving credit quality, Arnold said that problems in PrivateBancorp's loan portfolio have been spread out.
The company's first wave of problem credits were in construction and development loans across the country, while this wave is dominated by commercial real estate loans in the Chicago area.
Though analysts applauded the company's efforts to address the problems, PrivateBancorp executives said commercial real estate has proven to be a particularly tough asset class to resolve.
"Unemployment continues to be high with no clear signs that it will change in the short term. As a result, demand for commercial real estate space remains low," Richman said on the call. "Until we see demand increase, rental rates go up and financing resume, it will remain a very illiquid market."
McGratty asked the management team on the call if the lack of loan growth was a result of formal restrictions from regulators. The executives replied that it was self-imposed.
"It's just prudent, selective growth," said Kevin Killips, PrivateBancorp's chief financial officer.
The one bright spot in the company's results, analysts said, was the continued buildup of deposit relationships. Deposits rose 7%, to $10.6 billion; wholesale funding fell to $731 million.
