Illinois Banks: Strongest and Weakest

ShoreBank is just one of the first institutions likely to be consolidated in the state.
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CHICAGO (

TheStreet

) -- An analysis of the banks and savings and loan associations in Illinois highlights a number of small but strong institutions, along with 15 that had critically high problem loans as of June 30.

Out of 652 banks and thrifts in the Land of Lincoln, 11 were

undercapitalized

per ordinary regulatory guidelines as of June 30, according to data provided by

SNL Financial

. All were included in

TheStreet's

second-quarter

Bank Watchlist

.

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, with data provided by

SNL Financial

:

Nonperforming assets (NPA) include repossessed real estate -- along with nonaccrual loans and accruing loans past-due 90 days or more -- less government-guaranteed balances.

Out of 15 Illinois banks with NPA exceeding 15%, seven had total risk-based capital ratios below 8%, providing a clear indication that additional capital was needed to stave off failure at these institutions.

The largest bank on this list and the one with the most critical need for more capital was

ShoreBank

of Chicago, which failed on Friday, after the table above was prepared. ShoreBank had received wide news and analyst coverage since May, when an investor group including several of the nation's largest banks agreed to provide a $145 million capital infusion, contingent upon the bank receiving $75 million in federal bailout funds. The money was placed in escrow with an August 6 deadline.

Bloomberg

reported on August 5 that the bank had been denied the federal bailout money, following a report by

Fox Business

the previous day that the Neil Barofsky, the inspector general for the Troubled Assets Relief Program, or TARP, was planning to investigate the circumstances leading to the May deal.

After state regulators closed ShoreBank on Friday, the Federal Deposit Insurance Corp. was appointed receiver and sold the failed bank to

Urban Partnership Bank

, a newly formed institution led by ShoreBank's management that had taken over leadership in June. The investor group backing the new bank included

Citigroup

(C) - Get Report

,

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Wells Fargo

(WFC) - Get Report

,

Morgan Stanley

(MS) - Get Report

,

Goldman Sachs

(GS) - Get Report

and

Northern Trust

(NTRS) - Get Report

.

The FDIC released a statement saying that Urban Partnership Bank was the only bidder for ShoreBank, and spokesman David Barr told

TheStreet

that if the FDIC hadn't received the offer from the Urban Partnership group, liquidating ShoreBank could have cost the deposit insurance fund "close to $700 million."

The FDIC also made clear that the investor group select the senior management of the new United Partnership Bank with regulatory approval, and that the "ShoreBank board of directors and executives who presided during the deterioration of the condition of the institution will not be retained," while "new management leading the efforts to save the institution and that did not contribute to the bank's problems will be retained."

Barr also said that Urban Partnership Bank's management would follow ShoreBank's business strategy of "serving underserved low-to-moderate income communities," and would eventually seek to be designated by the U.S. Treasury as a community development bank.

The second-largest bank in Illinois with nonperforming assets exceeding 15% of total assets as of June 30 was

Wheaton Bank & Trust

, which is one of 15 Illinois bank subsidiaries of

Wintrust Financial Corporation

(WTFC) - Get Report

of Lake Forest. The holding company had $13.7 billion in total assets as of June 30 and owed the government $250 million for bailout money received via TARP. Wintrust was considered strong enough for regulators to allow another subsidiary, Northbrook Bank and Trust Company, to acquire the failed

Ravenswood Bank of Chicago

on August 6.

The Largest Illinois Banks

Here are the ten largest banks and thrifts in the state, along with key metrics using the most recent available quarterly data:

The largest bank in the state is

Northern Trust Company

of Chicago, which is the largest subsidiary of

Northern Trust Corp.

(NTRS) - Get Report

. Northern Trust Company achieved a respectable return on average assets of 1.02% for the second quarter and had very strong asset quality, which isn't surprising as lending makes up a small portion of the bank's business, as it focuses on asset servicing and management, fund administration and other fee-generating activities.

The holding company also has a major banking subsidiary in Florida,

Northern Trust, NA

of Miami. Please see

TheStreet's

coverage of

Florida's Strongest and Weakest Banks

for more commentary on the holding company.

The second-largest bank in Illinois is

Harris, NA

, which is held by Cabada's

Bank of Montreal

(BMO) - Get Report

. Elevated provisions for loan losses drove net losses in 2008 and 2009, although the bank was profitable during the first two quarters of 2010. The holding company has served as a source of strength for Harris, NA, has the bank's capital levels have increased considerably over the past year, despite an expanding balance sheet and weak earnings performance.

The next-largest Illinois bank held by a publicly traded holding company is

PrivateBank & Trust

of Chicago, which is a subsidiary of

PrivateBancorp

(PVTB)

. The bank's nonperforming assets were still increasing during the second quarter, to 3.81% of total assets. After three quarters of net losses while it built-up its loan loss reserves, PrivateBank & Trust was able to lower its quarterly loss provision and earn $9.7 million during the second quarter.

PrivateBancorp owes $243.8 million in TARP money, but Howe Barnes Hoefer and Arnett analyst Daniel Cardenas has a buy rating on the shares, with a 12-month target $16, which would be a 41% gain from Friday's closing price of $11.35. Following the holding company's second-quarter earnings release, Cardenas said the company's market valuation below tangible book value was not "fully warranted," and that "robust balance sheet growth will likely return, and FDIC-assisted acquisitions are a possibility."

Strongest Illinois Banks and Thrifts

Based on first-quarter financial reports, 59 Illinois banks and thrifts were rated B-plus (good) or above by Weiss Ratings:

Weiss Ratings uses a conservative ratings model, placing the greatest weight on capital strength, credit quality and earnings stability to assign ratings ranging from A+ (Excellent) to E-minus (Very Weak).

All Illinois institutions with "recommended" ratings by Weiss were strongly capitalized, with 34 having total risk-based capital ratios of at least double the 10% required for most to be considered well capitalized by regulators. All were profitable during the second quarter except for

West Central Bank

of Ashland.

Illinois Bank Failures

There have been 14 bank failures in Illinois so far during 2010, putting the state in second place following

Florida

, which has had 22 and ahead of Georgia, which has had 11 failures this year. Since the current wave of failures began in 2008, Georgia leads with 41 failures, followed by Florida with 38 and Illinois with 37 bank closures.

Please click

here

for a summary of Friday's bank failures.

All previous bank and thrift failures since the beginning of 2008 are detailed in

TheStreet's

interactive bank failure map:

The bank failure map is color-coded, with states having the greatest number of failures highlighted in red, and states with no failures in gray. By moving your mouse over a state you can see its combined 2008-2010 totals. Clicking on a state will open a detailed map pinpointing the locations of the failures and providing additional information about each one.

--

Written by Philip van Doorn in Jupiter Fla.

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.