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Illinois Banks See Earnings Drag

Here are the 10 largest Illinois banks, along with key metrics as of June 30:

As you can see on the table, eight out of the 10 largest banks and thrifts headquartered in the state were profitable during the second quarter, but the only one to achieve a return on average assets (ROA) exceeding 1% was Morton Community Bank.

The largest bank headquartered in Illinois is Northern Trust Company, the main subsidiary of Northern Trust Corp. (NTRS - Get Report). The bank subsidiary earned $100.1 million during the second quarter, for an ROA of 0.50%. The bank's earnings declined from $112.7 million in the first quarter and $155.5 million in the second quarter of 2010. The quarter-over-quarter earnings decline reflected a $2.7 million provision for loan losses, compared to $9.5 million in transfers from loan loss reserves in the first quarter. The year-over-year earnings decline reflected a large increase in employee compensation expenses, while trading revenue declined.

The second-largest Illinois bank is BMO Harris Bank, NA, which is a subsidiary of Bank of Montreal (BMO - Get Report). The parent company completed its acquisition of Marshall & Ilsley of Milwaukee in July, and is going to merge M&I with Harris NA, in a process expected to take about 18 months.

BMO Harris Bank, NA reported a second-quarter net loss of $13.1 million, compared to a loss of $27 million the previous quarter and earnings of $7.5 million a year earlier. The bank's net interest margin -- essentially the difference between the average yield on loans and securities investments and the average cost of deposits and borrowings -- narrowed, to 1.77% in the second quarter, from 1.84% in the first quarter and 2.35% a year earlier, according to SNL Financial. In comparison, the aggregate net interest margin for all U.S. banks and thrifts during the first quarter was 3.61%, according to the FDIC.

Credit costs continue to place a drag on MBO Harris Bank's earnings, with a second-quarter provision for loan losses of $67.2 million, declining from $67.5 million the previous quarter and $92.1 million a year earlier.

The next largest Illinois institution held by a publicly traded bank holding company is PrivateBank & Trust of Chicago, which is the main subsidiary of PrivateBancorp (PVTB - Get Report). The bank earned $15.7 million during the second quarter, for an ROA of 0.51%. In comparison, the bank earned $16.8 million in the first quarter and $9.7 million in the second quarter of 2010. The holding company owes $243.8 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP.

PrivateBank & Trust's second-quarter provision for loan losses was $31.1 million, declining from $37.6 million the previous quarter and $45.6 million a year earlier.

MB Financial Bank, NA is held by MB Financial (MBFI - Get Report) and is the fifth-largest Illinois bank, with $9.9 billion in total assets as of June 30. The bank earned lost $7 million during the second quarter, compared to earnings of $7.3 million in the first quarter and $20 million in the second quarter of 2010. The bank has expanded through the credit crisis, with six FDIC-assisted acquisitions of failed institutions since the beginning of 2009, including the deposits and dome assets from Corus Bank in September 2009.

The holding company reported a second-quarter net loss to common stockholders of $10 million, or 18 cents a share, mainly reflecting a $61.3 million provision for credit losses, as it sold loans with a carrying value of $281.6 million (prior to their transfer to held-for-sale), including $156.3 million in nonperforming loans. The company received $194.6 million for the loans sold, net of expenses, recognizing $87 million in charge-offs from the sale.

MB Financial owes $196 million in TARP money. After the company announced its second-quarter results, FIG Partners analyst Brian Martin reiterated his "Outperform" rating for the holding company's shares, saying that the second-quarter loan sale went "a long way toward putting an end to MBFI's participation in the credit cycle." Martin's $24 price target for MBFI would be a 68% gain from Friday's closing price of $14.27.

Next is First Midwest Bank of Itasca, with $8 billion in total assets as of June 30. The bank earned $15.6 million in the first quarter, with an ROA of 0.77%, which measures up quite well to Illinois peers. The bank is held by First Midwest Bancorp (FMBI - Get Report), which owes $193 million in TARP money.

The holding company reported second-quarter net income applicable to common shares of $8.1 million, or 11 cents a share, increasing from $5.2 million, or seven cents a share, a year earlier. The provision for loan losses for the second quarter was $18.8 million, declining from $21.5 million in the second quarter of 2010.

Strongest Illinois Banks and Thrifts

Based on second-quarter financial reports, 61 Illinois institutions were assigned "recommended" ratings of B-plus or above by Weiss Ratings:

All of the Illinois banks and thrifts on Weiss's recommended list were strongly capitalized as of June 30, with total risk-based capital ratios exceeding 13.5% and 36 had total risk-based capital ratios exceeding 20% or twice the level most institutions need to be considered well-capitalized by regulators. More than half three quarters of the recommended Illinois institutions had second-quarter returns on average assets exceeding 1% and all but two achieved a first-quarter ROA exceeding 0.75%. In comparison, the aggregate second-quarter ROA for all U.S. banks and thrifts was 0.85%, according to the FDIC.

Thorough Bank Failure Coverage

There have been 73 bank failures so far during 2011, following 157 during 2010.

All bank and thrift closures since the beginning of 2008 are detailed in TheStreet's interactive bank failure map:

The bank failure map is color-coded, with the states having the greatest number of failures highlighted in dark gray, and states with no failures in light green. By moving your mouse over a state you can see its combined 2008-2011 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.

--Written by Philip van Doorn in Jupiter, Fla.

>To contact the writer of this article, click here: Philip van Doorn.

>To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

>To submit a news tip, send an email to: tips@thestreet.com.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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