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Illinois Banks See Earnings Drag

According to data provided by SNL Financial, nine of the 586 banks and thrifts headquartered in Illinois -- excluding the three that have failed so far during the third quarter -- were undercapitalized per ordinary regulatory guidelines as of June 30 and were included on TheStreet's second-quarter Bank Watch List. Since the Watch List is based solely on capital ratios, we take a different approach on our quarterly coverage of banks in key states, by looking at overall credit quality to identify troubled institutions.

Illinois Banks with Weakest Asset Quality

The following list includes all banks in the state with nonperforming assets comprising more than 15% of total assets as of June 30:

Nonperforming assets (NPA) include nonaccrual loans, loans past due 90 days or more and repossessed assets. Government-guaranteed loan balances are excluded. The ratio of net charge-offs to average loans is annualized. The total risk-based capital ratios needs to be at least 8% for most institutions to be considered adequately capitalized by regulators and 10% for most to be considered well-capitalized. Most of the undercapitalized banks on the above list are operating under regulatory orders to achieve and maintain total risk-based capital ratios higher than 10%.

The list also includes financial strength ratings provided by Weiss Ratings. Weiss Ratings uses a very conservative ratings model, placing the greatest weight on capital strength, credit quality and earnings stability to assign ratings ranging from A-plus (Excellent) to E-minus (Very Weak).

The Illinois bank with the highest level of nonperforming assets as of June 30 was Builders Bank of Chicago, which had an NPA ratio of 36.54%. The institution is operating under a May 2010 Federal Deposit Insurance Corp. consent order, under which Builders Bank agreed to improved oversight by its board of directors and to achieve and maintain a total risk-based capital ratio of at least 13%. That ratio was 12.05% as of June 30. The bank's holding company Builders Financial filed for chapter 11 bankruptcy protection in December.

Largest Illinois Banks

Deposit-gathering in the state is dominated by out-of-market giants, with JPMorgan Chase Bank NA (the main banking subsidiary of JPMorgan Chase (JPM - Get Report)) having a 13.5% market share in Illinois as of June 30, 2010, according to the most recent FDIC data. Second place for in Illinois deposits goes to Bank of America, NA, which is the main banking subsidiary of Bank of America, with a 9% market share.

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