Taylor Capital Group Inc. returned to the black in the third quarter, and this time the Chicago company's executives say profitability might be here to stay.

The $4.5 billion-asset company, which has struggled through construction problems since 2008, has been down this road before.

Taylor managed to turn a profit in last year's third quarter, propped up by a gain on the sale of securities. By the next quarter, the company was shaken by credit problems, losing money through the first half of 2011.

This is not a case of deja vu, says Mark Hoppe, the company's president and chief executive.

"We have not lost sight that we made a profit in the third quarter last year . . . but we are fundamentally different from four quarters ago," he said during a conference call Thursday. Hoppe described a handful of reasons that "give us confidence that the third quarter is not a one-time event. There are sustainable trends that will lead us to be profitable in the fourth quarter and in 2012."

Improving credit quality was one of those trends.

Taylor reported that its non-performing assets totaled $150.8 million at Sept. 30, down nearly 12% from a quarter earlier. Also, the company's the pipeline of problem loans subsided, decreasing 14% from a quarter earlier, to $221 million.

Several analysts agreed that the company has likely turned the corner.

"I see credit problems continuing to trend lower with blips here and there," said Brian Martin, an analyst at FIG Partners LLC. "But I do think they finally have their arms around the problems."

As credit problems wane, Taylor's focus on expanding its business lines showed up in higher revenue. The company reported revenue of $51 million, an increase of 11% from a year earlier and up 28% from the second quarter.

In an interview following the conference call, Hoppe said the revenue boost was threefold.

First, the company's net interest margin expanded by 16 basis points from the second quarter and 2 basis points from a year earlier, to 3.21%. The improvement from the second quarter was largely due to repricing on certificates of deposit. Taylor also prepaid some debt, which lowered its funding costs.

The company's start-up mortgage business also boomed during the third quarter, after seeing a dramatic reduction earlier this year. Taylor reported mortgage revenues of $7.5 million, up 237% from the previous quarter and 20% from a year earlier.

"There is a little mini refinance boom going on and that drove a lot of the volume, but we are also growing the footprint of that business, adding new brokers," Hoppe said during Thursday's call. "Certainly, we are taking advantage of the boom, but some of that growth is from our growth."

Hoppe highlighted the company's asset-based lending growth. For instance, that business has gone from 65 clients last year to 100 this year.

The company's executives also projected that fourth-quarter revenue should be strong, if not tempered a bit.

Overall, analysts were pleased with the results, with several congratulating the team on a good quarter during the call. Several analysts also had expressed a level of optimism that was not as prevalent a year earlier.

"I do believe they are fundamentally stronger," Martin says. "The margin is better, credit is better, earnings power is better, they've scaled the business lines. I think it is fair to say that I think their profitability is sustainable."

Analysts said that although Taylor appears to be on solid footing, it must focus its efforts on building common tangible equity. To that end, the company announced Thursday that it would seek to convert $37 million of preferred shares to common equity. The company said in a proxy statement filed with the Securities and Exchange Commission that it is also contemplating a $35 million rights offering.

Christopher McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said in an in interview that while those deals would dilute existing shareholders, the added common equity is sorely needed.

At the end of the third quarter, the company had a tangible common equity ratio of 3.3%. McGratty said Taylor's healthier Chicago peers all have ratios in the 7% to 9% range.

McGratty said that the conversion and the likely rights offering are good steps. McGratty added that he wonders if Taylor might need to take further action.

"Capital is going in the right direction and will continue to grow if they remain profitable," McGratty said. "But the company needs more capital to grow and in the event that things turn down again."

A fear of uncertainty kept Hoppe from referring to the quarter as a breakthrough.

"I don't like using terms like that. It implies that everything is behind us," Hoppe says. "We are working hard, but there is still so much uncertainty in the economy, in Washington. We have to be cautious."

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