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NEW YORK (TheStreet) -- An analysis of second-quarter data shows that most of the largest banks in Illinois continue to see earnings weakness, but there are many smaller community banks posting strong numbers.

John Rodis, an analyst with FIG Partners, says that "the Chicago real estate market really hasn't turned" yet, although "credit losses are getting a little better."

Another interesting recent event for the Illinois banking scene is a weekend report from Crain's Chicago Business that American Chartered Bank of Schaumburg "landed a $50-million investment from four private-equity firms," including Patriot Financial Partners L.P. of Philadelphia and Endicott Management of New York.

American Chartered had $2.4 billion in total assets as of June 20. Chairman Robert Riter said the bank would use the new capital to repay most of a $37 million loan from

Bank of America

(BAC) - Get Bank of America Corp Report

, while using the rest to fund loan growth and possibly branch acquisitions. The $37 million loan was originated by LaSalle Bank of Chicago, which Bank of America acquired in late 2007.

Brian Martin, a Chicago bank analyst with FIG Partners, says the American Chartered deal shows "there is certainly interest in the Chicago market from some pretty sophisticated investors."

The pace of bank failures in Illinois is slowing, with seven banks in Illinois being shuttered by regulators so far this year, compared to a total of 16 bank closures in the state during 2010.


Federal Deposit Insurance Corp.

announced last week that it had moved up the planned closing of the agency's temporary satellite office in Schaumburg, IL, to Sept. 28, 2012, from the previous plan to shut down the office in the second quarter of 2013. While the FDIC didn't specifically mean that its plan to close the satellite office early meant that the agency expected fewer Illinois bank failures than it previously feared, Rodis says the accelerated wind-down "should mean good things."

Since the current wave of bank and thrift closures began in 2008, Illinois has seen 45 institutions closed by regulators, trailing only Georgia, which has had 70 failures and Florida, which has had 56 bank and thrift closures.

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


per ordinary regulatory guidelines as of June 30 and were included on

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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 JPMorgan Chase & Co. 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.

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 Northern Trust Corporation 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 Bank of Montreal 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



. 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 MB Financial, Inc. 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 First Midwest Bancorp, Inc. 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


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.

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Philip van Doorn


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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 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.