Taylor Capital Group Inc. in Rosemont, Ill., might have its arms around its commercial real estate problems, but other banks' CRE problems are weighing it down.
The $4.5 billion-asset company seemed to be on the mend in the third quarter, as President and Chief Executive Mark Hoppe happily declared its first profit in 11 quarters. On Friday, the company said it had slipped back into the red after writing down loans to Chicago-area community banks.
With so many small banks dealing with bad assets and scrounging for capital, bank stock loans are having a domino effect. Several lenders have taken substantial hits resulting from bank failures, while others try to be as flexible as possible by issuing forbearance agreements and, in some instances, exchanging the debt for stock.
Hoppe declined to identify borrowers, but that overall market is struggling. At Sept. 30, nearly 20% of the 187 banks based in the Chicago area had a "Texas Ratio" — a statistic comparing problem loans to capital and reserves — above 100%, according to Loan Workout Advisors LLC in Chicago. That level is largely viewed as the threshold for severely troubled institutions.
The company's loan-loss provision was $51.2 million, up nearly threefold from the third quarter while leading the company to miss analysts' consensus estimates by $2.05 a share, according to Thomson Reuters.
For Hoppe, the bigger provision in the fourth quarter hurt, but he is sympathetic. "It was especially frustrating given the progress we are seeing in other areas," he said in an interview Friday.
"But we understand the position our borrowers are in," he said. "They are suffering from the same ills that most of us have."
Though Taylor Capital has its own problem loans — nonperforming assets were $182.4 million at Dec. 31, up 9% from a year earlier — it also has tremendous access to capital. On Friday the company said it had agreed to sell $25 million of stock to investors such as Harrison Steans, a former chairman of LaSalle National Bank; Jennifer Steans, the chairman of USAmeribancorp Inc. in Largo, Fla.; and Tom Brown of Second Curve Capital. Bruce Taylor, the company's chairman, also participated.
That capital and the $9 million the company received late last year largely cancel out the fourth-quarter loss of $38.4 million. Taylor Capital earned $30.7 million in the third quarter and lost $5.9 million in the fourth quarter of 2009.
Small community banks often lack such access, said Justin Barr, the president of Loan Workout Advisers. "Capital-raising successes in the Chicago community banking market have been few and far between," he said.
"There are glimmers of hope that it is improving," Barr added.
Hoppe said Taylor Capital has 14 loans to banks or bank holding companies and that at $93 million they make up 3% of total loans. It stopped making such loans in early 2008. In the fourth quarter, Taylor Capital moved five relationships into nonperforming status, and Hoppe said it is working with its borrowers to find resolutions.
Analysts were encouraged by other improvements in the company's "fix and grow" strategy. Taylor Capital, like several Chicago-area lenders, began a commercial and industrial push in 2008 only to face credit headwinds from its past activities. At Dec. 31 classified and criticized assets were down 25% from a year earlier, to $303.9 million. Revenue jumped 22% from a year earlier, to $44.5 million.
"Trends are going in the right direction outside of this stumble," said Brian Martin, an analyst at FIG Partners LLC.