Banks Continue To Feel Pressure From Housing

First-quarter performance for many lenders continues to reflect the challenges of managing credit weakness, resulting from exposure to the downturn in the residential real estate construction cycle.

Taylor Capital Group Inc. here, the holding company for Cole Taylor Bank, reported a net loss of $3.8 million for the quarter ended March 31, compared with net income of $5.3 million for the first quarter ended March 31, 2007.

The company's net loss was due in large part to an $11.8 million provision for loan losses as well as increased non-interest expense in comparison to prior periods. Taylor Capital hired 30 people and its commercial banking unit has nearly doubled in size since the beginning of this year.

"Talent is the key driver of sustainable growth and profitability, and the changing dynamics in the Chicago market have created a unique opportunity to accelerate growth in our commercial banking business," said Bruce Taylor, chairman and CEO. "The best investment we can make to build market share and long-term value is to expand our staff of high-quality, experienced commercial bankers."

Nonperforming asset expense increased $892,000 during the first quarter, primarily as a result of an $807,000 provision for losses on other real estate. In the first quarter, the company incurred early extinguishment of debt expense of $810,000 for unamortized debt costs relating to brokered certificates of deposit that were called by the company prior to their maturity.

In Honolulu, Central Pacific Financial Corp., parent company of Central Pacific Bank, reported net income for the first quarter of $1.7 million, compared to $20.1 million in the first quarter of 2007. The company saw a net loss of $44.5 million in the fourth quarter of 2007.

The company has experienced the same challenging credit markets in California that are affecting the entire financial sector, said Clint Arnoldus, president and chief executive officer.

"The California residential construction market has been particularly weak and our exposure to this market is reflected in higher provision for loan loss expense in this quarter's results," he said. "We are aggressively pursuing opportunities to reduce our exposure to the California residential construction market."

The sequential-quarter decrease in other operating expense was primarily due to the decrease in the reserve for unfunded commitments, partially offset by higher salaries and employee benefits and the writedown of foreclosed property.

At March 31, nonperforming assets totaled $118.8 million compared to $1.6 million at March 31, 2007 and $61.5 million at Dec. 31, 2007. Nonperforming assets as of March 31, 2008 were comprised of no accrual loans totaling $68.9 million, nonperforming loans classified as held for sale totaling $47.9 million, and other real estate-owned totaling $2 million. The sequential-quarter increase was primarily attributable to the addition of 13 California residential construction loans totaling $76.5 million, partially offset by partial charge-offs of six California residential construction loans totaling $16.4 million. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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