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) -- While the pace of bank failures has subsided, there are still plenty of reasons for the smallest and weakest of the nearly 600 Illinois banks and thrifts to consolidate.

Key profit centers for community banks have been hit hard, including the "opt-in" requirement for costly ATM and debit card overdraft protection that went into effect in August 2010, and the

Federal Reserve's

final rule based on the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which in October of last year placed a cap on the interchange fees larger banks could charge merchants to process debit card purchases.

While the Durbin rule was only applied to larger banks, the effect has been to lower interchange fee revenue for most banks.

Community banks could soon feel another blow to their overdraft fee revenue, with the Consumer Financial Protection Bureau announcing on Wednesday that it had "launched an inquiry into checking account

overdraft programs

to determine how these practices are impacting consumers," with Director Richard Cordray saying that "overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it."

The CFPB is also focusing on the order in which banks process checks and other transactions, saying that it is concerned with the practice of "commingling of all checks, bill payments, debit card transactions, and ATM withdrawals each day and processing the largest transactions first," which "maximizes the number of transactions that will trigger an overdraft fee."

Despite a high profile $420 million settlement by

Bank of America

in November of a class action lawsuit over the maximizing of checking account overdrafts by processing the largest transactions first on a given day, the issue is still not settled.

According to Frank A. Mayer -- a partner in the Financial Services Practice Group of Pepper Hamilton LLP, in the firm's Philadelphia office -- the Bureau has released "short-term small-dollar lending examination procedures," as a compliment to a "major initiative going on between the Federal Trade Commission, the Justice Department and the Federal Deposit Insurance Corp.," to address overdraft processing, since many smaller community banks use third-party processors, which are at times "operating in a fraudulent manner, without clear authority from the consumer" to process transactions in a way that maximizes overdraft fees.

With so many banks in Illinois, there are bound to be more than a few feeling the pinch as checking accounts become less and less profitable.

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Of course, the banks with the greatest incentive to merge with stronger institutions are the ones still reeling from credit losses.

According to data provided by HighlineFI, there were 19 undercapitalized Illinois banks and thrifts as of Dec. 30 -- which were included on


Bank Watch List

-- not including

Charter National Bank and Trust of Hoffman Estates

, which was shuttered by the Office of the Comptroller of the Currency on Feb. 10, and sold by the Federal Deposit Insurance Corp. to

Barrington Bank & Trust Company, NA

of Barrington, Ill., which is a subsidiary of

Wintrust Financial


of Lake Forest, Ill.

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 Dec 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 institution with the highest level of nonperforming assets as of Dec. 30 was

American Metro Bank

of Chicago, which had roughly $86 million in total assets, with nearly 31% NPA, and was undercapitalized, with a total risk-based capital ratio of 6.77%.

Largest Illinois Banks

JPMorgan Chase Bank NA

(the main banking subsidiary of

JPMorgan Chase


) continues to lead in deposit market share in Illinois, with 15.6% of all deposits in the state as of June 30, 2011, according to the most recent FDIC data. JPMorgan Chase's market share increased from 13.5% a year earlier.


of Chicago, which is the second-largest Illinois bank, with $97.3 billion in total assets as of Dec. 30, moved into a second-place deposit market share of 9% as of June 30, 2011. The bank is held by

Bank of Montreal



Bank of America, NA

, which is the main banking subsidiary of

Bank of America


, slipped to third place, with a 7% deposit market share in Illinois, declining from 9% a year earlier. This was in part because of continued poaching of customers from the former LaSalle Bank, which Bank of America acquired in 2007.

Here are the 10 largest banks headquartered in the state, along with key metrics as of Dec. 30:

The largest Illinois bank is

Northern Trust Co.

of Chicago, which had $99.8 billion in total assets as of Dec 30, and is the largest subsidiary of

Northern Trust Corp.


. Northern Trust Co.'s fourth-quarter return on average assets (ROA) was 0.92%, which is a respectable return in the current environment.

The holding company's shares have returned 11% year-to-date, through Thursday's market close at $43.88. Based on a quarterly payout of 28 cents, the shares have a dividend yield of 2.55%. The shares are costly in the current environment, trading for 1.6 times tangible book value, according to HighlineFI, and for 15 times the consensus 2012 earnings estimate of $2.94 a share. The Consensus 2013 EPS estimate is $3.38.

Interested in more on Northern Trust? See TheStreet Ratings' report card for

this stock


After Northern Trust Co. and BMO Harris, the next largest Illinois bank held by a publicly traded holding company is

PrivateBank & Trust Co.

of Chicago, which had $12.4 billion in total assets as of Dec. 30, and is the main subsidiary of




PrivateBank & Trust's fourth-quarter ROA was 0.62%, and the bank's nonperforming assets ratio was a stubbornly high 4.06% as of Dec. 30, although it improved from 4.55% the previous quarter and 4.47% in the fourth quarter of 2010.

PrivateBancorp's shares closed at $14.70 Thursday, returning 34% year-to-date, following a 23% decline in 2011.

The holding company owes $243.8 million in federal bailout funds received through the Troubled Assets Relief Program in January 2009. During the company's earnings conference call on Jan. 24, PrivateBancorp CFO Kevin Killips said "we have not set a timetable for repaying these funds, but are continuing to evaluate the best timing for us and our shareholders."

PrivateBancorp's shares trade for 1.1 times tangible book value and 23 times the consensus 2012 EPS estimate of 65 cents. The 2013 EPS estimate is $1.02.

Interested in more on PrivateBancorp? See TheStreet Ratings' report card for

this stock


Next is

MB Financial Bank, NA

of Chicago, with $9.8 billion in total assets as of Dec. 30. The bank is held by

MB Financial



The bank subsidiary achieved a fourth-quarter ROA of 0.82%, although its NPA was still rather high at 3.60% as of Dec. 30, improving from 3.85% the previous quarter and 5.62% a year earlier.

The holding company owes $196 million in TARP money and CEO Mitchell Feiger chose his words quite carefully, when trying to soothe investor fears of a possible common equity raise to repay the government, during MB Financial's earnings conference call on Jan. 27.

"We are in the midst of discussions with our regulators about TARP repayment and expect a resolution soon," Feiger said, adding that MBFI was "more committed than ever to a very shareholder-friendly repayment program," and that "our holding company cash amount continues to grow and soon, without issuing equity or borrowing money, that cash amount will be close to the amount necessary to repay our TARP and repurchase our warrants."

The CEO hedged by saying "please don't misunderstand me. Even if we have exactly sufficient funds on hand to repay TARP, we may still need to borrow money because prudence dictates that our holding company needs to keep a certain amount of cash on hand."

MB Financial's shares closed at $20.41 Thursday, returning 19% year-to-date, following a 1% pullback in 2011.

The shares trade for 1.4 time tangible book value and for 14 times the consensus 2012 EPS estimate of $1.48. The consensus EPS estimate for 2013 is $1.72.

Interested in more on MB Financial? See TheStreet Ratings' report card for

this stock


Strongest Illinois Banks and Thrifts

Based on fourth-quarter financial reports, 59 Illinois institutions were assigned "recommended" ratings of B-plus or above by Weiss Ratings:

The list is sorted by rating, and then alphabetically by institution name.

All of the Illinois banks and thrifts on Weiss's recommended list were strongly capitalized as of Dec. 30, with total risk-based capital ratios exceeding 13% and 34 had total risk-based capital ratios exceeding 20% or twice the level most institutions need to be considered well-capitalized by regulators.

Two thirds of the recommended Illinois institutions had fourth-quarter returns on average assets exceeding 1%.

Thorough Bank Failure Coverage

There has only been one bank failure in Illinois this year, following 9 closures in 2011, 16 in 2010, and 21 in 2009.


Federal Deposit Insurance Corp.

will be closing its temporary satellite office in Schaumburg, IL, to Sept. 28, 2012.

Since the current wave of bank and thrift closures began in 2008, Illinois has seen 48 institutions closed by regulators, trailing only Georgia, which has had 75 failures and Florida, which has had 60 bank and thrift closures.

All 423 U.S. 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.

To contact the writer, click here:

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.