Rarely do banking companies feel the need to write their shareholders to explain quarterly results.
But executives at Taylor Capital Group Inc. in Rosemont, Ill., said Wednesday that they wanted to go beyond the usual conference call to offer some perspective on its $80.5 million net loss, the largest of four straight quarterly losses.
The residential construction portfolio continued to weaken, causing a rise in nonperforming loans and chargeoffs, but the exposure to that sector is shrinking, Bruce W. Taylor, the $4 billion-asset company's chairman, said in an interview.
And with a slew of hirings and fresh capital, Taylor Capital is poised to grow, he said. On top of the $120 million of capital it raised during the quarter, it recently applied for $105 million under the Treasury Department's Capital Purchase Program.
"There are a lot of good things happening, despite the economic turmoil, and we want to highlight the progress that has been made in our strategic growth initiative," Mr. Taylor said. "That gets lost occasionally."
The letter Taylor Capital sent to its shareholders also pointed out that $64 million of its loss came from two one-time charges. The company wrote off $47.3 million of deferred tax assets, which executives said it expects to recover eventually. It also had a $16.7 million accounting adjustment related to preferred stock it issued in the quarter.
Taylor Capital, which had earned $7.2 million a year earlier, swung to a loss largely because of a loan-loss provision that increased 1,450% from a year earlier and 6.8% from the second quarter, to $52.7 million.
Eileen Rooney, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., had projected a $13.5 million provision, following the second quarter's "unusually high" $49.4 million provision.
"I expected it to come down, but some new credits have moved on to nonperforming," Ms. Rooney said. "It is a situation that is going to take a long time to work through."
Chargeoffs jumped 1,359% from a year earlier and nearly fivefold from the second quarter, to $39.4 million.
Mark A. Hoppe, the president and chief executive officer of its Cole Taylor Bank, said it is making major inroads in expanding the commercial and industrial loan portfolio. The bank has booked $500 million of commercial and industrial loans this year and has another $300 million in the pipeline. Those loans made up 43% of its total at the end of the quarter, versus 32.8% a year earlier.
The increased commercial business is tied to Taylor Capital's strategic growth initiative, which targets companies with $5 million to $200 million of sales in Chicago. The initiative was launched this year with the hiring of roughly 50 lenders from LaSalle Bank Corp., which sold itself to Bank of America Corp. last year.
The hirings included Mr. Hoppe, who was the CEO of LaSalle Bank Midwest in Troy, Mich., before joining Cole Taylor in the first quarter. John Lynch Jr., a former executive vice president and head LaSalle's metropolitan banking group, became Cole Taylor's vice chairman last month.
The growing commercial loans are “early signals that our strategy is working,” Mr. Hoppe said, and the deposits and fee business drummed up by the initiative are expected to show up in the fourth quarter and the first quarter of next year.
Most of Taylor Capital’s troubles are in its residential construction portfolio. Its nonperforming assets, which have been steadily rising this year, climbed 253% from a year earlier, to $200.7 million as of Sept. 30. The good news, according to Mr. Taylor, is that his company has shrunk its residential construction exposure 20.5% since the end of last year, to $391.1 million.
Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. in Chicago, said that only a few companies have issued shareholder letters attached to quarterly results, and that he understands why Taylor Capital might have done so.
"There is usually some noise in the quarter," Mr. Cardenas said. "If I had to venture a guess, I would say they issued it because of the extraordinary number they lost."
